Goods and Service Tax is one of the biggest reforms in the Indian tax structure. It’s meant to make the tax structure simple and uniform. End-users need to pay only one indirect tax with all the other indirect taxes being subsumed by a central tax ambit.
Implementation of GST will bring India in line with other developed countries of the world. GST, happens to be the most common method of taxation worldwide. In India, a dual GST system is set to be implemented from 1st July 2017. It will comprise of:
- Central Goods and Service Tax (CGST) is levied by the central government
- State Goods and Service Tax (SGST) is imposed by the state government and
- Integrated Goods and Service Tax (IGST) is charged by both central and state governments on supply of goods and services from state to another
Let’s look how things will work under GST under three different cases:
#Case 1: Sale And Resale In The Same State
Consider goods are moved from Bangalore to Mangalore in Karnataka. Both SGST and CGST will be levied. The collection will be split with the central government and state government.
When the product is resold to Mysore, CGST and SGST will be levied. As the sale price increases, the tax liability also increases. The credit of input SGST and CGST is claimed and the remaining tax amount goes to each government.
#Case 2: Sale In One State, Resale In A Different State
In this case, the product is moved from Bangalore to Mangalore. Since it’s a sale within the state, both CGST and SGST are levied. The collection goes to both governments, just like before.
When the good is resold to Hyderabad from Mangalore, it’s an inter-state movement. So, IGST is levied by the centre. The revenue is shared between both state and centre based on a fixed rate.
In the case of IGST, the entire tax amount goes to the central government. Since the state government doesn’t get any tax from this transaction, the centre compensates this loss to the state.
#Case 3: Sale Outside The State, Resale In The State
Suppose, the goods are moved from Bangalore to Hyderabad. Since this is an interstate movement, IGST is levied by the centre and collection goes to the central government. The centre compensates the state based on a fixed rate.
Now, when the goods are resold from Hyderabad to Warangal. This is in the same state. So, both SGST and CGST is levied and the revenue is shared between the central and state government.
This gives you a basic idea of how the different aspects of GST will work with each other to provide revenue to both the state and central governments, whilst ensuring that no one person is overly taxed.