“A Study on the Impact of GST on Service Sector of Indian Economy”

Research Project Report

Submitted to

Veer Bahadur Singh Purvanchal University, Jaunpur

In partial fulfilment of the requirements of the degree of

BACHELOR OF BUSINESS ADMINISTRATION

Submitted by Under the Supervision of:

Bhanu Kumar Mr. Rahul Anand Singh
BBA 6th Semester Assistant Professor
Roll No: 16180020 Department of Business Administration
Enrolment No. PU16/631

2019

Technical Education & Research Institute

Post-Graduate College, Ravindrapuri
Ghazipur-233001
 INTRODUCTION

Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is

levied on every value addition. In simple words, Goods and Service Tax is an indirect tax levied

on the supply of goods and services. GST Law has replaced many indirect tax laws that

previously existed in India. Earlier, various indirect taxes were levied and collected at different

point in the supply chain. The centre and the states were empowered to levy respective taxes as

per the Constitution of India. The Value Added Tax (VAT) when introduced was considered to

be a major improvement over the pre-existing Central excise duty at the national level and the

sales tax system at the State level. But now, GST would be levied with the propaganda of “One

Nation One Tax” and is collected at each stage of sale or purchase of goods and services.

Purpose of GST in India is efficient tax collection, reduction in corruption, easy inter-state

movement of goods etc.

In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee Government

in 2000. A task force that was headed by Vijay L. Kelkar the advisor to the finance ministry,

indicated that the existing tax structure had many issues that would be mitigated by the GST

system. In 2005, The finance minister, P. Chidambaram, said that the medium-to-long term goal

of the government was to implement a uniform GST structure across the country, covering the

whole production-distribution chain. In 2009, Pranab Mukherjee, the new finance minister of

India, announced the basic skeleton of the GST system. In February 2015, Jaitley, in his budget

speech, indicated that the government is looking to implement the GST system by 1 April

2016.In May 2015, The Lok Sabha passes the Constitution Amendment Bill.
Implementation Of Gst

VAT was no doubt a success but still some short coming were there in the structure of tax

levying methods both at the State and the Central level. Government of India’s CENVAT had the

shortcoming of nonincluding several taxes in the overall frame work. The present VAT scheme

at the State level includes CENVAT on the goods loads leading to cascading effect of CENVAT

element. Normally any goods produced will be valued on the basis of physical input and services

drawn upon, so there must be an integration of VAT on the goods taxed on the services at the

State level and the same should be taxed in such a way that it should not lead to cascading effect

on service tax. Further, removal of cascading effect, tax layers and simplified structures, the GST

would encourage acquiescence and also expected to widen the tax base. But almost all media

reports state that the GST tax reform has the potential to enhance the India’s GDP at least by 2%.

In comparison to pre-existing Central and State tax system to VAT a considerable improvement

has been observed. GST is a further step to simplify the tax system, a comprehensive tax system

with higher significance inclusive of all the taxes at State and Central level. 6.2 per cent to 9.4

per cent increase in the revenue rate is expected is the assumption of leading researchers. The

revenue-neutral rate is the rate for GST that will not make a net difference to the overall tax

collection of centre and states”.

Features of GST

The GST Framework could easily be one of the most important tax reforms to be tabled for

discussion in the Parliament. It does bring with some problems, like division of taxation power

between Centre and State. The GST will be applicable on the basis of Destination principle. So
the GST has two components:-“One levied by Centre (hereinafter referred to as Central GST)

and the other levied by the States (here in after referred as State GST) However, the basic

features of law such as chargeability, definition of taxable event and taxable person, measure of

levy including valuation provisions, basis of classification etc. will be uniform across these

statutes as far as practicable.

The GST would be levied in 3 different forms.

Impact of GST on Service Providers

As of March 2014, there were 12, 76,861 service tax assessees in the country out of which only

the top 50 paid more than 50% of the tax collected nationwide. Most of the tax burden is borne

by domains such as IT services, telecommunication services, the Insurance industry, business

support services, Banking and Financial services, etc. These pan-India businesses already work

in a unified market and will see compliance burden becoming lesser. But they will have to

separately register every place of business in each state.

Sector-wise Impact Analysis

Logistics

In a vast country like India, the logistics sector forms the backbone of the economy. We can

fairly assume that a well organized and mature logistics industry has the potential to leapfrog the

“Make In India” initiative of the Government of India to its desired position.

E-commerce

The e-commerce sector in India has been growing by leaps and bounds. In many ways, GST will

help the e-com sector’s continued growth but the long-term effects will be particularly

interesting because the GST law specifically proposes a Tax Collection at Source

(TCS)mechanism, which e-com companies are not too happy with. The current rate of TCS is at

1%.

Pharma

On the whole, GST is benefiting the pharma and healthcare industries. It will create a level

playing field for generic drug makers, boost medical tourism and simplify the tax structure. If

there is any concern whatsoever, then it relates to the pricing structure (as per latest news). The

pharma sector is hoping for a tax respite as it will make affordable healthcare easier to access by

all.

Telecommunications

In the telecom sector, prices will come down after GST. Manufacturers will save on costs

through efficient management of inventory and by consolidating their warehouses. Handset

manufacturers will find it easier to sell their equipment as GST has negated the need to set up

state-specific entities, and transfer stocks. The will also save up on logistics costs.
Textile

The Indian textile industry provides employment to a large number of skilled and unskilled

workers in the country. It contributes about 10% of the total annual export, and this value is

likely to increase under GST. GST would affect the cotton value chain of the textile industry

which is chosen by most small medium enterprises as it previously attracted zero central excise

duty (under optional route).

Real Estate

The real estate sector is one of the most pivotal sectors of the Indian economy, playing an

important role in employment generation in India. The impact of GST on the real estate sector

cannot be fully assessed as it largely depends on the tax rates. However, the sector will see

substantial benefits from GST implementation, as it has brought to the industry much-required

transparency and accountability.

Agriculture

The agricultural sector is the largest contributing sector the overall Indian GDP. It covers around

16% of Indian GDP. One of the major issues faced by the agricultural sector is the transportation

of agri-products across state lines all over India. GST will resolve the issue of transportation.

FMCG

The FMCG sector is experiencing significant savings in logistics and distribution costs as the

GST has eliminated the need for multiple sales depots.

Freelancers

Freelancing in India is still a nascent industry and the rules and regulations for this chaotic

industry are still up in the air. But with GST, it will become much easier for freelancers to file
their taxes as they can easily do it online. They are taxed as service providers, and the new tax

structure has brought about coherence and accountability in this sector.

Automobiles

The automobile industry in India is a vast business producing a large number of cars annually,

fueled mostly by the huge population of the country. Under the previous tax system, there were

several taxes applicable to this sector like excise, VAT, sales tax, road tax, motor vehicle tax,

registration duty which will be subsumed by GST.

Startups

With increased limits for registration, a DIY compliance model, tax credit on purchases, and a

free flow of goods and services, the GST regime truly augurs well for the Indian startup scene.

Previously, many Indian states had different VAT laws which were confusing for companies that

have a pan-India presence, especially the e-com sector. All of this has changed under GST.

It is no news that the implementation of the GST (Goods and service tax) will pose some major

advantages and a few disadvantages to the services industry.

Many service businesses will face a lot of changes over the years as they try to conform to the

introduction of this new taxation system and we can be sure that many of them are happy

because of the changes. You can trust that this new taxation system will also affect the people in

general and not only business owners.

Even so, the joy is that it is not all bad. We can gladly look forward to the positive and especially

the people in the service business sector is keen on how things will turn out.
In this article, we’ll assess the GST impact on service sector – both positively and negatively.

We’ll also see what you need to know if you a service provider.

Positive Effects Of GST On Service Sector

No double taxation: This is one thing that was affecting many service providers. In the previous

system of taxation, the works contract was complex, and this took a toll on many people. Here,

the transfer of goods is a part of the service contract. This means that every invoice has the value

of the goods used as well as the services supplied. These two attract a tax rate of 70% each

bringing the total to 140% which is very high. With the implementation of GST, these two are

considered to be one and thus taxed as ‘supply of service.’

More Clarity For Software Industry: For companies like ProfitBooks, that sell online software,

its was not clear whether to apply VAT or Service Tax on the product. In GST regime, there is a

clear distinction between products and services which will remove the confusion for service

industry.

Repairs and maintenance: The service providers that provide repair and maintenance services to

companies will be able to claim both the credit of input and credit of input services as provided

by the GST system. The current regime only offers the credit of input services which is a bit

limiting. Now that they can claim both of the credit of input and credit of input services, they can

offer their repair and maintenance services at lower prices and thereby attracting more clients.
Access to inputs held in stock: The service providers will access CENVAT credit of input that is

held in stocks. This is best applicable when a person is moving from one category of taxation to

the next like the exemption category to the taxable one.

Check out this simple example – Earlier, service providers used to charge Service Tax to the

clients and used to pay VAT on the goods purchased, like computers. it was not possible to take

set off VAT against Service Tax. But in GST regime, you pay GST on both sales and purchases

and hence its easy to claim input tax credit on that.

Fewer costs to service providers: In the previous system of taxation, the credit of VAT and CST

that were paid to the input were billed to the service provider. Luckily, with the GST system, the

CENVAT credit of SGST/CGST, as well as the IGST that are to be paid on inputs and capital

goods are all taken care of under the GST system. This is a relief to the service provider.

The cost of inputs is likely to drop: Now that the multiple taxation systems are abolished, the

cost of inputs will go down. Inputs taxations like VAT, Excise Duty, and the likes will no longer

be an issue to deal with.

It will bring equality in all states: The previous taxation system did not cover Jammu and

Kashmir. This presented a disadvantage to other places in India because taxation provisions did

not cover these two places. However, GST now covers the whole land bringing all service

sectors under the same taxation laws.

Negative Impacts Of GST On Service Sector

Other than the goods, there are also down sides to this system of taxation. These negatives

include:

Lack of a centralized registration: With the previous taxation system, many service providers

rejoiced over being able to register all their businesses in different areas from a central place.

However, this privilege has been taken away. Now, they have to register their businesses in the

respective state and pay the CGST tax.

Taxation for free services: If a business is going to supply services for free, they will still get

taxed for it. Every supply that is made without consideration is taxed. This means you have to

prepare yourself before you offer any free services.

Increased cost of service to end consumer: Because the rate of taxation will go higher in the

GST system, the end consumer will also feel a pinch of extra expenditure. The taxation is

between 18% and 20%. Because this rate is high, the cost of service will be higher.

Lack of a centralized system of accounting: Every business in every state has to have their

accounting records because there is no centralized registration of businesses. Every business in

every state is financially accountable to that state for taxation. This means that the accounts of

the business will have to be separate.

Burdensome filling of returns: As a business owner, you will have to file returns for all the

businesses in all the different states separately. This is also because of decentralized registration.

This can prove to be burdensome and tiresome as well. You are needed to file as many as 37

returns in just a year.

