What is Income Tax Act liable to GST

Posted on 10 June 2022 Category : GST terms

Income Tax Act liable to GST Means

In this article, the information about Income Tax Act liable to GST is explained here.

Income Tax Act liable to GST

The proposed GST seems to be based on the above principle. Following are the supporting reasons to adopt GST:

a) Present system allows for multiplicity of taxes, the introduction of GST is likely to rationalize it.

b) Many areas of Services which are untaxed. After the introduction of GST they will also get covered.

c) GST will help to avoid distortions caused by present complex tax structure and will help in development of a common national market.

d) Existing taxes i.e. Excise, VAT, CST, Entry Tax have the cascading effects of taxes. Therefore, we end up in paying tax on tax. GST will replace existing taxes.

e) GST will lead to credit availability on interstate purchases and reduction in compliance requirements.

f) Introducing GST will do more than simply redistribute the tax burden from one sector or Group in the economy to another.

g) Achieves, uniformity of taxes across the territory, regardless of place of manufacture or distribution.

h) Provides, greater certainty and transparency of taxes.

i) Ensure tax compliance across the country

j) GST will avoid double taxation to some extent.

k) The implementation of GST would ensure that India provides a tax regime that is almost similar to the rest of world. It will also improve the International cost competitiveness of native Goods and Services.

l) GST will provide unbiased tax structure that is neutral to business processes and geographical locations.

m) If the Goods and Service Tax is implemented in the true spirit, it will have many positives for the stakeholders and will lead to a better tax environment.

Introduction to GST

a) GST is not going to be an additional new tax but will replace other taxes.

b) GST is a simple, transparent, and efficient system of indirect taxation.

c) The system facilitates taxation of goods and services in an integrated manner.

d) It is a comprehensive value added tax on the supply and consumption of goods and services in an economy.

e) GST is levied at every stage of production-distribution chain with applicable set-offs. GST is basically a tax on final consumption.

f) In simple terms, GST may be defined as a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing services the seller or service provider may claim input credit of tax which he has paid while purchasing the goods or procuring the services.

g) It will help in eliminating tax induced economic distortions and gives boost to the economy. · The compliance and administrative cost will be much lower. · On indirect tax front, India is all set to usher into the era of all new tax called 'Goods and Service Tax' which will bring in India at par with over 140 developed Nations of the world. It is going to be the biggest tax reform ever introduced in Independent India. 18 KUMAR ARUN, A Guide on Good

Salient features of proposed GST model

a) Harmonized system of nomenclature (HSN) to be applied for goods.

b) Uniform return & collection procedure for central and state GST.

c) PAN based Common TIN registration.

d) Turnover criteria to be prescribed for registration under both central goods and services tax (CGST) and state goods and services tax (SGST).

e) TINXSYS to track transactions.

f) Tax Payment will be by exporting dealer to the account of receiving state.

g) Credit will be allowed to the buying dealer by receiving state on verification.

h) Submission of declaration form is likely to be discontinued.

i) Area based exemptions will continue up to legitimate expiry time both for the Centre and the States. x. Product based exemptions to be converted into cash refund.

j) Limited flexibility to be given to Centre and States for exceptions like natural disasters etc.

k) Simplified structure to reduce transaction cost.

l) Separate rules and procedures for the administration of CGST and SGST.

m) Specific provisions for issues of dispute resolution and advance ruling.

Preparation for GST

The GST will require legislative and constitutional changes. As the time gap between formation and implementation is very less. Therefore, following things need to be done:-

I . Constitutional amendment to enable state to levy service tax.

ii. Center to tax goods beyond factory Gates

iii. Laws of central excise act 1944 and finance act 1994 needs to be replaced.

iv. Existing VAT laws needs to be repealed.

v. It is highly expected that all steps are taken to ensure that no pending work relating to Sales Tax, VAT or other Indirect Taxes remains outstanding before implementation of GST so that everybody can concentrate on new law.

vi. Central and State Government should be prepared to fulfill the expectations for Trade and Industries. vii. Record keeping will have to be changed and IT software will have to be updated in order to comply with GST provisions.

viii. Trade and Industries will have to rethink market strategies, stock transfer pricing and godown keeping policies in different states.

ix. Uniform dispute settlement machinery

x. Adequate training for both tax payers and tax enforcers.

Impact of Goods and Service Tax

Food Industry

The application of GST to food items will have a significant impact on those who are living under subsistence level. But at the same time, a complete exemption for food items would drastically shink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals for home consumption, restaurant meals and beverages. Even if the food is within the scope of GST, such sales would largely remain exempt due to small business registration threshold. Given the exemption of food from CENVAT and 4% VAT on food item, the GST under a single rate would lead to a doubling of tax burden on food.

Housing and Construction Industry

In India, construction and Housing sector need to be included in the GST tax base because construction sector is a significant contributor to the national economy

FMCG Sector

Despite of the economic slowdown, India's Fast Moving Consumer Goods (FMCG) has grown consistently during the past three – four years reaching to $25 billion at retail sales in 2008. Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are expected to fuel the growth and raise industry's size to $95 Billion by 2018

Rail Sector

There have been suggestions for including the rail sector under the GST umbrella to bring about significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the added benefit of ensuring that all inter – state transportation of goods can be tracked through the proposed Information technology (IT) network.

Financial Services

In most of the countries GST is not charged on the financial services. Example, In New Zealand most of the services covered except financial services as GST. Under the service tax, India has followed the approach of bringing virtually all financial services within the ambit of tax where consideration for them is in the form of an explicit fee. GST also include financial services on the above grounds only

Information Technology enabled services

To be in sync with the best International practices, domestic supply of software should also attract G.S.T. on the basis of mode of transaction. Hence if the software is transferred through electronic form, it should be considered as Intellectual Property and regarded as a service. And If the software is transmitted on media or any other tangible property, then it should be treated as goods and subject to G.S.T.

Impact on Small Enterprises

There will be three categories of Small Enterprises in the GST regime.

· Those below threshold need not register for the GST
· Those between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime.
· Those above threshold limit will need to be within framework of GST Possible downward changes in the threshold in some States consequent to the introduction of GST may result in obligation being created for some dealers. In this case considerable assistance is desired. In respect of Central GST, the position is slightly more complex. Small scale units manufacturing specified goods are allowed exemptions of excise up to Rs. 1.5 Crores. These units may be required to register for payment of GST, may see this as an additional cost.

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