Goods and Service Tax Rates

By Registrationwala

2nd June 2017


With the recent passage of the Constitution (122nd) Amendment Bill in the Rajya Sabha on August 3rd 2016, Goods and Services tax (GST) has been identified as one of most important tax reform post-independence. It is a tax trigger, which will lead to business transformation for the industry.

Given the enactment of four central GST Bills [i.e. Central GST (CGST), Integrated GST (IGST), Union Territory GST (UTGST) and the bill to Compensate the States] on 12 April 2017, and with the clear road map being laid down for passage of State GST (SGST) laws in the respective State Assemblies, the Government of India seems to be on course to implement GST with effect from 1 July 2017. Till date, eight states have passed the SGST law, while other States are expected to do it by end of May 2017.

The government has constructed a tax rate system keeping in mind the inflation index and the tax rates under the GST are 5%, 12%, 18%, 28% most goods related to the everyday consumer have been levied No tax and would likely see no change in price and some consumer goods have been levied with only 5% tax rate which would only see a small increase in price, this step indicates the government’s efforts to protect the market and provide least discomfort to the ordinary consumers of the Indian economy.

The service sector would be affected the most as the comfort of centralized registration would be divided into state registration which would only increase the burden of the taxpayer who would be required to get registered in every State from where he provides service. The number of filings would increase from 2 to minimum 37 in a year for each registration, considering GSTR-1, GSTR-2, and GSTR-3 are treated as 3 returns. In case Input Service Distributor and Tax Deducted at Source ('TDS') registration are obtained in a state, the number could go up by another 24 filings a year for each registration. The service sector erstwhile was exposed only to the Central Authorities would now have to face the State Authorities as well.

In the manufacturing sector, the factory level Excise and VAT registrations within a State can now be consolidated into a single State-wise registration.

The micro and small sector, enjoying Excise Duty exemption up to 1.5 Crore, shall be heavily impacted as the registration threshold has been brought down to 10 lacs as per the Model GST Act. A composition scheme has been proposed for Taxpayers having turnover up to 50 lacs, which provides for the quarterly filing of returns.

Such composition Taxpayers shall not be eligible for input tax credit and would not be able to issue tax invoices. According to us, not many Taxpayers would wish to remain outside the credit chain. Apart from Composition Taxpayers, quarterly filing relaxation has not been extended to other businesses and hence majority businesses shall have comparatively more filings.

GST is set to revolutionize the world of Indian indirect taxation and Input Tax Credit is one of its key features which will help in eliminating cascading effect of taxes but one of the areas of concern is the online matching of input tax credit and reversal of credit or demand in case of a mismatch.

This process may turn out to be the most irksome part of compliance. Keeping track of mismatches, tallying the same with books of accounts, accounting treatment of the same and dealing with non-compliant vendors may require a team in itself.

Problems similar to TDS return filing in Income Tax may be expected during initial years. With monthly matching of details and GST compliance rating being made available, compliant Taxpayers would surely be preferred as business partners.

Overall it can be stated that the GST tax rate may stabilize the prices of goods in the market though goods may not become cheaper in the long run the goods will have a stable and competitive price. On one hand the GST rate has provided the average consumer with a stable and moderately priced market it has increased the tax burden on the manufacturer and service sector who will be expected to comply with the new tax regime which will mostly be online which may be an ordeal to people and business which lack such digital infrastructure and knowledge.


Goods and Service Tax Rates