What is GST and how will it change the tax structure?

WHAT IS GST AND HOW WILL IT CHANGE THE TAX STRUCTURE ?

GST or Goods and Services Tax is a detailed, multi-layered, destination-based tax that will be levied on every purchase.  It is an indirect tax applicable throughout India, replacing multiple cascading taxes charged by the central and the state government.

GST is governed by the GST Council and its chairman is the Finance Minister of India (presently Arun Jaitley).

Under GST, goods and services will be taxed under tax slabs of 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent. There is a special rate of 0.25 per cent on rough precious and semi-precious stones and 3 per cent on gold.

Almost 60 per cent of all goods under GST fall under the 18 per cent or the 28 per cent tax bracket, to ensure that the revenues earned by both centre and the state governments remain the same. While unpackaged grains and milk remain tax-free, items like hair oil, shampoos, deodorants and even chocolates are taxed at 28 per cent.

GST's role in transforming the economy:

GST will play a significant role in transforming the current tax structure, and therefore, the economy.Originally, the tax structure was divided into direct tax and indirect tax. The liability of the indirect tax could be transferred to the buyer when a seller sells his product. But GST addresses this problem.GST has a system of Input Tax credit which will allow sellers to claim the tax they already paid while purchasing from the retailer, so the final liability on the end consumer is decreased.

How does GST work?

There are three kinds of applicable Goods and Services Taxes. They are:

CGST: where the revenue will be collected by the central government

SGST: where the revenue will be collected by the state governments for intra-state sales

IGST: where the revenue will be collected by the central government for inter-state sales

The tax structure under GST would be:

Sale within the state: CGST + SGST

Sale to another state: IGST