The burden of public education: The business owner is charged with the responsibility of

educating the masses on the benefits of this GST system. Failure of which may lead to

unprecedented events.

What You Can Do To Comply With the GST

As a service provider who is subject to the GST taxation system, it is very important that you

ensure your business complies with the provisions of GST. You can do the following to ensure

that you comply with the regulations of GST

File your returns under GST: We all know that all businesses need to file their returns. There is

no exemption to this. When there has not been much activity with the business, you can file nil

returns. Failure to do comply will attract a penalty. You have to give detailed information on all

activities of the business.

Vendor ratings: The government has a mechanism in place that rates vendors based on how

timely they are with their returns, their payments and so on. People who look forward to working

with you will be rating you on the basis of these scores.

Know your SAC: In GST regime, you need to mention ‘Service Accounting Code (SAC)’ for

every service you sell. So, its important for you to know the correct SAC of the service you are

selling.

Raising invoices: Proper GST compliant invoices have to be raised under the GST system.

Invoices issued to the GST showing compliance have specific fields that need to be filled before

issuance. The issuance is done via a GST portal and information on both the buyer and seller are

captured.

For example, you need to mention your GSTN, customer’s GSTN, SAC on invoice.

Know the applicable taxes: It is important to know that the GST system is made of two

components and that is the CGST and the SGST. The taxes subsumed at the CGST include

central excise duty, the special additional duty of customs, service tax, additional excise duty,

and additional customs duty.

The SGST component is made by subsuming the Purchase tax, luxury tax, entertainment tax,

VAT, Octroi and entry tax, and others.

If you are selling within your state, you need to apply SGST & CGST and if you are selling

outside of your state, you must apply IGST.

Use a good GST accounting software: This software will be your best friend as it will help you

with filing your returns more easily and in a faster, error free way. This software will alert you to

any discrepancies that there may be and you can get to it before any damage is done.
ProfitBooks is one of the popular GST softwares in India. It will help you to create GST

invoices, manage inventory and even file GST returns directly from the software.

Final Thoughts

By subsuming all these to provide the country with a single taxation level, we can say it is a great

move that will propel the economy even further. In as much as there will be some challenges, it

is a great thing to have a single taxation system for the service providers.

For service industry, GST system has definitely increased the compliance burden. GST

implementation is bound to face hiccups during initial days but things will be much smoother

once the issues are addressed.

Goods and Services Tax a Panacea for all woes?

Prime Minister Narendra Modi was in his element when he congratulated the country on the

passage of the much-touted Goods and Services Tax (GST) Bill in the Upper House of the

Parliament, claiming that the new tax regime will rid the country of tax-terrorism. The tax

regime which was proposed about a decade back as the panacea that would clean up the messy

and complex indirect tax structure of the country, is expected to give India’s GDP a fillip, apart

from boosting exports. “Expected” is the word. While GST has become popular as a ‘One

Nation-One Tax’ formulation, the realities of implementation may be more complicated than

political negotiations in the Parliament. Truth is GST, for which the ruling administration has set

a go-live date of April 1, 2017, is in no way a one-tax rule. As things stand, the Centre has

agreed to subsume excise duty, additional excise duty, service tax, countervailing duty, surcharge

and cess, and central sales tax into the waiting arms of GST. The States have agreed to give up
VAT (sales tax), entertainment tax, luxury tax, taxes on gambling, octroi and entry taxes, cess

and purchase tax. GST will thus replace all of these taxes. The all-important tax rate though

remains to be agreed upon.

A wait of more than a decade came to an end on August 3, 2016, when the 122nd Constitution

Amendment Bill, 2014 (popularly known as GST Bill) was passed by the Upper House of the

Parliament of India. This is apparently the country’s biggest tax reform since

Independence.Some achievement therefore for the Indian democracy. The new tax regime, which

subsumes all indirect taxes such as sales tax and excise tax, is expected to bring down tax rates in

India, while converting the country into a big single market. In short, now, seamless flow of

goods and services will occur across 29 states and 7 union territories! Many believe the landmark

Goods and Services Tax Bill (GST) passed by the two houses of the Parliament – after years of

back and forth by the ruling party and main opposition (both the present ruling and main

opposition parties have supported and opposed the Bill depending on whether they were in

power or in the opposition) – is a key step that would catapult India into the big league in global

supply chain. The implementation of the Bill is expected to ease India’s cumbersome tax system,

help goods move seamlessly across state borders, curb tax evasion, improve compliance,

increase revenues, spur growth, boost exports, and attract investments by improving ease of

doing business in India.

In short, GST when implemented, is expected to perform miracles. But, can it really? And

considering that the Bill still needs to be ratified by at least 13 more state legislatures (over and

above the three states Assam, Bihar and Jharkhand,which had already passed the bill, as on

August 22, 2016) before the President of India can notify the GST Council to decide on the new
tax rate and other issues with respect to GST, will it be a easy journey for the GST to the finish

line?

India is by no means the first country to experiment with a unified tax regime.160 countries

already have some form of GST or a value added tax. What makes GST in India special is that as

opposed to a federally administered regime, the Union and state governments will jointly

administer India’s dual GST. This means it will be a set of many different taxes – a GST for each

of the 29 states and two union territories (SGST), a Central GST (CGST), and an Integrated GST

(IGST; which will be a combine of CGST and SGST on inter-state supplies of goods and

services). That surely is not as unified as it seems.

Interestingly, India will be one of the very few countries with a dual GST regime alongside

Canada and Brazil. The all-important rate is yet to be finalised, with the final standard rate

possibly lying between 15% to 27%, though 18% is the rate that seems to be gaining a sort of

consensus amongst pundits. The problem though is that the pundits won’t decide the rate! GST

rate will be decided in the coming months by a GST Council that will prise the Finance Minister

with a representative from each state government. As such it will be negotiated amongst the

Union and state governments that will jointly administer the GST regime. It will still remain

complex and difficult to implement, but would surely make life easier for businesses by cutting

down, or rather combining, the many indirect taxes that companies file in India.

Foreign media has called GST one of the world’s most complex tax reforms that needs to be

supported and serviced by state-of-the-art technology. And Infosys, the Indian software giant,

has already started building a massive electronic infrastructure – a GST portal (GSTP) – where

taxpayers can register, make payments and file returns. It is expected that some 7.5 million

businesses will be covered by the tax. But then there are several questions that have been doing
rounds since the day the Bill was passed in Rajya Sabha. What will really be the impact of GST

on India’s manufacturing and service sectors? What will be a realistic timeframe for its

implementation? How difficult will the implementation process be given the dual nature? What

would be an ideal timeframe by which benefits will be realised? And above all, what will be the

impact on exports from key sectors?

BUSINESS MADE EASY

One factor where the industry has clearly been in consensus is that GST being a destination

based tax (where the tax is not applied at the point of production but at the point of supply or

consumption),will make life easier for businesses in India. Companies will not have to file tax

returns with multiple departments, but there will be just one web-based form to file tax returns.

The country will finally become one common market, with uniform pricing across states, and

optimal allocation of resources, making our goods more competitive. “Undoubtedly the most

significant reform since the liberalisation in 1991, GST will transform India’s economic

landscape. Unifying the $2 trillion economy and its 1.3 billion people under a uniform tax code,

makes our country one of the most attractive destinations for business. I am confident that this

game-changing legislation will propel India into a $20 trillion economy in the decades to come,”

says Anil Agarwal, Chairman, Vedanta Group. Apart from this, there will be a very strong

positive impact on the logistics sector. There is no one in India who has not seen the serpentine

queues of goods carrying vehicles standing at inter-state check posts for inspection and payment

of taxes. Even Shaktikanta Das, Economic Affairs Secretary, Ministry of Finance, GoI, is on

record saying that trucks on an average spend 48 hours stranded at different check-posts every

trip. The GST in ‘one fell swoop’ will remove these barriers, thus making India a preferred
destination for business. “GST will revolutionise logistics with unified and simplified structure

versus multiple taxes at various levels. It will lower the inventories and working capital, reduce

documentation, improve asset utilisation, ensure higher turnaround time and efficiencies. We

expect the industry to move away from pure vanilla warehousing needs to contract logistics,”

Prakash Tulsiani, Executive Director & COO, Allcargo Logistics, tells The Dollar Business.

EASE OF DOING BUSINESS, A REALITY! CENTRAL TAXES SUBSUMED

 UNDER GST

 Central Excise Duty (including additional excise duties)

 Service Tax

 Additional Customs Duty (CVD)

 Special Additional Duty of Customs

 (SAD)

 Central Sales Tax and cesses

STATE GOVERNMENT TAXES SUBSUMED UNDER GST

 Value Added Tax

 Sales Tax

 Octroi and Entry Tax

 Purchase Tax

 Luxury Tax

 Taxes on lottery, betting and gambling

  State cesses and surcharges

 Entertainment Tax

IMPACT OF GST ON BUSINESSES

Sourcing: Inter-state procurement will become easier;Manufacturers get the option of

consolidating supplies from vendors;Additional Duty/CVD and Special Additional Duty

components of Customs Duty to be subsumed.

Distribution: The new regime will allow consolidation and optimisation of warehouses;Current

arrangements for distribution of finished goods to change;Current network structure and product

flows may need review and possible alteration because of removal of Excise Duty.

Pricing and profitability: Tax changes resulting from the GST structure would require repricing

of Products. Prices could both increase or decrease; Margins or price mark-ups would also need

to be re-examined.

Cash flow: Removal of the concept of Excise Duty on manufacturing can result in improvement

in cash flows and inventory costs as GST would now be paid at the time of sale/supply rather

than at the time or removal of goods from the factory.

System changes and transaction management: Potential changes to accounting and IT

systems in areas of master data, supply chain transactions, system design;Existing open

transactions and balances as on the cut-off date need to be migrated out to ensure smooth

transition to GST;Changes to supply chain reports (e.g., purchase register, sales register,services

register), other tax reports and forms (e.g., invoices,purchase orders) need review;Appropriate
measures such as training of employees, compliance under GST, customer education and

tracking of inventory credit are needed to ensure smooth transition to the GST regime.

DUAL-GST: WHO GETS WHAT

TRANSACTION NEW SYSTEM OLD SYSTEM COMMENTS

Under the new system

transaction of sale within the

shall attract two taxes:

State GST & Central VAT & Excise / (which goes to the State)

Sales within the state GST ST CGST (which goes to the Ce

Under the new system

transaction of sale from one

to another shall have only

CST & Excise / type of tax, the IGST – wh

Sales outside the state Integrated GST ST collected by the Centre

NOT SO EASY

Sounds good. But then it won’t be an easy run to the finish line for GST. And the reason is

simple! The dual nature of India’s GST regime is expected to make implementation a complex

problem, and rob off some of the key features of ease of doing business.

