Goods and Services Tax and its Benefits
Recently, the government introduced a bill to create consistent Goods and Services Tax (GST), to the Lok Sabha on which the debate will be conducted in the budget session of Parliament in February. The central government wants to implement the tax from April 1, 2016 if everything is cleared.
In this scenario, one would wonder what this GST is and how it might affect him/her. Here are the facts and information about GST.
Goods and Services Tax is a complete tax that is levied on production, sale and consumption of goods and services. This tax is imposed at a national level. GST is one of the major taxation reforms in India which can create a single and unified Indian market. It strengthens the economy and boosts the overall growth of the country. The mechanism of GST is also similar to that of VAT. But VAT is applied to tangible goods whereas GST is applied to both goods and services.
GST is collected on value-added goods and services at every stage of purchase or sale in the supply chain through tax credit mechanism. This allows the setting-off of the GST paid on obtaining the goods and services against the tax that is payable on the supply of goods and services. Thus, they can get benefit to the amount of tax paid in each stage. However, the end customers have to bear the tax since they are the last persons in the supply chain.
Though the combined rate is not fixed by the government, it is estimated to be around 14 to 16 percent. After the establishment of total GST rate, the Centre and the states will decide on the CGST and SGST rates.
Benefits of Goods and Services Tax
Taxation burden will be divided equally between manufacturing and services. It helps in building transparency and administer corruption-free tax. It is expected that India will gain $15 billion each year with the implementation of GST. GST is levied on the manufacturing costs of the components. Hence prices may be reduced which increases consumption and thereby companies.
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