1. Presented By: CA Anirudh Sonpal
BARODA BRANCH OF ICAI
16th May, 2015
GST
Basic Structure
Presented By: CA Anirudh Sonpal

2. To Recapitulate – The Journey so far….
2004
The Kelkar Committee Report
2006 & 2007
FM - GST to be Introduced w.e.f 1st April, 2010
November, 2009
Empowered Committee – First Discussion Paper
December, 2009
Report of the Task Force -13th Finance Commission
2010
FM – Roll out of GST by April, 2011
March, 2011
The Constitution (115th Amendment) Bill, 2011
July, 2014
FM – The debate whether to introduce GST must come to an end
December, 2014
The Constitution (122nd Amendment) Bill, 2014
February, 2015
FM - GST by 1st April, 2016
6th May, 2015
The Constitution (122nd Amendment) Bill, 2014 passed by Lok Sabha
12th May, 2015
The Constitution (122nd Amendment) Bill, Rajya Sabha - Referred to Select Committee
Anirudh Sonpal

3. The inherent characteristic of GST being that it is a Value Added Tax
Does India presently have a VAT system of Indirect taxation?
If yes, why GST?
If not, what does GST seek to achieve?
Is GST merely a Tax Reform structure?
Anirudh Sonpal

4. Milestones – towards GST
Excise – Modvat Credit on selected Goods
2002- Cenvat Credit – all Goods
2004- Comprehensive Cenvat Credit– Goods and Services
VAT – States –
Service Tax – Introduced on Selected
services
Negative List based Taxation
Growth
Ahead
GST
Anirudh Sonpal

5. GST - Defined
Any Tax on Supply of Goods or Services or both, other than on Alcohol for Human Consumption
[Proposed Article 366 (12A)]
For a consideration?
Goods – Includes all materials, commodities and articles
[Article 366 (12)]
Services – means anything other than Goods
[Proposed Article 366 (26A)]
Anirudh Sonpal

6. Entry Tax/ Entertainment Tax
Courtesy - ICAI
Present Tax Structure
Entry No. 84, List I, Schedule VII
Service Tax
Sales Tax / VAT / CST
Customs Duty
Entry Tax/ Entertainment Tax
Residuary Entry No. 97, List I, Schedule VII
Entry No. 54 of List II (VAT) and 92 A of List I (CST)
Entry No. 83, List I, Schedule VII
Entry No. 52 & 62, List II, Schedule VII
Taxable Event is Manufacture
Taxable Event is Provision of Service
Taxable Event is Sale
Taxable Event is Import & Export
Taxable Entry is Entertainment & Entry of Goods
Median Rate – 12.5 %
Single Rate %
Rate – 5 %,
12.5 % & 20 %
Median Rate %
Excise Duty

7. GST – Important Features & Objectives
Integrated and Comprehensive Value Added Tax Structure
Applies to all stages on value addition in the value chain of taxable Supply of Goods and Services across the country (as against manufacture, sale or provision of service) except –
Exempted Goods or Services - common list for CGST & SGST
Goods or Services outside the purview of GST
Transactions below Threshold limits
Destination based Taxation – Place of Supply
Uniform Tax Structure across country
Avoid Cascading Effect of Taxes & Double/Multiple Taxation
No tax on tax – VAT on ED component?
No Classification issues -Valuation – Sale vs Service? Works Contract? Deemed Taxation?
Seamless Flow of Cenvat Credit
Anirudh Sonpal

8. GST in India – VAT Chain Eg: GST Rate is 20 %
Raw Material
Net GST = GST on Output – Input Tax Credit
RS. 100
RS. 20
Manufacturer
Net GST = RS. 50
RS. 20 Raw Material
RS Manufacturer
RS Wholesaler
RS Retailer
RS. 50
20% = Rs. 12(i.e. RS RS.20)
RS. 160
RS. 32
Wholesaler
20% = Rs. 8(i.e. RS RS.32)
RS. 200
RS. 40
Retailer
20% = Rs. 10(i.e. RS RS.40)
RS. 250
RS. 50
Consumer
Anirudh Sonpal