Canada and Brazil, both have a federal administrative structure similar to that of India and have

opted for the dual GST route. For instance in Canada, the dual GST route obviously cleared up

the conflict between states and the Union government in terms of revenue generation and tax

collection, and allowed for a consensus to be formed. But then, Canada owing to the dual nature

of its GST has not been able to unify the nation as a common market, with different taxes in

different provinces still in effect.

In India, though the scrapping of the proposed additional 1% inter-state tax has cleared the air

considerably making businesses happy, the states still need to agree on a common rate. And

while

states like West Bengal and Bihar will be happy with a low tax rate, many like Tamil Nadu are

expected to ask for a much higher rate. At the high-end, some states have even asked for a GST

rate of 27%. But then, experts believe, a tax rate that high can completely negate the positive

effects of GST. “The current combined Centre and state statutory rate for majority of the

commodities works out to be 26.5% (CENVAT : 14%, and VAT: 12.5%). Once GST is

implemented, the same is expected to reduce to a standard rate to about 18-21%. This will

naturally be beneficial for the end users. But if the tax rate goes beyond 18-21%, a lot of the

benefits of GST will be lost,” says Harpreet Singh Malhotra, Chairman & Managing Director,

Tiger Logistics. And then there is the issue of tax refunds from state governments, with some
states known to be tardy with refunds. Rakesh Shah, Director, Nipha Group, a Kolkata-based

exporter of engineering goods, while speaking to The Dollar Business on the dual-GST sytem

says, “This is the biggest drawback of the GST regime from our perspective. Some state

governments do not have a great track record of refunding taxes and there is nothing in GST so

far that makes us believe that they will change their behaviours.”

There is another fear – inflation.

THE INFLATION BOOGIE

The proposed tax regime has raised fears of inflation at a time when CPI has shot up beyond the

official tolerance level of 6%. Outgoing RBI Governor Raghuram Rajan has cautioned the

industry that there could be a generalised inflationary effect on the economy due to price

adjustments after implementation of GST.

However, the Governor has also clarified that he expects the inflationary pressure to be

negligible. Citing the example of Malaysia, he said that the inflation in Malaysia was both

negligible and short-lived and this is expected in India as well due to a one-time price adjustment

of goods and services.

Potential inflation will depend significantly on the final rate of GST and the basket of goods and

services that will be exempt from GST. Meanwhile, RBI Deputy Governor Urjit Patel has

pointed out that about 55% of the items that form the Consumer Price Index (CPI) will be

exempt from GST, making the inflationary impact negligible. Even a Nomura report estimates

GST to impact headline CPI inflation by just 20-70 basis points (bps) and core CPI by 10-40 bps

in the first year of implementation. And that would exbe on account of higher prices of
electricity, clothing and footwear, healthcare, medicine, and education after accounting for input

taxes.

Food items like cereals and vegetables are expected to become more expensive. Essential items

like health services and medicines will also become expensive as they presently are subjected to

lower tax rates, even if GST rate is capped at 18%.As of now, products like alcohol and

petroleum have been kept out the GST ambit; clarity is yet to emerge on whether there will be

more exemptions. With various industry bodies lobbying for exemptions or lower rates, it is

plausible that we will see more products and services being exempted. That being said, in the

past, countries (like Malaysia and New Zealand) which have opted for GST have been known to

face high inflation and slowdown in consumption initially.Whether history will be repeated in

India depends on a host of factors, the most important being the standard rate of GST finally

agreed upon.
Systems of GST

Invoice System

The input credit can be availed on the basis of invoice when such an invoice is received.

Similarly, the output tax needs to be discharged after the invoice is raised. The facts with respect

to payments made for procurements and payments received on supplies are immaterial. This is

similar to the existing provisions of VAT in India.

Payment System Under the payment system of the GST, the input credit on supplies procured

can be availed on the basis of payment. Even the output tax needs to be discharged after the

payment is received for the supplies made to the customers. The facts with respect to invoices

received for procurements and invoices raised for supplies made to customers have no

significance. This system is similar to the existing provisions of Service Tax as per the

provisions of the Finance Act, 1994.

Hybrid System This system is the blend of invoice system and payment system. The input credit

can be availed on the basis of invoice when such an invoice is received. However, the output tax

needs to be discharged after the payment is received for the supplies made to the customers. This

system is the most beneficial one from the aspect of the assessee as the credit can be taken

immediately on receipt of an invoice but the tax needs to be discharged only after the payment

for the supplies received. GST is divided into three types. They are:
• Central Goods, Service Tax(CGST): All the taxes(Additional Excise, Counter Veiling Duty,

cesses, Central Excise, Customs) that come under Central Government are included in this kind.

Systems of GST

Invoice System Payment System Hybrid System

138

• State Goods, Service Tax(SGST): All the taxes which come under State government(VAT,

Entertainment Tax, luxury tax, betting-gambling tax, octroi, entry tax, purchase tax, State tax,

and lottery tax) are included in this type. • Special organization in Central level (IGST): It was

conducted by Central government & The taxes that are paid had IGST redemption. It distributes

those taxes among the countries. The only thing is that the demands and plans of this IGST are in

motion but not yet decided.

3.12.2 GST tax rates:

There will be five types of rates that will collect under this kind. They are as follows:

• Standard tax rates:Most of the taxes come under this category. • Limited tax rates: Tax is been

collected for the medical & other major basic goods in this category. • Special tax rates: Special

tax is been collected on the goods & items like tobacco, Liquor, jewellery etc; under this

category. • Redemption rates: This kind of tax is applicable to the backward areas & there is

redemption of taxes for goods under this system & where GST & credit facility is not applicable.

All these kinds of procedures will be banned if GST exists. • Zero rate: Though tax is not

applicable to the goods that are imported there is the facility of refund under this system.

OPERATIONAL DEFINITION OF GST

GST council. GST Council will make recommendations on all key matters pertaining to GST

like taxation rates under both CGST and SGST, exemptions from GST etc. Union Finance

Minister will chair the council with Finance Ministers from States as members. The Council

members may also elect a Vice-Chairperson of the Council from the members. The Dispute

Settlement Authority will be responsible for any

INTER – STATE

Present GST

Value 100 100

Excise Duty(@ 8.24%) 8.24 Subsumed

CST @ 2% 2.16 Subsumed

IGST @ 16% 16

CGST @ 8% 0

SGST @ 8% 0

Total Taxes 10.4* 16

140
disputes amidst Union/States/members with respect to GST. The Authority would have one

Chairperson and two members. The chairperson should be judge from Supreme Court or Chief

Justice from a high court and appointed by President of India on the recommendation of Chief

Justice of India. Two other members should be experts from field of law/economics/public

affairs on the recommendation of GST Council. This has been done to balance the interests of

the parties

Service tax. Service tax is levied on specified services, referred to as taxable services, when

rendered by a service provider. Service tax is presently taxed at 10%. Ordinarily, service tax is

payable by the service provider, except in specified cases. As service provider, credit is allowed

on excise duty and countervailing duty paid on inputs and capital goods and the service tax paid

on input service. The credit is allowed as a set-off against the service tax payable on taxable

services.
Empowered Committee of State Finance Ministers The first preliminary discussion on State-

level VAT took place in a meeting of Chief Ministers convened by Dr. Manmohan Singh, the

then Union Finance Minister in 1995. In this meeting, the basic issues on VAT were discussed in

general terms and this was followed up by periodic interactions of State Finance Ministers.

Thereafter, in a significant meeting of all the Chief Ministers, convened on November 16, 1999

by Shri Yashwant Sinha, the then Union Finance Minister, two important decisions, among

others, were taken. First, before the introduction of State-level VAT, the unhealthy sales tax “rate

war” among the States would have to end, and sales tax rates would need to be harmonised by

implementing uniform floor rates of sales tax for different categories of commodities with effect

from January 1, 2000. Secondly, on the basis of achievement of the first objective, steps would

be taken by the States for introduction of State-level VAT after adequate preparation. For

implementing these decisions, a Standing Committee of State Finance Ministers was formed

which was then made an Empowered Committee of State Finance Ministers.

Input tax credit The proposed dual Goods and Service tax (GST) system would be designed in

such a manner that the Central GST chain and the State GST chain would be independent of each

other. This would imply that a dealer would not be able to use the input tax credit available under

the Central GST chain in the State level GST chain. The Central GST chain is likely to integrate

the existing excise duty and service taxes levied at the Central level. The State level GST chain is

likely to

141
integrate the current State-level VAT, other local levies and services tax on certain specific

services on which States may get the powers to levy service tax. There will be full input tax

credit in the Central GST chain and also in the State level chain but there would be no usability

of Central GST into the State-level GST chain. Input tax credit would be allowed only at one

chain and no carry forward of the credit from one chain to the other would be allowed. The

structure would only address the cascading effect only in the respective chain and not in the

parallel one. Cross utilization of credit of CGST between goods and services would be allowed.

Similarly, the facility of cross utilization of credit will be available in case of SGST.

Threshold limit A threshold of gross annual turnover of Rs.10 lakh both for goods and services

for all the States and Union Territories will be adopted with adequate compensation for the

States (particularly, the States in North-Eastern Region and Special Category States) where

lower threshold had prevailed in the VAT regime. After taking into consideration the interest of

small traders and small scale industries and to avoid dual control, it has been decided that the

threshold for Central GST for goods will be Rs.1.5 Crore and the threshold for services should

also be appropriately high.

Selective Concessions/Exemptions While a linear tax structure with few exemptions would be

ideal, the GST structure is likely to continue with sector specific concessions and exemptions. It

was observed by Dr.Shome (erstwhile advisor to the finance minister), ‘that shades of policy

interventions is a fact of life and we have to weave such positive suggestions in the framework

and that by 2010, we will have a structure that will overhaul all taxes into one, of course with

some exemptions.’ No tax will be payable on goods and services which shall be declared as

exempted supplies and for such supplies, the assessee will not be able to claim any input tax

credit. However certain supplies may be classified as zero rated goods and services thereby

making it eligible to input tax credit.

Service Tax under GST Service Tax is levied at 10.3% (inclusive of Education Cess) percent tax

on more than 100 services. States do not levy or collect service taxes at present, but get a share

from the Centre's collections. It is proposed that States will keep the entire collection from

certain services from this year. States would also tax another set of proposed new services,

collect and appropriate as part of compensation for Central sales tax phase-out in 2010. Since

there would be issues on taxing cross

142
border services it is expected that the State GST would only include services that are essentially

of "Local Nature". It has also been reported that Service tax rate under Central GST and State

GST is likely to be uniform. Though State Service Tax proposed to be levied on new local

services would add to the cost, an redeeming feature is that Input Tax Credit would be eligible on

the State Service Tax and a host of other levies like Entry Tax, Electricity Tax, and Luxury Tax

etc that would be integrated under State GST. Of course, the service should qualify as an eligible

Input Service.

Tax Base for Dual GST Levy Though nothing has been explicitly said on the tax base for the

State GST, it has been reported that the dual GST Structure would ensure that there is no double

taxation and it would help trim the present cascading effect of tax to benefit industry and

consumers. So there is a likelihood that the levy of Central GST and State GST would be on the

same tax base as only this can help trim the present cascading effect of tax.

