The historic Goods and Services Tax (GST) is now a reality. The new tax system, which represents "one nation, one tax, one market", came into effect from June 30 midnight after it was launched at an event in Central Hall of Parliament. The GST has been launched with an aim to unify India’s $2 trillion economy and 1.3 billion people into a common market.
The goods and services fall under five tax categories under GST – 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent. The GST will improve the ease of doing business for corporates. The overall tax burden on goods will provide biggest advantage to the consumers.
"Inflation will come down, tax avoidance will be difficult, India's GDP will be benefitted and extra resources will be used for welfare of poor and weaker section," Finance Minister Arun Jaitley said at GST launch event in Parliament.
Here are 10 major points of GST:
1. Input tax credit is the biggest game-changer in GST where credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. Hence, the consumer will only bear the GST levied by the last point in supply chain with some benefits at all the earlier stages.
2. The government has included an anti-profiteering clause in GST to ensure that the benefits are passed on to the final customer by manufacturers and service providers. Hence, it now becomes mandatory to pass on the benefit of tax reduction due to input tax credit to the final customer.
3. Petroleum products such as petrol, diesel and aviation turbine fuel doesn’t come under GST as of now. However, the GST Council will take a decision on it at a later date. Alcohol has also been kept out of GST.
5. "The impact of GST on service sector in the short term could be inflationary as the tax rate would immediately shoot up to 18 per cent. However, going forward, it is expected that due to reduced cost because of availability of GST credit on items hitherto not available, the price of services will come down which will benefit the consumers," said Sandeep Sehgal, director-tax and regulatory at Ashok Maheshwary & Associates LLP.
6. Sehgal says manufacturers may have to wait for some time to gauge the net impact of GST on them and wholesalers and distributers and may later revise the prices accordingly.
7. According to analysts, markets will need some time to adjust to the GST implementation process. This could partially affect the corporate earnings in the short term, however, will boost earnings over the long term.
8. The biggest benefit for India Inc would be the ease of doing business. Ansh Bhargava, head for growth & alliance at Taxmann says GST replaces multiple taxes, multiple interfaces, multiple compliances regime into one.
9. "India is moving towards tax-compliant society where filing of returns will not just be easy but transparent too. This tax compliance will lead to higher revenue for both the central and state governments and enable them to fulfil their social objectives," he said.
10. Chanda Kochhar, MD & CEO of ICICI Bank said, "The GST is a transformational structural reform which will have multiple benefits - the creation of a national market; enhanced ease of doing business; greater productivity and efficiency; and improved tax compliance. This reform will result in benefits for all participants in the Indian economy, including both businesses and consumers."