9. Simple Illustration on flow through Supply chain…
Goods from Producer to Wholesaler
Present Structure
(Rs.)
GST
Cost of Production
80,000
ADD: Producer’s margin of profit
20,000
Producer’s Price
1,00,000
Central Excise 12%
12,000
Nil
VAT at 12.5%
14,000
Central 12%
State 12%
Total Price
1,26,000
1,24,000
Anirudh Sonpal

10. Simple Illustration on flow through Supply chain…
Goods from Wholesaler to Retailer
Present Structure
(Rs.)
GST
Cost of goods to Wholesaler
1,12,000
1,00,000
ADD: Profit margin at 5%
5,600
5,000
Total
1,17,600
1,05,000
VAT at 12.5%[14,700 (12.5% of 1,17,600) – 14,000]
700
Nil
Central 12%
600
State 12%
Total Price
1,18,300
1,06,200
Anirudh Sonpal

11. Simple Illustration on flow through Supply chain…
Goods from Retailer to Consumer
Present Structure
(Rs.)
GST
Cost of goods to retailer
1,17,600
1,05,000
ADD: Profit margin at 10%
11,760
10,500
Total
1,29,360
1,15,500
VAT at 12.5%
1470
Nil
Central 12%
1260
State 12%
Total Price to the final consumer
1,30,830
1,18,020
Tax component in the price to the final consumer
28,170
27,720
Final price exclusive of taxes
1,02,660
90,300
Anirudh Sonpal

12. Central Taxes to Subsumed State Taxes to subsumed
Taxes to be Subsumed
Central Taxes to Subsumed
Central Excise duty (CENVAT)
Additional duties of excise
Excise duty levied under Medicinal & Toiletries Preparation Act
Additional duties of customs (CVD & SAD)
Service Tax
Surcharges & Cess
State Taxes to subsumed
State VAT / Sales Tax
Central Sales Tax
Purchase Tax
Entertainment Tax (not levied by the local bodies)
Luxury Tax
Entry Tax ( All forms)
Taxes on lottery, betting & gambling
Anirudh Sonpal

13. GST - Coverage
All goods or services likely to be covered under GST except :
Basic Customs Duty
Alcohol for human consumption - State Excise plus VAT
Electricity - Electricity Duty?
Real Estate - Stamp Duty plus Property Taxes ?
Road Tax?
Petroleum Products (to be brought under GST after 2 years - recommendation of GST Council- after 2 years)
Tobacco Products under GST – additional Excise by Centre?
Anirudh Sonpal

14. GST Model GST Model CGST – Central Goods & Service Tax
SGST- States Goods & Service Tax
IGST – Integrated Goods & Service Tax [Inter State Supply]
Anirudh Sonpal

15. GST – Dual Model
GST in India envisaged on destination/consumption principle - Tax revenues accrue to the destination/importing State, based on Place of Supply Rules
CGST and SGST on intra-State supplies of goods or services in India
Dual GST having two concurrent components:
Central GST levied and collected by the Centre
State GST levied and collected by the States
Both Taxes will simultaneously apply on each transaction
Anirudh Sonpal

16. GST – Dual Model
IGST (Integrated GST) on inter-State supplies of goods or services in India - levied and collected by the Centre
Place of Supply to determine the place where the supply of goods/services will take place and to determine whether supplies are inter state or intra state
IGST applicable to
Import of goods and services – imports at par with local supply?
Inter-state Stock Transfers of goods and services? (Appropriate provisions to be made for consignments and stock transfers)
Anirudh Sonpal

17. IGST Model Centre to levy IGST on all inter‐State transactions
IGST equal to CGST + SGST - IGST Model envisages that the Centre will levy tax at a rate approximately equal to CGST+SGST rate on inter-State supply of goods & services
Inter‐State Seller to pay IGST on value addition after adjusting available credit of IGST, CGST, SGST on his purchases
Exporting State to transfer to Centre the credit of SGST used in payment of IGST
Importing dealer to claim credit of IGST while discharging his output tax liability in his own State
Anirudh Sonpal

18. IGST Model
Centre to transfer to the importing State the credit of IGST used in payment of SGST
IGST model permits cross-utilization of credit of IGST, CGST & SGST for paying IGST unlike intra-State supply where the CGST/SGST credit can be utilized only for paying CGST/SGST respectively
IGST credit can be utilized for payment of IGST, CGST and SGST in sequence by Importing dealer for supplies made by him
It would basically meet the objective of providing seamless credit chain to taxpayer located across States
IGST model obviates the need for refunds to exporting dealers as well as the need for every State to settle account with every other State- Central Government will act as a clearing house and transfer the funds across the States
Anirudh Sonpal