Implications of GST on imports and exports Imports would be subject to GST. Both CGST and

SGST will be levied on import of goods and services into the country. The incidence of tax will

follow the destination principle and the tax revenue in case of SGST will accrue to the State

where the imported goods and services are consumed. Full and complete set-off will be available

on the GST paid on import on goods and services. Exports, however, will be zero-rated, meaning

exporters of goods and services need not pay GST on their exports. GST paid by them on the

procurement of goods and services will be refunded subject to certain conditions, limitations and

procedures.
System of Zero rating The system of zero rating ensures that the benefit of zero rating is availed

only after satisfaction of the condition that the tax is paid in the importing State. The dealer in

the importing State will capture the interstate procurements in the periodic return and pay the

relevant tax on such procurements. In case the liability to pay tax is not discharged within the

stipulated time, zero rating will be reversed and then the seller in the exporting State will be

required to pay the tax. For the successful implementation of the system of zero rating with pre-

payment, a reliable mechanism should be put in place to identify interstate transactions and

thereby ensure that there is no evasion of taxes. Exports would be zero-rated. Similar benefits

may be given to Special Economic Zones (SEZs). However, such benefits

143

will only be allowed to the processing zones of the SEZs. No benefit to the sales from an SEZ to

Domestic Tariff Area (DTA) will be allowed.

Taxation of certain goods: Certain goods like alcoholic beverages, tobacco and petroleum are

subject to higher rate of taxes as it attracts multiple taxes like excise duties, license fees, cess,

interstate import and export fees etc. This is mainly done to discourage the consumption of such

products. Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT can be

continued to be levied on alcoholic beverages as per the existing practice. In case it has been

made Vatable by some States, there will be no objection to that. Excise Duty, which is presently

being levied by the States will also not be affected.

Tobacco products will be subjected to GST with Input Tax Credit (ITC). Centre may also be

allowed to levy excise duty on tobacco products over and above GST without ITC. Petroleum

products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the

prevailing practice in India. Sales Tax could continue to be levied by the States on these products

with prevailing floor rate. Similarly, Centre could also continue its levies. Whether natural gas

will be within the purview of GST or not has not yet been decided.

DESIRABLE FEATURES OF GSTN–AN IT INFRASTRUCTURE FOR GST

Simplicity for taxpayers: The process of filing of tax returns and payment of tax should be

simple and uniform and should be independent of taxpayer’s location and size of business. In

addition, the compliance process should not place any undue burden on the taxpayer and should

be an integral part of his business process.

Respect autonomy of States: The design of the IT system should respect the constitutional

autonomy of the States. Several business processes will be reengineered as a new IT system for

GST is put into place. There should be no dilution of the autonomy of States as a result of the IT

system, or the re-engineering. On the contrary, it should strengthen the autonomy of States. This

is a key factor in the design of the IT system presented in the rest of this document. Uniformity

of policy administration: The business processes surrounding GST need to be standardized.

Uniformity of policy administration across States and centre will lead to a better taxpayer

experience, and cut down costs of compliance as well as tax administration.

Enable digitization and automation of the whole chain: All the business processes surrounding

GST should be automated to the extent possible, and all documents processed electronically.

This will lead to faster processing and reconciliation of tax information and enable risk based

scrutiny by tax authorities. For small taxpayers, facilitation centres can be set up to ease the

migration.

Reduce leakages: A fully electronic GST can dramatically increase tax collections by reducing

leakages. Tools such as matching the input tax credit, data mining and pattern detection will

detect tax evasion and thus increase collections.

Leverage existing investments: Existing IT investments of States should be leveraged. The

Mission Mode Project on Commercial Tax should be aligned with the GST implementation

going forward. Exhibit 3.5 depicts the features of GSTN.

EXPORTS TO CLIMB?

If GST improves ease of doing business, can exports be far behind? With uniform taxation and

cost efficiencies owing to reduced time and costs in transportation, one obvious effect would be

that ‘Made in India’ products would now be more cost competitive in the global markets. “In the

previous tax regime, our exbe ports were sagging, since we also exported a major portion of

taxes. Indigenous manufacturers failed to capitalise owing to double taxation. All this will

change post GST. And eventually exports from the country will increase,” says Nihal Kothari,

Chairman, National Council on Indirect Taxes, ASSOCHAM and Executive Director at Khaitan

& Co. And he is right! We have examples of GST boosting an economy’s exports. For instance,
New Zealand implemented GST in CY1986 and saw it exports jump from $5,880 million in

CY1986 to $7,195 million CY1987, a growth of 22.36%. Similar was the case with Australia,

which implemented GST regime in CY2000. Australia’s exports grew at a CAGR of 7.9% from

$63,870 million in CY2000 to $86,565 million in CY2004.The present system of differential

multiple tax regimes across sectors of production and locations leads to distortions in allocation

of resources as well as supply chain and warehouse structuring.

There is a tendency of manufacturers to locate manufacturing facilities as well as warehouses in

states or locations that offer better tax structures regardless of their suitability in terms of other

resources. With regard to India’s exports, this leads to lack of international competitiveness of

the sectors which would have been relatively efficient under distortion-free indirect tax regime.

Add to this, there is a lack of full offsets of taxes loaded on to the FOB (Free On Board) export

prices. This results in export competitiveness further getting negatively impacted. Efficient

allocation of productive resources and providing full tax offsets, as envisaged under the GST, is

therefore expected to result in gains for exporters. According to a paper on GST by the National

Council of Applied Economic Research (NCAER) submitted to the 13th Finance Commission,

gains in exports are expected to vary between 3.2% and 6.3% (while imports are expected to rise

somewhere between 2.4% and 4.7%). Sectors which are expected to see a substantial increase in

exports include textiles and readymade garments, beverages, industrial machinery for food and

textiles, transport equipment other than railway equipment, electrical and electronic machinery,

and chemical products. Further, while agricultural machinery, metals and railway transport

equipment are expected to gain moderately, exports is expected to decline when it comes to

agricultural commodities, iron and steel, cement, wood and wood products except furniture.
GST will provide the much-needed boost to India’s automotive industry, primarily because

of the removal of cascading that is expected with the new tax regime. (Image Source: The Dollar

Business)

FATE OF FTP SCHEMES

A mixed bag of good and bad news could therefore be on offer for India’s exporters.And it will

be that way with some sectors emerging as winners, while others losing out on a few advantages.

However, what can be a bigger cause of worry for exporters is the ambiguity with respect to

various export promotion schemes allowed by India’s Foreign Trade Policy (like MEIS, SEIS,

EPCG, DBK, Advance Authorisation, etc.) during the initial GST implementation phase.

Exporters are allowed to claim refunds on Central Excise, Customs duties and Service Tax

against various scrips issued by the Ministry of Commerce. Since Central Excise and Service

Tax will be subsumed under GST, exporters may face problems in encashing the much-needed

incentives that have been structured to support exports.Asks Shah of Nipha Group, “Exports are

zero rated, but GST retains the refund system at the final stage which will mean increased

blockage of funds. A number of current export promotion schemes will wither away or get

diluted. Similarly, what will happen to our dues during the transition from the current system to

GST? How will they be treated?”

Office of the Directorate General of Foreign Trade (DGFT), Ministry of Commerce, GoI, is

aware of the issue. D. K. Singh, Additional DGFT, while speaking to The Dollar Business says,

“Under the current system, one can pay Customs Duty, Central Excise Duty and Service Tax.
But, since Central Excise will be replaced by other taxes such as IGST and SGST under GST, it

may not be a smooth transition for our exporters. So, we have requested the Finance Ministry to

reconsider and allow us to maintain the scrip.” As per him, the matter is currently under

examination by the Ministry of Finance.

The current indirect tax regime provides for lower or no Customs Duty on imports for importers

who use those imports in producing goods that are subsequently exported. However, under GST,

imports would be subject to IGST (CGST plus SGST) and any exemptions or additional levy

will not exist. This would provide level-playing field to domestic manufacturers against

importers.

In case of special economic zone (SEZs), the various exemptions provided under different

schemes would be limited in their applicability to export duty only. Exports or deemed exports

would be zero rated, but sale to domestic tariff area (DTA) would be taxable. Exports from these

special zones though will get a leg-up by being more cost competitive, owing to reduced logistics

costs.

ON THE FAST LANE

GST has the potential to revolutionise the logistics industry. India’s trucking and logistics sector

will realise its worth once GST is implemented at the ground level. Experts believe that the tax

procedure will get reduced dramatically and the cost of holding inventory will fall by 50%, since

stock would no longer need to be piled up in various warehouses. Analysts estimate that the

logistics sector will witness up to $200 billion in savings annually with GST, thanks to faster

movement of goods and minimum idling, which have troubled the industry for long now.
Explaining the issue of idling, Harpreet Singh Malhotra, CMD, Tiger Logistics says, “Prolonged

delays at toll booths and extra fuel usage due to regular idling were resulting in annual losses of

more than Rs.1,00,000 crore. Such delays don’t just burn money, they slow down business too.”

According to Malhotra, while trucks in US are said to cover a distance of 800 km every day, in

India they cover only 280 km a day. There is no surprise in the fact, because where average US

truck speeds exceed 89 kmper hour on highways, 12.7 km per hour is considered good as long-

distance average in India. “Once GST gets going, these challenges will become a thing of the

past,” adds Ramesh Agarwal, CMD, Agarwal Movers Group.

According to logistics experts, the Indian logistics industry spends around 14% of the GDP every

year on different types of cost incurred in logistics operations.The amount of cost incurred is

very high in comparison to the logistics cost incurred in different nations. This scenario is

expected to change once GST is in place. In fact, 3PL logistics market in India is expected to be

worth $301.89 billion by 2020. This growth is based on expectations that GST will soon be

implemented and logistics companies can optimise their operations to reduce cost and increase

margins. RAVI RAMU MD & CEO,VBHC Value Homes “Affordable housing requires an ease

of doing business for both the builder and the buyer. GST is a giant leap in this direction. We are

delighted at the prospect of dealing with easily understood and implementable indirect tax laws.

The marginally higher incidence of indirect taxes through the introduction of GST, if any, will be

more than compensated for by the savings in time and effort in operating a far simpler law.”

“GST will convert a diversified tax regime into one uniform tax rate making India a single

market place. This would facilitate seamless transportation of goods across borders with a

significantly lower transit time, thereby stepping up demand for logistics services.The GST Bill

will also lead to higher vehicle capacity utilisation resulting in increased efficiencies at every
node of the logistics ecosystem. Overall, this is a positive move that will generate growth

opportunities for organised players within the logistics industry,” says Abhishek Chakraborty,

Executive Director, DTDC Express Limited. Apart from simplifying the tax structure, GST will

bring in huge relief to several players at the operational level as they can now do away with fixed

costs of maintaining warehousing across various locations in India. “The fixed warehousing

overheads of companies across industries will decrease by 30-32% and that will make them more

competitive in the international market. Portable and virtual warehousing will become a viable

option for many companies. It will also enhance their operational efficiency,” says Agarwal of

Agarwal Movers Group. Although various logistics players and experts are expecting a short-

term inflationary impact on exports, consensus is that GST will, in the long run, increase

competitiveness of Indian exporters.

