Frequently Asked Questions (FAQs) on GST and their answers which would help the readers to know and understand about the concept and nuances of proposed Goods and Services Tax (GST) and its models.
These FAQs have been compiled with sole objective of providing a means of better understanding of GST. For details, readers may refer to Government portals / literature.
Q.7 How will the place of supply be determined?
Ans. It is important to determine whether a transaction is ‘intra-State’ or ‘inter-State’ as GST (i.e. CGST plus SGST or IGST, as the case may be) will be applicable accordingly.
For ‘goods’, the place of supply would be location where the goods are delivered. For ‘services’ the place of supply would be the recipient location.
However, there are multiple scenarios such as for supply of services in relation to immovable property, wherein this principle will not apply and specific rules will prevail. Thus, the business will have to scroll through all the place of supply provisions before determining the place of supply.
Q.8 How are present tax provisions different from the proposed GST model?
Ans. Most of the existing provisions such as pre-deposit, arrest, prosecution, reverse charge, tax return preparers and many more will be same in the proposed draft GST law. Therefore, the model GST law appears to be largely on similar lines except the tax model and subsuming of major taxes into GST.
Q.9 Will GST economically benefit India?
Ans. Certainly yes . India’s GDP could receive a boost just from capital goods becoming cheaper once the GST is rolled out. There is likely to be a clear lift for investment in the economy because of a likely seamless and efficient crediting of taxes paid on capital goods / inputs. Cheaper goods would increase the demand for capital goods, thereby raise investment and hence growth. Even GDP is likely to grow by 1-2 percent. GST would also eliminate the negative protection favouring imports which will boost domestic manufacturing. Also, lagging regions will catch up with more advanced regions.
Getting the design of the GST right is therefore critical. Specifically, the GST should aim at tax rates that protect revenue, simplify administration, encourage compliance, avoid adding to inflationary pressures, and keep India in the range of countries with reasonable levels of indirect taxes.
Q .10 How will GST benefit industry, trade and agriculture?
Ans. The GST will give more relief to industry, trade and agriculture through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs which will result in widening of tax base and better tax compliance may also lead to lowering of tax burden on an average dealer in industry, trade and agriculture.
Q.11 How will GST benefit the exporters?
Ans. The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
Q.12 How will GST benefit the small entrepreneurs and small traders?
Ans. The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is ₹ 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of ₹ 10 lakh both for goods and services for all the States and Union Territories may 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. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at ₹ 1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders. A Composition scheme for small traders and businesses has also been envisaged under GST as will be detailed in Answer to Question 14. Both these features of GST will adequately protect the interests of small traders and small scale industries.
Q.13 How will GST benefit the common consumers?
Ans. With the introduction of GST, all the cascading effects of CENVAT and service tax will be more comprehensively removed with a continuous chain of set-off from the producer’s point to the retailer’s point than what was possible under the prevailing CENVAT and VAT regime. Certain major Central and State taxes will also be subsumed in GST and CST will be phased out. Other things remaining the same, the burden of tax on goods would, in general, fall under GST and that would benefit the consumers.
Q.14 How will GST benefit the ex-chequer and Government?
Ans. The benefits to ex-chequer and Government are as follows :
- Simpler Tax System
- Broadening of tax base
- Improved compliance & revenue collections (tax booster)
- Efficient use of resources
- Curb on revenue leakage
- Because of tax credit , cash transactions will be less
Note: Q-1 to Q-6 were covered in part 1 of this series.