Differences Between GST and Current Tax Structure in India


The Goods and Service Tax (GST) is a single unified tax system which is based on the destination principle. Under this principle, tax is levied on goods and services in the place where they are consumed rather than where they are produced. It is also known as consumption tax.

The purpose of GST is to unite India’s complex taxation system under ‘One Nation, One Tax’. To achieve this purpose, 17 central and state taxes will be subsumed, which would lead to removal of multiplicity of taxes and the cascading effect of tax on tax. This would lead to creation of a common market for all.

How is GST Different from Current Tax Structure

Presently, several taxes are levied on sale and purchase of goods, namely, central excise duty, service tax, customs duty, central sales tax, VAT, countervailing duty (CAD) and special additional duty (SAD). These taxes shall be subsumed under Dual GST model except the customs duty.

In the present tax regime, goods and services are taxed separately. Goods come under the purview of VAT while services are charged under service tax. Under GST regime, both goods and services will be charged under Goods and Service Tax.

In the current taxation system, there is a high incidence of tax since every state levies their own taxes along with other indirect taxes which increases the tax incidence. However, under GST tax system, since both goods and services are taxed together, it would be less expensive for manufacturers and traders to conduct import and export of goods along state borders since entry tax will be subsumed under GST.

Lastly, in the current tax regime there are a lot of hidden costs which would be removed when GST is implemented, thereby, reducing tax evasion as well.

GST would comprise of four different components namely, Central GST (CGST), State http://www.gstjockey.com/blog/a-guide-to-gst-its-types, Integrated GST (IGST) and Union Territory GST (UTGST).

CGST would be levied by the Centre; SGST would be levied by the States (including Union Territories with legislature); UTGST by the Union Territories without legislature; and IGST would be levied by the Centre on inter-state supply of goods and services.

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