IN AN AUTO MODE

India’s automobile exports contracted 9.7% during the first quarter of this fiscal, with shipments

of three-wheelers nose-diving as much as 46.6%. Last year, however, overall exports from the

sector grew marginally at 1.91% over the previous fiscal, with commercial vehicle segment

leading the exports growth. Come today, the automobile industry seems to be thrilled with the

notion of a simplified tax regime. “The current tax structure on automobiles is riddled with

complexities,” says Vivek Mishra, Partner & National Leader – Indirect Tax,

PricewaterhouseCoopers.
Currently, automobile sales are subject to six different types of tax at various rates which include

Excise Duty, Infrastructure Cess, Octroi, VAT, Motor Vehicle Tax/Road Tax and Tax Collected

at Source (TCS). What’s more? The variation in each of these tax rates, according to vehicle

type, engine size and ground clearance, further compounds complexities. GST, once

implemented, will remove the cascading effect of taxes and put Indian automobile industry on a

stronger growth trajectory.

All taxes on input paid will also be offset with the output liability of GST. Owing to different

types of indirect taxes collected by the Centre and States separately, taxes paid on some of the

input costs currently cannot be set-off against the final tax. Some of the common examples

include Service Tax paid on certain inputs such as rent, IT, freight, etc., and lower tax credit on

outsourcing activities, etc. This is likely to change once GST is implemented. Further, since CST

will be subsumed in GST, manufacturers will no longer be required to have warehouses at

multiple locations across states. The 2% CST, which currently is a cost to the manufacturer, will

become a part of IGST, and the manufacturers will not be liable to pay this origin tax.

Under the current regime, Excise Duty on vehicles is categorised into four slabs, in which

smallest duty is applicable on smaller cars. But within the GST framework, taxes levied by the

Central government such as Excise Duty and by state governments as Sales Tax would be

subsumed into one tax uniform tax.

If the proposed tax rate of 18-20% is approved, the prices of vehicle are expected to decrease by

almost 8-18%, and a reduction in automobile cost structure will not only fuel demand for
automobiles in the domestic market but will also make India-made vehicles more cost-

competitive in export markets.

The industry expects a dual tax structure for small and big cars to be announced when the

government is ready with the final GST laws. “According to a report by the Committee on

Economic Affairs, the proposed GST rate on SUVs is 40%. Therefore, SUV prices may increase

slightly. But for all other cars, there will be a significant reduction in rates,” says Mishra.

The current indirect tax provision categorises cars into four segments, with all attracting different

sets of tax rates.

While small cars (less than 1200 cc) attract a total of 27.6% tax (Excise Duty 12.50% + Cess 1.1

% + VAT 14%), medium cars (1200 cc – 1500 cc) attract 39.1% tax (Excise Duty 24% + Cess

1.1 % + VAT 14%). Luxury cars (beyond 1500 cc) and SUVs (also beyond 1500 cc), on the

other hand, attract 42.1% (Excise 27% + Cess 1.1 % + VAT 14%) and 45.1% (Excise Duty 30%

+ Cess 1.1 % + VAT 14%) respectively.

Therefore, cars manufacturers end up paying tax in the rage of 27.6% (minimum) to 45.1%

(maximum). If the proposed GST rate of 18-20% is accepted, small as well as big cars, excluding

SUVs for which 40% rate has been discussed, will become cheaper and fuel the growth of the

auto industry.

While the automobile industry is betting big on the new indirect tax regime, it has apprehensions

over the tax rate. How will the new rates be decided? Will there be a uniform rate for all size of

cars? Will they all fall under the same 18-20% tax rate bracket? The question seems to be more

about whether the government will decide rates based on efficiency or the capacity of cars.
Nevertheless, if the industry’s predictions are anything to go by, automobile exports will be a

major gainer from the new tax arrangement. The GST will help relax the burden of double

taxation, unravel complexities and enhance ease of doing business for export-oriented

automobile manufacturing hubs. However, the major challenge for the exporters will be to

effectively manage their cash flow amid this shift from an exemption-based tax system to a

refund-based system.

The GST system would also encourage Indian vehicle manufacturers to produce cars of

international standards.

Under the current regime, a manufacturer has to comply with a labyrinth of taxes, which act as

huge hurdles and add costs at each stage. Foreign investors are reluctant to invest in India,

primarily becauseof the country’s regulatory and bureaucratic complexities. In the absence of

GST, not only Indian car-makers but foreign too have to waste energy in their operations. A

successful enactment of the new indirect tax regime would have a transformative effect on FDI

in India.

GST will also lessen overall production cost and hassles, thereby encouraging domestic as well

as international car manufacturers to expand their businesses and make Indian products more

qualitative and competitive across the world.A very similar situation is applicable to the

engineering and capital goods manufacturing sectors.VINEET BAID CEO, Falcon

Autotech “It is certain for businesses to welcome the GST Constitutional Amendment Bill.

Businesses will now re-design the supply chains for removing the taxation bias from the supply

chain design.This reshaping of supply chains by other sectors is set to favour the logistics sector

by thus creating multiple opportunities. Consequently, we anticipate a sharp increase in the

demand for warehouse automation, larger warehouses, high tonnage trucks and logistics
management software. Supply chain consultants will see high demand for network planning and

optimisation projects.Overall, we are expecting to see organized warehousing to witness

significant upsurge.”

ENGINEERED SUCCESS

According to a Care Ratings report, “the complexity in the Engineering Goods sector is that

companies are involved simultaneously in manufacturing of goods and rendering of services. For

example, a company engaged in manufacturing of transmission towers also does EPC

(Engineering, Procurement and Construction Services) of entire transmission lines which not

only involves manufacturing of transmission towers but supply of bought out items and

rendering of services. The EPC players pay service tax at present while the manufacturers pay

excise duty. Introduction of GST is expected to improve the prospects of engineering, capital

goods and power equipment (ECPE) sector by simplifying the tax structure.” And not to say the

industry too has embraced the GST regime with both hands and hopes that it will transform the

sector. Arvinder Pal Singh, Owner of Perfect Vibrator Company, a Delhi-based manufacturer of

construction machinery parts, says, “GST is good for our industry. GST needs to be implemented

as there would be a common tax. If there is one tax system, it will help in setting up the company

anywhere in the country and also facilitates ease of doing business.” B. Ashok Rao of Rajeev &

Co, manufacturer and exporter of ball valves, holds similar views. “GST will help in bringing

down the cost of production in manufacturing of goods. The major advantage is that it facilitates

inter-state trading which was earlier quite cumbersome due to various levies at different levels

and in different states.”

Players in the engineering sector are proposing that the tax rate under GST regime should be kept

at a minimum level as it will result in lowering the final cost of products. “Tax rate should be

18% as it will benefit the industry in keeping the cost of production low and in turn passing the

benefit to customers in form of lower-priced product. The proposed 22-25% tax structure would

be too high for the industry,” says Singh. Rao also supports the 18% tax rate adding that “there is

no direct benefit of GST on exports but lower costs at manufacturing level can automatically

promote trade at both national as well as international levels.”

The engineering sector, being the largest of the industrial sectors in India, is of strategic

importance to the economy owing to its strong integration with other sectors. And as such it

plays a pivotal role in the development of other industrial sectors of the economy. In fact, today,

engineering sector accounts for about a quarter of the total factories and more than half of the

overall foreign collaborations in the country.

Hence, the proposed tax rate and structure under GST for the industry should be such that it

avoids procedural difficulties for exporters and make their products competitive in export

markets.

“Instead of first paying the taxes and then claiming credit for the same, the proposed enabling

GST law should exempt exporters from the taxation net since the country does not want to export

taxes,” says T. S. Bhasin, Chairman, Engineering Export Promotion Council (EEPC).

As per Bhasin, the turnaround time for tax return processing needs to be sped up tremendously.

“Even if we consider six months on average, engineering goods companies will require a huge

additional working capital,” he says. Further, post GST, buyers too will have to ensure that their
vendors have robust IT infrastructure and compliance process in place, so that vendors do not

default on timely and appropriate payment of taxes.

RIGHT MEDICINE

When it comes to pharmaceuticals sector, another key foreign exchange earner for the country,

the reaction to the passage of the Bill has been mostly positive.GST will not only simplify tax

structure, but will also create a level-playing field for Indian pharmaceutical companies vis-à-vis

foreign competition. “The biggest advantage to the industry would be that of reduction in

transaction cost, with an immediate impact coming from the discontinuance of CST. The

multistage taxation along with the inability to take full benefit of the CENVAT credit / refund

has been an issue for the industry.

With central GST expected to be a single rate for goods and services, going forward credit

accumulation may not be an area of concern,” states the report from Care Ratings. Furthermore,

if the legislation provides for carrying forward of the unutilised credit this would be an additional

boost to the industry.

However, there are concerns about drug prices, exemptions and compliance procedures. Some

analysts have warned that there could be a mild inflationary impact of GST on prices of

medicines over the next one-two years. “Currently, medicines are taxed at 5% to 7.5%,

depending on the state they are being sold.

Post GST, our tax liability will increase to 12%. This will put further financial burden on our

customers,” believes Rahul Thakral, MD, Biotic Healthcare.

Terming inverted duty structure “the biggest challenge” for the sector, Kanchana T. K., Director

General, Organisation of Pharmaceutical Producers of India (OPPI), says, “inputs are taxed at

12.5% currently, while finished formulations are taxed at 6% from a Central Excise Duty

standpoint. The difference is accumulated as a value-added tax credit (CENVAT), but no

provision exists for refunds against accumulated CENVAT credits. The process of getting

refunds under state VAT rules (where they exist) is also a long one.” However, suggesting a way

out, Kanchana adds, “Specifically notifying the pharmaceutical industry under the model GST

law and making the process of refund easier by automating it, would make a huge difference to

drug manufacturers.” Well, a big first step in this direction is the provision in the draft GST

which allows refunds in cases where the GST rate on inputs is higher than the GST rate on

outputs.

Some industry experts even forecast a possibility of negative impact on pharma sector if rate

exceeds 12% because, as per them, the impact on pharma is largely rate-dependent. Similar

concerns are echoed by Thakral of Biotic Healthcare who envisage a rate range hovering

somewhere between 10-12% to be optimal.

“Anything beyond, will negatively impact pharma industry,” he says.

NO SHINY GEM FOR ALL

Prime Minister Narendra Modi, in his speech post passage of the Bill in Parliament, described

GST as one more pearl in India’s necklace. The metaphor may be apt when it comes to overall

tax reforms, but India’s gems and jewellery industry is, however, circumspect about GST’s
glitter. Almost all major stakeholders in the exports segment want the government to levy the

minimum possible tax rate on the industry under GST.

