With an aim of simplifying tax structure in India, GST proposes to remove the geographical obstacles for trading, and transforming the entire nation to ‘One Common Market Place.’ While it is believed that the ‘One Nation- One Tax’ regime is paving path towards a better economy of our country, questions related to how is this reform going to be any better than the earlier tax transformations India has seen over the past years (VAT-Service Tax-Excise), is a matter of concern. How is the new tax structure going to effect the consumer and the impact it will have on various sectors? We de-code this myth by listing down key differences between GST and the previous tax structure.
1. Broad scheme
Previously, there were separate laws for separate levy. For instance, Central Excise Act, 1944, respective State VAT laws etc. With GST regime, there will only be one such law, as GST will subsume various indirect taxes.
2. Tax Rates
The previous tax regime had separate rates, such as, Excise @ 12.36 % and Service Tax @ 14%. With GST, there is only one CGST rate and a uniform rate of SGST across all states.
3. Cascading Effect
Credit of CST and various other indirect taxes isn’t allowed in the previous tax structure, whereas under GST the entire concept of CST has been eliminated with introduction of IGST.
4. Tax burden on Tax Payer
Previously the tax burden on tax payer was considerably high. With GST on board, tax burden has reduced significantly since all taxes are integrated, and the burden is split equitably between manufacturing and services.
5. Cost Burden on Consumers
Certain taxes became part of cost due to presence of cascading effect. But, with the simple mechanism of GST, cost burden has reduced by removing such effect and providing credit.
6. Concurrent Power
Pre-GST, there was no such power to both Centre and State on same subject tax matter. With GST on board, both Centre and State are vested with the concurrent power to make laws with respect to goods and services tax, as proposed in Article 246A of the Constitution. The intra-state trade now comes under the jurisdiction of both centre and state; while inter-state trade and commerce is “exclusively” under central government jurisdiction.
Previously, tax compliance was complicated owing to the multiplicity of laws and their provisions to be followed. With GST, tax compliance would be much easier, as only one law subsuming other taxes would need to be followed.
8. Transparent Tax Administration
Previously, tax was levied at two stages in broad manner production and consumption, i.e., when product moves out of factory. and also at retail outlet. GST is to be levied only at final destination of consumption and not at various points. This brings more transparency and corruption free tax administration.
Take a look at the graphic mentioned below. It highlights the fundamentals of GST, a dual concept tax system. Under this system, tax is administered, collected, and shared by both the Centre and the State governments, based on the nature of transaction (within the state or interstate).
The tax components of GST:-
CGST – Central GST is referred as CGST, applicable on supplies within the state. Tax collected will be shared to Centre.
SGST – State GST is referred as SGST, applicable on supplies within the state. Tax collected will be shared to State.
UTGST – Union Territory GST is referred as UTGST, applicable on supplies within the union territory. Tax collected will be shared to State.
IGST – Integrated GST is referred as IGST, applicable on interstate and import transactions. Tax collected is shared between Centre and State.
The Indirect Tax Structure pre-GST:-
All the above mentioned indirect taxes have been subsumed to bring about a new tax reform – Goods and Services Tax (GST). Whether you are a Buyer or supplier, GreenGST helps you file and reconcile taxes with absolute ease.
What is GreenGST?
It is one of the best GST-ready accounting software that you will find in the market. While it meets all the above mentioned characteristics of an ideal GST software, it also ensures 100% accuracy in your business’ inventory management, supply chain management, accounting and finance management work. GreenGST is a cloud-based software, that is armed with a team of experts from Moglix – a hub of supply chain and operations. Together we are here to serve businesses, devoted to manage all your tax work and make your lives very serene, very green.