Basic GST Knowledge

GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits

from the producers point and service provider's point up to the retailer's level. It is

essentially a tax only on value addition at each stage, and a supplier at each stage is

permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and

services as available for set-off on the GST to be paid on the supply of goods and services.

The final consumer will thus bear only the GST charged by the last dealer in the supply chain,

with set-off benefits at all the previous stages.


GST is levied at every stage of production-distribution chain. It will facilitate seamless

credit flowing across the entire supply chain and across all States under a common tax base.

Salient features of the proposed model are as follows:

1. DUAL GOODS AND SERVICE TAX

The GST shall have two components: one levied by the Centre   (hereinafter referred to as

Central GST), and the other levied by the States (hereinafter referred to as State GST). Rates

for Central GST and State GST would be prescribed appropriately, reflecting revenue

considerations and acceptability.   This dual GST model would be implemented through multiple

statutes (one for CGST and SGST statute for every State).

2. APPLICABILITY OF GST TO ALL TRANSACTIONS

The Central GST and the State GST would be applicable to all transactions of goods and services

made for a consideration except the exempted goods and services, goods which are outside the

purview of GST and the transactions which are below the prescribed threshold limits.

3. DESTINATION BASED MULTI POINT LEVY

It is recommended that the Centre and States should adopt a consumption based GST with no

distinction being made between raw materials and capital goods , in avaliment of Input tax

credit. GST is based on destination principle, thus tax base will shift from production to

consumption of goods. The taxable event is Consumption of goods or services. As a result,

revenue will accrue to the state in which consumption takes place or deemed to take place.


4. COMPUTATION OF GST ON THE BASIS OF INVOICE CREDIT METHOD

The liability of CGST and SGST is computed the basis of Invoice Credit method i.e. allow credit

for tax paid on all intermediate purchases of goods and services on the basis of invoice issued

by the supplier. As a result, all different stages of production and distribution can be

interpreted as a mere tax pass-through, and the tax will effectively stick on final consumption

within the taxing jurisdiction.

5. PAYMENT OF GST

The Central GST and State GST are to be paid to the accounts of the Centre and the States

separately. It would have to be ensured that account-heads for all services and goods would

have indication whether it relates to Central GST or State GST (with identification of the

State to whom the tax is to be credited).

6. UNIFORM PROCEDURE FOR COLLECTION OF GST

To the extent feasible, uniform procedure for collection of both Central GST and State GST

would be prescribed in the respective legislation for Central GST and State GST.

GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT

and disjointed services tax – a justified step forward.

GST is by far one of the most important and voluminous Indirect Taxation reform in India which

has far reaching effects. GST Knowledge Series is an attempt to spread awareness of the

Proposed GST Regime in clear and concise manner. It will also provide latest updates on GST to

its users from time to time.

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