The concept of Revenue Neutral Rate (RNR, a tax rate that allows the government to receive the

same amount of money despite of changes in tax laws) is at the heart of the debate on calculating

ATUL BANSHAL President, Finance and Accounts, M3M Group GST appears to be a

benefactor for the real estate regime, primarily in light of the expected free flow of credit, which

should translate into an increase in margins in the hands of the developer. Seamless and uniform

transaction across states will help in cost rationalisation. GST should have a significant impact

for commercial property developers, who today are burdened with high costs in absence of credit

availability on construction services used for developing a to-be-rented commercial property. It

is expected that under the GST regime, there should be a smooth flow of credit and current

restriction on construction related credits not being available for offset is expected to be

removed. This would help reduce the project costs in the hands of the developer, which should

further have a positive effect on rentals. If the credit restrictions continue, due to higher GST

rates, the project cost are only going to get escalated further. Besides, it also appears beneficial to

end-user or buyers. Uniformity in taxes will help the buyers as well. In the current scenario,

several taxes are added up in the cost posing a great difficulty for an ordinary buyer.

Implementation of GST will lead to uniformity in taxation rescuing an ordinary buyer from

calculation traps designed by the statute.

the acceptable and feasible GST rate for the gems and jewellery industry and other industries for

that matter. In fact, the government had published a report on RNR and the structure of rates for

GST, prepared by a committee chaired by Chief Economic Advisor Dr.Arvind Subramanian in

December 2015. A survey was then carried out by the National Sample Survey Organisation,
based on the report. The survey found that the tax structure for the gems and jewellery industry

had been formulated at a ubsidised rate and, as a result of that, other industries are paying a

price.

In a nutshell, the survey findings were not in favour of the gems and jewellery industry. And the

chances are high that incidence of tax on the industry will increase once GST is implemented.

Well, the industry is crying fowl over the findings! According to Sanjeev Agarwal, CEO,

Gitanjali Exports, one of the key objectives of the survey was to ascertain luxury and non-luxury

product categories and, unfortunately, while doing so, the survey categorised gold as a luxury

product. “In my opinion, the analysis is flawed for some obvious reasons. For instance, there is a

possibility that households with low or no literacy level might not have understood the

significance of the survey and ended up providing inaccurate gold investment details which

might have had an adverse effect on the outcome of the survey,” says Agarwal.
For telecom companies, the incidence of taxes will increase post-GST. (Image Source: The

Dollar Business)

Moreover, as per Agarwal, the survey didn’t differentiate between rural households and

households that are dependent on the agrarian economy. “The distinction is crucial given the fact

that agrarian economy enjoys substantial tax benefits,” says Agarwal. In fact, a huge share of

earnings in the agrarian sector is beyond the ambit of tax-net. In addition, the penetration is gold

is higher than the penetration of bank savings account in the country, which inevitably, makes

gold, an unofficial currency in the rural areas. So, the survey inference that says that gold is

being heavily subsidized and benefits are accrued to the rich and wealthy is inappropriate, feel

industry insiders.
In fact, the industry is unequivocal in its demand that GST should be levied at the lower slab.

Gems and Jewellery Exports Promotion Council (GJEPC) has already submitted a preliminary

report prepared by a Mumbai-based law firm, Economic Law Practice (ELP), after gathering

feedback from various manufacturing segments of the industry like plain gold, diamonds and

coloured gemstones. “Our key concerns are that supply and manufacturing side should not be

overburdened with taxes, and getting tax input credit refund should be smooth. Above all, our

exports should remain competitive, given the current global scenario,” says Sabyasachi Ray,

Executive Director, GJEPC.

One shouldn’t forget that there are past instances of higher tax structures proving detrimental to

the country in more ways than one. For instance, the 10% import duty on gold, although

succeeded in reducing gold import through official channel, it has also encouraged smuggling of

gold inadvertently. According to various estimates, almost 200 tonne of gold worth Rs.60,000

crore is smuggled into the country every year.

WEAVING MAGIC?

Textile is another industry on which GST might have a negative impact. While the final GST

rates are yet to be announced, even at the 12% lower rate recommended by the Dr. Arvind

Subramanian Committee, the textile sector is likely to be negatively impacted. In fact, the cotton

value chain is likely to be the worst affected as it is currently attracting zero Central Excise Duty.

What’s more? Industry rating agency ICRA expects that “due to reduced tax advantage of cotton

yarn vis-a-vis manmade yarn, there can be a gradual shift in the domestic textile industry towards

manmade fibre.” For the uninitiated, India currently operates with a fibre mix of cotton:
manmade of 60:40, as against global average ofof 40:60. “However, the degree of impact will

depend on the final rates which will be applicable to the sector,” states the report.

But then, there are some positives as well. “GST will give a fillip to the outsourcing processes in

textile industry.

It will translate to administrative ease and can help in significantly curtailing discrepancies and

aberrations in the taxation system. Corruption and black money laundering will also be curbed,”

says K. K. Lalpuria, Executive Director, Indo Count Industries Ltd., a company engaged in the

manufacturing and export of cotton yarn, grey knitted fabrics and cotton made ups.

Further, with input tax credit chain becoming more transparent and integrated, the tax credit for

exporters will become easier and full credit of indirect taxes can be claimed. But at the same

time, the Duty Drawback scheme, which aims to provide credit of indirect taxes, will lose

relevance under GST. While export products, where the current duty drawback rates are lower

than the incidence on indirect taxes on inputs, will benefit under GST, sectors, where drawback

rates are higher, will take a hit in profitability.

NOT BANKING ON GST

One sector that has viewed GST skeptically is the services sector. “There could be a decrease in

consumption of services as the service tax will move northward from the current rate of 15%,”

says Saravana Kumar, Chief Investment Officer, LIC Nomura Mutual Fund. For instance, tax

rates for telecom service providers could move up to 18-22% from the current 15%, resulting a

dip in profits. This increased tax could also pinch consumers at the bottom of the pyramid.
Further, GST is also being viewed by some as a “landmine of compliance”.Service providers will

have to file over 30 returns every month based on their operations and geographic spread. There

could also be issues on bringing credits under IGST. A case in point could be a transaction

involving a Mumbai resident using Vodafone telecom services travelling to Bengaluru and

making calls through an Aircel network. It remains difficult to determine and calculate the

importer and supplier in such complicated transactions. Telecom service providers could also

have challenges defining interchange costs (the amount that a telco pays a receiving network),

besides finding it restrictive to market free and bundled services.

The GST Bill is also leading CFOs of banks and financial corporations to ponder on the nature of

business and areas that could be potentially hit. “For banks, the challenge could be further

complicated as they may be construed as e-com operators for facilitating supply of services or

goods through an electronic platform. This will result in an added obligation to collect tax at

source. Under the present regime, there already exists litigation on whether banks or NBFCs are

liable to pay taxes as dealers,” says Nihal Kothari, Chairman – National Council of Indirect

Taxes, ASSOCHAM.

Even IT companies are wary of the GST. Some feel the proposed tax regime could lower the

competitiveness of India’s IT sector. “Companies engaged in the supply of services on a pan-

India basis, will have to seek registrations in 37 jurisdictions. Complex billing and invoicing

requirements due to place of supply and valuation will hit the service sector hard in general and

IT in particular,” says R. Chandrashekha, President, National Association of Software and

Services Companies (Nasscom).

HURDLES GALORE

Well, GST comes with its own set of challenges. For most companies, overhauling the entire IT

systems is the biggest challenge and this process could take anything between 6 to 9 months.

While the government issued the first draft model GST law over a month ago, further details are

awaited on aspects relating to compliance such as invoice formats and return details. “We

anticipate several teething problems in transitioning to the GST regime. In the initial months, we

anticipate that a parallel system for undertaking compliance will be required.

The complexities are far more for services companies, where a lot of ground needs to be covered

to get clarity on taxation of pan India contracts involving multiple states,” says Mahesh Jaising,

Partner, BMR & Associates LLP, a tax advisory firm.

Companies are even hiring experts to help them make a smooth transition from current tax

regime to GST. For instance, FMCG major Emami has hired PricewaterhouseCoopers to assess

the impact of GST regime on the company and chart a roadmap to realign company’s strategy

accordingly. “Migrations from current regime to GSTN (Goods and Services Tax Network) will

start from October 1, 2016,” says L. Badri Narayanan, Partner, Lakshmikumaran & Sridharan.

Narayanan’s firm is an advisor to Infosys, the system integrator in the GST project. He shares

that most suppliers’ data will be transitioned from Excise, Central Sales and VAT to GSTN,

however, suppliers will have to request for registration for migrating to ISD (Input Service

Distributor).
WHILE THE BILL HAS BEEN EMBRACED, ITS SUCCESS WILL BE DEFINED BY

ITS IMPLEMENTATION

While most legal experts sound optimistic that the system will be operational by end of 2017,

industry and technology experts opine that building a system from legacy could have potential

barriers. Narayanan is hopeful that the GST network will be ready and operational by April 1,

2017, but the transition period could result in working capital issues for traders. “A trader is

neither manufacturing nor providing services, and if he is not eligible for CENVAT credit within

the old regime he will not be entitled to CENVAT credit on duty paid which he earlier received,”

he explains.

A major change involving GST implementation is its compliance, which will necessitate robust

systems and tracking of information. Since the entire process of tax has been revamped, the

process of accounting and auditing will also undergo a change. Much of this change will occur

on the systems that organisations use for compliance. “Entire ERP systems will need to be re-

configured, and staff will have to be trained on GST aspects.

The onboarding of vendors could result in a big change. There is need of support from finance,

procurement, legal, IT, and many other departments for positive outcome of GST, else the

holistic picture may not be possible,” says Pratik Shah, Partner, SKP Business Consulting LLP.

As manufacturing becomes advantageous, organisations will be motivated to manufacture

commodities themselves rather than procuring them. For service organisations, they will be

compelled to think on operating back-office centres themselves. On the positive side, from the

government’s perspective, GST systems across the globe have improved compliance, and in
many-an-instance we’ve seen even a revenue neutral rate turning into revenue positive due to an

expanded tax base.

Thus far, Indian exporter-manufacturers were at a huge disadvantage due to overlapping taxes.

But with GST, hope is, matters will change for the better. (Image Source: The Dollar Business)
MORE GOOD THAN BAD?

The successful implementation of GST will depend on its smooth passage in the states, and the

formation of a GST council that drives consensus on rates, exclusion lists, applicability limits,

principles of supply, special provisions to certain states, and a host of other rules and regulations.

Even the time chosen for implementation will matter a lot when it comes to confusion and

litigations.

“Full-fledged IT system should be in place so that there is no dispute in arriving at the losses

incurred by states in the first five years. An April 1, 2017 rollout may affect the last quarter

business of FY2017. Hence, implementation during mid 2017-18 would be ideal and preferable,”

says Ashok P. Hinduja, Chairman, Hinduja Group of Companies.