19. Simple Illustration of IGST Model
Sale price
100
Add: CGST (12 %) 12
Add: SGST (12 %)
Total
124
Manufacturer (Rajasthan)
CGST + SGST
Buyer (Rajasthan)
Buyer (Delhi)
IGST
Sale price
124
Add: IGST (24 %)
29.76
Total
153.76
IGST payable ( )
5.76
IGST payable by utilizing IGST, CGST, SGST
Anirudh Sonpal

20. Credit Mechanism
ITC of SGST only against SGST and ITC of CGST only against CGST – no cross utilization between SGST and CGST
ITC of CGST – CGST and IGST
ITC of SGST – SGST and IGST
ITC of IGST against IGST, CGST and SGST – in the order
1% Additional GST – not cenvatable
Anirudh Sonpal

21. GST – Input Tax Credit Output Tax Input Credit ITC Allowed IGST SGST
CGST
Anirudh Sonpal

22. IGST – Simple Illustration
Supply Goods
Supply Goods
Mr. X
Mr. Y
Mr. Z
Charged
IGST 24%
Charged
CSGT 11%
SGST 14%
(Gujarat)
(Rajasthan)
(Rajasthan)
Final Consumer
Input Credit
with Mr. X
CGST 11 %
SGST 12 %
Input Credit
with Mr. Y
IGST 24%
Centre will transfer 13% IGST to Rajasthan State
Paid 1% IGST to Central Govt. by Mr. X:
IGST Payable: %
Less: Input Credit
CGST %
SGST %
Net IGST Paid %
Paid 1% SGST by Mr. Y :
CGST Payable: %
SGST Payable: %
Less: Input Credit
IGST %
Net SGST Paid %
Courtesy - ICAI

23. IGST – Simple Illustration
Important points noted from above example:
Gujarat Government in this transaction will not get any tax since it is inter state supply from Gujarat to Rajasthan
Central Government will get 13% IGST on inter-state supply of goods to Rajasthan (12% from Gujarat Government and 1% paid as Cash by Mr. X)
Rajasthan Government will get 14% SGST for intra-state supply of Goods (13% from central Government and 1%paid as cash by Mr. Y)
Important to note is that Mr. Y (based in Rajasthan) has been allowed full credit of IGST paid by Mr. X (based in Gujarat) of 24%
Courtesy - ICAI

24. Rate Structure
RNR
Rate that will assure current level of revenue generation to Centre & States
27% ?
Additional 1% as per Constitutional Amendment Bill – for net Producers vs net Consumers
Anirudh Sonpal

25. Rate Structure Standard Rate – CGST SGST – Floor Rate with Bands IGST
Merit Rate – Essential / Social Impact
Special Rate - Precious Metals
Nil Rate
Threshold Exemption – status of Other Exemptions currently available?
Compounded Rates – Small Taxpayers – upto specified limits
Export of goods and services - Zero rated
Anirudh Sonpal

26. International Rates of GST
Country
Rate of GST %
Japan
5 %
Canada
7 %
Australia
10 %
New Zealand
12.5 %
South Africa
14 %
China
17 % UK
17.5 %
Italy
20 %
Denmark
25 %
Anirudh Sonpal

27. Impact Procurement – Warehousing – Logistic and Distribution
Working Capital
Compliances
IT Platform
Anirudh Sonpal

28. Beginning of another Journey ?
Anirudh Sonpal
GST in India
Beginning of another Journey ?

29. GST – The Journey from here…
The constitution (122nd Amendment) Bill, 2014 to be passed by 2/3rd voting members of Rajya Sabha
The Bill to be ratified by minimum of 50% of the State Legislatures
The States to amend their respective constitutions
Formation of GST Council – Decision Making Body – Autonomy of States?
GST Legislation – Centre & States
1st April, a statement of intent or a prayer? Sleepless nights to meet the deadlines – only for FM?
Anirudh Sonpal

30. Presented By: CA Anirudh Sonpal