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The Goods and Services Tax Bill – A law in the making

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The Good and Services Tax (GST) is the most revolutionary tax reform of India since independence. It was brought by the 122nd Amendment Bill to the Constitution and has now been passed by both the houses of the parliament. But one might ask what is GST and what will be the benefits of it? In this post we will try to explore the answers to these questions.

GST, as the name suggests, will be a tax levied both on goods (manufacturing) and services. GST will replace most indirect taxes with one tax thus unifying the market in India. The GST will have a dual structure with- a Central component levied and collected by the Centre and a state component which will be administered by the State.  The taxes collected will be shared equally be each of them.

So what are the benefits of GST?

  • Tax Evasion becomes hard: With a robust IT system to be the foundation of the GST regime in India, it will be difficult for the traders and the manufactures to avoid taxes.
  • Uniform Tax Rates and Structures: GST seeks to have a common indirect tax rate and structure across the country, thus increasing certainty and ease of doing business.
  • Free Movement of Goods: GST will help in creating a single unified market thus helping the free flow of goods thus benefitting e-commerce companies.
  • Elimination of Double Taxation: One of the main objective of the GST is to eliminated the problem of double taxation i.e. Cascading effects of taxes on production and distribution cost of goods and services (taxes on taxes till the product reaches the final consumer).

While it will help in boosting the economy with governance being made easy and with certainty in the tax scheme, consumers might have to shell out more money for certain goods.  The following will have effects on a common man:

  • Eating out at restaurants will get expensive. Currently one pays around 18.5% of tax including service tax and VAT but with GST the rate will be fixed at 20% approximately.
  • Phone bills are expected to become expensive as the states are expected to decide on service taxes which is presently 15 %. With GST the rate is expected to be fixed at around 18%.
  • Car rates are expected to drop as currently along with service tax and VAT the rate of final tax comes somewhere around 25% but with GST the rate is expected to be fixed at 18%.
  • Under-Construction apartments will cost more but prices of completed apartment will remain the same. Under the GST, cost of the under-construction apartment will be treated as value of services that the developer is going to deliver to you and will be taxed at the prevailing rate.
  • Ready-made garments will become cheaper as the effective excise duty and VAT will be subsumed in the GST slab thus reducing the tax rate of 12.5% to 12% if GST is kept at this rate.

With all this features of the GST bill, it is truly the biggest change India is going to see in its tax structure. While there may be a lot of advantages and disadvantages of the bill nevertheless it is going to unify India into a common market thus helping in the ease of doing business and promote export of products.

 

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