Whatever be the implementation hassles and timeframe, the fact remains GST is a big step

towards making India a unified market. The subsuming of major Central and State taxes in GST,

complete and comprehensive set-off of input goods and services and phasing out of Central Sales

Tax (CST) will not only reduce the cost of locally manufactured goods and services, but will also

increase the competitiveness of Indian goods and services in the international market and give

boost to Indian exports. That by our count is more good than bad.
 OBJECTIV OF THE STUDY

1. To understand the silent features of GST.

2. To understand the Tax Credit Mechanism System of GST

3. To analysis impact of GST on Service Sector in India.

4. To diagnose the opportunities & challenges for service sector.

5. To Impact of GST on Service Sector of Indian Economy.

 SCOPE OF THE STUDY
 The purpose of the report is to analyze the present scenario of GST. in India.

 It discus about the challenges of GST. which are faced by the people in India.

 It also emphasizes about the opportunities of GST. in India.

 It tries to evaluate the future development pattern system in India.

 IMPORTANCE OF THE STUDY
1- It helps to know about the GST..

2- It helps to know the reason behind the evaluation of GST..

3- It helps to understand the objective and goal of GST..

4- It helps to know the impact of GST. in the scenario of job creation.

 Research Methodology

Research

Research is a purposeful investigation. It is scientific & systematic searches for knowledge &

intimation on a specific topic research is useful & research objective can be achieved if it is done

in proposed process.

Methodology

The world methodology spells the meaning itself if the method used by the researches in

obtaining information. The data (information can be collected from primary sources & secondary

sources.) By primary data we mean data collected by researches him for the first time to

collaborate the data which has previously not been used is known as primary data by secondary

data we mean the data collected from various published matters, a Magazine newspapers status

of previous research report etc. In other word we can say that the data which has already been

used your different purpose by different people is known as secondary Primary data can be

collected through questionnaire and personal interview as far as concern my research is limited

to Secondary data andis collected from the various books journals, newspaper editions expert

suggestions web sites & internet & etc.

Research in a common language refers to a search of knowledge. Research is scientific &

systematic search for pertinent information on a specific topic, in-fact research is an art of

scientific investigation.

Research Methodology is a scientific way to solve research problem. It may be understood as a

science of studying how research is doing scientifically. In it we study various steps that are

generally adopted by researchers in studying their research problem. It is necessary for

researchers to know not only know research method techniques but also technology.

The scope of Research Methodology is wider than that of research methods.

The research problem consists of series of closely related activities. At times, the first step

determines the native of the last step to be undertaken. Why a research has been defined, what

data has been collected and what the particular methods have been adopted and a host of similar

other questions are usually answered when we talk of research methodology concerning a

research problem or study. The project is a study where focus is on the following points:

CHARACTERSTICS OF RESEARCH:

 Research is more systematic activity directed towards discovery and the

development and organized body of knowledge

 Research is based upon observable experience and empirical evidences.

 Research demand accurate observation and description.

 Research requires expertise

 Research involves gathering new data from primary sources, Existing data for a

new purpose.
NEED FOR DESIGNING:

 Research design makes possible as maximum information with minimum

expenditure of effort, time and money.

 We need research design in advance collecting and analysis of data for research

project.

RESEARCH DESIGN:

The design for this research report is as follows -

DESCRIPTIVE RESEARCH:

Descriptive research in contrast to exploratory research is marked by the prior formulation of

specific research Questions. The investigator already knows a substantial amount about the

research problem, perhaps as a Result of an exploratory study before the project is initiated;

Descriptive research is also characterized by a pre-planned and structured design.

Methods of the data Collection-

1 - Secondary Data

Various books on the subject written by eminent authors were studied. Special write ups and

journals and manuals dealing with the topic were referred to. This was done with a view to gain

thorough know ledge about the topic and to analyse training process objectively.The fact and

information were backed up by the written data and records to safe guard against ambiguous and

vague information.
Sources of Secondary Data

Following are the main sources of secondary data:

1. Official Publications.

2. Publications Relating to Trade:

3. Journal/ Newspapers etc.:

4. Internet

Period of Study:

The period of this study is 3 months.

Understanding the Tax Credit Mechanism System of GST

Goods and Services Tax (GST) is considered the biggest reforms in India. However, one thing

that has become the talking point is – the mechanism of input credit under GST.

In simple words, Input Credit means at the time of paying tax on sales, you can reduce the tax

you have already paid on purchases.

In this article, we’ll cover all you need to know about Input Tax Credit (ITC) under GST, the

time limit to avail ITC, how to calculate Input Tax Credit, how to claim ITC, the situation where

you can not avail ITC and much more.

What is Input Tax Credit (ITC)?

Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output. When

any supply of services or goods is supplied to a taxable person, the GST charged is known as

Input Tax.

The concept is not entirely new as it already existed under the pre-GST indirect taxes regime

(service tax, VAT and excise duty). Now its scope has been widened under GST.

Earlier, it was not possible to claim input tax credit for Central Sales Tax, Entry Tax, Luxury Tax

and other taxes. In addition, manufacturers and service providers could not claim the Central

Excise duty.
During the pre-GST era, cross-credit of VAT against service tax/excise or vice versa was not

allowed. But under GST, since these taxes will be subsumed into one tax, there will not be the

restriction of setting off this input tax credit.

The conditions to claim Input Tax Credit under GST is a very critical activity for every business

to settle the tax liability.

Input Tax Credit can’t be applied to all type of inputs, each state or a country can have different

rules and regulations. Input Tax Credit is also viable to a dealer who has purchased good to

resale.

Tax Credit is the backbone of GST and for registered persons is a major matter of concern. This

is majorly in line with the pre-GST regime. These rules are quite stringent and particular in their

approach.

Say for instance that you are a manufacturer. The tax to be paid on the final product is INR 450.

The purchase tax paid is INR 300. The input credit you claim is INR 300, and the final taxes you

will pay is INR 150.

What is the time limit to avail GST ITC?

ITC can be availed by a registered taxable person in a specific manner and within a specified

time frame. The table below shows the different situations wherein the inputs can be claimed for

semi-finished goods or stock or finished goods.

 ITC claims day for semi-furnished goods/stock/finished
Situation
goods (held on immediate preceding day)

If a person has applied for registration or is liable to

Day from when he is liable to pay taxes
register or is granted registration

When a person takes voluntary registration Registration day

When a taxable registered person stops paying taxes in

composition.

Input tax credit for the above-mentioned situations can be claimed only if it does not exceed one

year from the tax invoice date of issue related to supply.

For any other cases, ITC must be claimed earlier of the following-

a) Furnishing of annual return or

b) Due date of filing the monthly return (GSTR-3) for the next financial year’s September

month.

Example- For the invoice dated 10/11/2017, ITC must be availed earlier of the following dates –

The due date for September 2018 return – 20th October 2018

Annual return filed (assumed) – 10th November 2018

Thus till 20th October 2018, ITC must be availed.

Data Interpretation-

How to calculate Input Tax Credit?

Let’s consider an example on how to calculate Input Tax Credit:

Suppose you have a business. The service or product you sell attracts a tax of 18%. You use

input services or goods during your business. The tax due from you (of 18%) can be adjusted to

the taxes paid already by you on the purchase of such inputs. The manufacturers add taxes only

for the value addition done and not on the total product value.

Let’s consider an example of a steel utensils manufacturer who manufactures utensils like

spoons, plates, etc. Assume that the manufacturer had bought an INR 500 worth of raw steel to

make a pressure cooker and INR 100 worth other raw materials. Let’s assume that the GST for

steel is 18%. Also, assume that the GST he paid is 28% of other raw materials.

Hence, the manufacturer has paid Rs. 28 on other raw materials and Rs. 90 on raw steel which he

used as inputs.

So, the total input tax paid was INR 118 by the manufacturer.

Now, after considering the cost of manufacturing steel pressure cooker using the raw materials

and including a decent profit, he decided to sell the pressure cooker to a distributor at INR 800 +

GST.

Assume that the steel utensil attracts a GST of 18%.

Now the tax on it will be INR 144. So the manufacturer will invoice the pressure cooker for INR

944.
Hence, the manufacturer is collecting INR 144 as GST on sale from the distributor. The

manufacturer had paid INR 118 towards GST during the purchase of his input raw materials.

Hence, out of INR 144 of GST, the manufacturer can now claim a credit of INR 118 which he

already paid towards GST for inputs and deposit the difference of INR 26 with the government.

This tax credit is available at all succeeding stages, retailers and distributors charge GST and can

claim the Input Tax Credit.

How to claim Input Tax Credit (ITC)?

The following conditions have to be met to be entitled to Input Tax Credit under the GST

scheme:

1. One must be a registered taxable person.

2. One can claim Input Tax Credit only if the goods and services received is used for business

purposes.

3. Input Tax Credit can be claimed on exports/zero-rated supplies and are taxable.

4. For a registered taxable person, if the constitution changes due to merger, sale or transfer of

business, then the Input Tax Credit which is unused shall be transferred to the merged, sold or

transferred business.

5. One can credit the Input Tax Credit in his Electronic Credit Ledger in a provisional manner

on the common portal as prescribed in model GST law.

6. Supporting documents – debit note, tax invoice, supplementary invoice, are needed to claim

the Input Tax Credit.

7. If there is an actual receipt of goods and services, an Input Tax Credit can be claimed.
8. The Input Tax should be paid through Electronic Credit/Cash ledger.

9. All GST returns such as GST-1, 2,3, 6, and 7 needs to be filed

To analyse the impact of GST on different (Service) Sectors in India

Data Interpretation-
The above data clearly shows that the growth of every sector is very low but in the case of

service sector it shows the good signs. The proposed GST regime is a half-hearted attempt to

rationalize indirect tax structure. More than 150 countries have implemented GST. The

government of India should study the GST regime set up by various countries and also their

fallouts before implementing it. At the same time, the government should make an attempt to

insulate the vast poor population of India against the likely inflation due to implementation of

GST. No doubt, GST will simplify existing indirect tax system and will help to remove

inefficiencies created by the existing current heterogeneous taxation system only if there is a

clear consensus over issues of threshold limit, revenue rate, and inclusion of petroleum products,
electricity, liquor and real estate. Until the consensus is reached, the government should resist

from implementing such regime.

 Opportunities & challenges for service sector after GST

War room saved the day: A GST Feedback and Action Room was set up to take care of initial

launch issues. The government remained open to addressing issues as they cropped up, with

feedback flowing in fast via phones, messages and even Twitter. Return filing dates were

deferred, tax slabs were rejigged to address industry and consumer concerns and procedures and

rules were amended to ensure hardships were alleviated. The officers’ committee — comprising

state and central official ..

If you examine the impact of GST from the standpoint of various stakeholders — government,

industry and consumers — it is certainly directionally positive. For consumers, prices of

commodities have either gone down or been stable and accessibility has improved, given supply

chain efficiencies. A common rate structure across states means decision making for consumers

becomes easier. From the industry standpoint, except the initial technological challenges in

filings and blockage of funds.

