GST in India

August 3rd, 2016 will be recorded as a red letter day in the history of Indian taxation due to the near unanimous passage of 122ndConstitutional Bill in Rajya Sabha, paving the way for roll-out of GST (Goods and Services Tax) in India from 1st of April 2017. Goods and Service Tax Bill has significantly evolved over the past decade and is touted as the single largest tax reform in India since independence. It is estimated to boost GDP by 1.5 to 2%. ‘One India, One Tax’ will be the new reality with GST subsuming over ten indirect taxes and making India a common market. Apart from elimination of cascading effect, the benefits of simplified compliance, technological backing and uniform process across India will contribute significantly to ‘Ease of doing Business’. However, the success of a business will significantly depend on the ability to understand and adopt to this new reality as certain existing business practices will have to undergo changes.

Goods and Services Tax is a comprehensive tax levied on supply of goods and services across India. GST (Goods and Services Tax) is a Destination based Consumption tax, and the taxable event is Supply as against the existing taxable events of sale, manufacture or provision of service. Draft Model GST Law was made public in June 2016, and the government has sought public opinion on the same. It is high time that businesses, industry/trade bodies, professional associations and the like provide valid inputs at an early date, and ensure the final GST Law addresses all the concerns  to make the transition smooth.

Background Of the GST

The indirect taxation regime in India has undergone many transformations over the past 5 to 6 decades. Introduction of MODVAT scheme in 1986, fungibility of credit between Excise and Service Tax (2004), rollout of VAT (2005 onwards) have over the years increased transparency in tax administration, reduced hassles to tax payers, and eliminated the cascading effect, thus benefitting the consumer. However, the federal structure of India has resulted in tax being administered by both Centre and State. Lack of facility to utilize credits across these two entities has resulted in partial cascading still being left in the system. Added to this, the burden of compliance has also increased due to involvement of multiple agencies. GST precisely addresses these concerns by driving uniformity across India through a single tax and ensuring an unrestricted flow of tax credit. Conceptually, GST is similar to VAT, meaning tax will be applied only on the value addition at each point in the supply chain.