Data Interpretation-

Simplification and standardisation of compliance—a single return instead of two or three--to

ease taxpayers’ burden should continue to be of prime importance for the government, especially

with repeated deferment of compliance dates due to systems challenges and also the formats,

which are too complicated for many micro, small and medium enterprises (MSMEs) considering

small, medium businesses have a large share of registrations. The government should bring down

the slabs from four to more few in numbers.

Chapter – 4
Finding
&
Recommendation
 Findings

 A GST model that strikes a balance between harmonization and fiscal autonomy
would be far better than the present complex system. Any simplification and
harmonization in procedures that lead to a broader base, less exemptions, smaller
number of rates (hence less classification problems and scope for corruption), will
automatically result in greater compliance, less disputes, lower collection cost and
higher tax collection.
 A more comprehensive input credit system would avoid’ cascading’ or (or tax-on-tax
effect) - thereby reducing prices and improving the international cost competitiveness
of Indian goods and services. We should keep in mind that if we start with a narrow
base now, it will be difficult to change it later. Changing tax rates also becomes
troublesome in future as vested interest develop. Hence, it is better to go slow, build a
consensus and put a good (though not necessarily ideal) system in place rather than
push through a haphazard compromise hastily. 15
 The empowered panel has also approved a Special Purpose Vehicle for creating IT
infrastructure for GST as a not-for Profit Company under section 25 of the Companies
Act. Private sector will hold 51% stake in the SPV and rest will be held jointly by
States and Centre. The proposal will now go to union cabinet for its approval. The
empowered panel had given in-principle clearance for creation of IT infrastructure that
will allow traders all over the country to use their permanent account number as the
tax identification number for all direct and indirect taxes in the country. Having a
common identification number has benefits not just for the taxpayers but also for the
tax authorities as it helps them keep tab on transactions by establishing links with
other tax payments.
 The IT infrastructure is crucial for the success of the proposed GST, which will
replace plethora of indirect taxes including excise duty, service tax, value added tax,
octroi Under the National e-Governance Plan (NEGP) launched by the Department of
Information Technology, the Department of Revenue is coordinating a Mission Mode
Project on ‘Commercial Taxes’ (MMP-CT), which is an important e-Governance
initiative in the field of State taxes.
 The Union Cabinet in February 2010 has approved Mission Mode Project for
computerization of Commercial Taxes Administrations of State Governments under
NeGP. This project, with an overall cost of 1133 crore, will help States to develop and
upgrade the IT systems in their commercial taxes administrations. The focus of the
project, on the one hand, is to provide improved set of services to the dealers and on
the other, to improve the efficiency of the Commercial Taxes administrations of the
State Governments.
 Under this project, Central Government and State Governments are required to share
fund roughly in the ratio of 70:30. However, keeping the Special Category Status of
North Eastern States, this ratio has been fixed at 90:10 (Central share: State
Governments’ share) whereas UTs without Legislature will be funded 100% by
Central Government. A Project Empowered Committee (PEC) under chairmanship of
Revenue Secretary has been constituted for sanctioning of States’ proposals of
computerization of Commercial Taxes Departments.
 Recommendations

 The government should made policies about the liberalization of the taxes policies

so that they may attract to invest and produce in our country which will benefit us

in many ways, most importantly will increase the GDP ratio prevailing in the

country.

 The law and order situation of the country should also be improved which will

result that the foreign investors will not hesitate at all to invest and provide a better

taxation policy and atmosphere.

 Moreover, the inadequate working culture of government employees is required to

be change for a better working environment, shortages are fulfilled on the

emergency basis. As this shortage is forcing many of the investors, foreigners or

domestic, to exit from the market.

 The policy makers should provide the investor friendly environment. There should

be political stability in the country as the uncertain situation will leak out

investment from the country.

 The imports and exports or trade policies should be more unrestricted which may

ease the investors – both foreign and domestic – to produce goods by importing the

inputs from other countries and for the better tax generation facilities.
Chapter – 5
Conclusion
&
Limitation
 Conclusion
Parliament, claiming that the new tax regime will rid the country of tax-terrorism. The tax

regime which was proposed about a decade back as the panacea that would clean up the messy

and complex indirect tax structure of the country, is expected to give India’s GDP a fillip, apart

from boosting exports. “Expected” is the word. While GST has become popular as a ‘One

Nation-One Tax’ formulation, the realities of implementation may be more complicated than

political negotiations in the Parliament. Truth is GST, for which the ruling administration has set

a go-live date of April 1, 2017, is in no way a one-tax rule. As things stand, the Centre has

agreed to subsume excise duty, additional excise duty, service tax, countervailing duty, surcharge

and cess, and central sales tax into the waiting arms of GST. The States have agreed to give up

VAT (sales tax), entertainment tax, luxury tax, taxes on gambling, octroi and entry taxes, cess

and purchase tax. GST will thus replace all of these taxes. The all-important tax rate though

remains to be agreed upon.

A wait of more than a decade came to an end on August 3, 2016, when the 122nd Constitution

Amendment Bill, 2014 (popularly known as GST Bill) was passed by the Upper House of the

Parliament of India. This is apparently the country’s biggest tax reform since

Independence.Some achievement therefore for the Indian democracy. The new tax regime, which

subsumes all indirect taxes such as sales tax and excise tax, is expected to bring down tax rates in

India, while converting the country into a big single market. In short, now, seamless flow of

goods and services will occur across 29 states and 7 union territories! Many believe the landmark

Goods and Services Tax Bill (GST) passed by the two houses of the Parliament – after years of

back and forth by the ruling party and main opposition (both the present ruling and main

opposition parties have supported and opposed the Bill depending on whether they were in
power or in the opposition) – is a key step that would catapult India into the big league in global

supply chain. The implementation of the Bill is expected to ease India’s cumbersome tax system,

help goods move seamlessly across state borders, curb tax evasion, improve compliance,

increase revenues, spur growth, boost exports, and attract investments by improving ease of

doing business in India.

In short, GST when implemented, is expected to perform miracles. But, can it really? And

considering that the Bill still needs to be ratified by at least 13 more state legislatures (over and

above the three states Assam, Bihar and Jharkhand,which had already passed the bill, as on

August 22, 2016) before the President of India can notify the GST Council to decide on the new

tax rate and other issues with respect to GST, will it be a easy journey for the GST to the finish

line?

India is by no means the first country to experiment with a unified tax regime.160 countries

already have some form of GST or a value added tax. What makes GST in India special is that as

opposed to a federally administered regime, the Union and state governments will jointly

administer India’s dual GST. This means it will be a set of many different taxes – a GST for each

of the 29 states and two union territories (SGST), a Central GST (CGST), and an Integrated GST

(IGST; which will be a combine of CGST and SGST on inter-state supplies of goods and

services). That surely is not as unified as it seems.

Interestingly, India will be one of the very few countries with a dual GST regime alongside

Canada and Brazil. The all-important rate is yet to be finalised, with the final standard rate

possibly lying between 15% to 27%, though 18% is the rate that seems to be gaining a sort of

consensus amongst pundits. The problem though is that the pundits won’t decide the rate! GST

rate will be decided in the coming months by a GST Council that will prise the Finance Minister
with a representative from each state government. As such it will be negotiated amongst the

Union and state governments that will jointly administer the GST regime. It will still remain

complex and difficult to implement, but would surely make life easier for businesses by cutting

down, or rather combining, the many indirect taxes that companies file in India.

Foreign media has called GST one of the world’s most complex tax reforms that needs to be

supported and serviced by state-of-the-art technology. And Infosys, the Indian software giant,

has already started building a massive electronic infrastructure – a GST portal (GSTP) – where

taxpayers can register, make payments and file returns. It is expected that some 7.5 million

businesses will be covered by the tax. But then there are several questions that have been doing

rounds since the day the Bill was passed in Rajya Sabha. What will really be the impact of GST

on India’s manufacturing and service sectors? What will be a realistic timeframe for its

implementation? How difficult will the implementation process be given the dual nature? What

would be an ideal timeframe by which benefits will be realised? And above all, what will be the

impact on exports from key sectors?

BUSINESS MADE EASY

One factor where the industry has clearly been in consensus is that GST being a destination

based tax (where the tax is not applied at the point of production but at the point of supply or

consumption),will make life easier for businesses in India. Companies will not have to file tax

returns with multiple departments, but there will be just one web-based form to file tax returns.

The country will finally become one common market, with uniform pricing across states, and

optimal allocation of resources, making our goods more competitive. “Undoubtedly the most

significant reform since the liberalisation in 1991, GST will transform India’s economic
landscape. Unifying the $2 trillion economy and its 1.3 billion people under a uniform tax code,

makes our country one of the most attractive destinations for business. I am confident that this

game-changing legislation will propel India into a $20 trillion economy in the decades to come,”

says Anil Agarwal, Chairman, Vedanta Group. Apart from this, there will be a very strong

positive impact on the logistics sector. There is no one in India who has not seen the serpentine

queues of goods carrying vehicles standing at inter-state check posts for inspection and payment

of taxes. Even Shaktikanta Das, Economic Affairs Secretary, Ministry of Finance, GoI, is on

record saying that trucks on an average spend 48 hours stranded at different check-posts every

trip.
 Limitations
1. The study based on secondary data.

2. Researcher cannot get wide information during research.

3. Research is only an indicator and cannot solve the problem.

4. The research report is part of course curriculum and I have analyzed the problem with the limited

time and knowledge was at my disposal.

 BIBLIOGRAPHY
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Research (IJIR) Vol-3, Issue-4.

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April 17, 2017,

[3]. MAIVER AND VIDORNO SITE.(2016, Dec 17). Effects of GST on India’s Health

Industry. Retrieved APRIL 18, 2017 URL: www.maiervidorno.com/effects-gstIndias-health-

industry/

[4]. THE BMR ADVISORS SITE. (2016, Jun 17). The Impact of GST on financial sector.

Retrieved APRIL 2O, 2017 URL:http:// www.bmrdvisors.com/bmrmailer/GST/6- financial.htm.

[5]. THE ECONOMIC TIMES SITE. (2016, Aug 4).What is GST impact on and how will it

affect the common man. Retrieved April 20, 2017

[6]. Mehta, Ranjeet (2016): GST: Game Changer for Indian Economy?. YOJANA vol.60(7) pp-

35-39

[7]. Dani, Shefali (2016). A Research Paper on impact on Goods and Services Tax (GST) on

Indian economy. Bussiness and Economy Journal, vol.7 p-264

[8]. Keshap, P.K (2015): GST- Goods and Services Tax (GST) in India. Journal of Global

Economics, vol-3, DOI:10.4172/2375- 4389.100159

[9]. GOVERNMENT OF INDIA, Department of Revenue. (2015, OCT 6). Concept Note on

GST. Retrieved APRIL 17, 2017 URL: http//www.dor.gov.in/Gstintro.