TomorrowMakers ™

Financial Planning

With GST ready to roll out this July, what does it mean for you?

04 April 2017
Don’t know how the GST roll out, scheduled for this July, will affect you? Read on to find out.

In India, the tax system has traditionally been, literally, quite taxing. There are the central government taxes such as the service taxes, central surcharges and central cesses. Then there are those levied by the state government: VAT/sales taxes, entertainment tax, luxury tax, and state cesses.
India’s taxation is fragmented, and can be a bit complex. There are separate taxes for goods and services, and this necessitates division of transaction values into value of goods and values of services for taxation, leading to greater complications, increased administrative work, and higher compliance costs.

Thus, the consumer ends up paying for multiple taxes levied by the centre, as well as the various state governments, on services and materials that go into making a single product, and transporting this product from the factory to the retail outlet.

Related: Latest in the GST—4-slab structure and how it will affect your monthly budget

However, all that is now set to be over. On 20 March 2017, the Union Cabinet approved four legislations that were needed to get the Goods and Services Tax (GST) introduced in Parliament; these bills had earlier been approved by the GST Council.

The GST Council, comprising Finance Minister- Arun Jaitley and his counterparts from the states – will now finalise the tax slabs that are simpler to follower than those that existed so far.

It was the Kelkar Task Force on indirect tax, way back in 2003, which first recommended a GST regime based on VAT principle. Now, 14 years later, Prime Minister Narendra Modi’s government has made it possible, and the GST rollout will happen on July 1.

The Aim
This should bring relief all around, as a GST rollout spells a “One-Country-One-Tax” regime that subsumes all indirect taxes at the centre and the state level, thereby reducing the cascading effect of taxes on taxes. This also portends to reduce or even eliminate tax evasion and accompanying corrupt practices, greater transparency, increase productivity, and thereby a greater tax-GDP ratio.

In fact, the statement as much, and maintained that the implementation of GST law would lead to an increase in Gross Domestic Product (GDP) of the country by 1-2%.

“This in turn will lead to the creation of more employment and increase in productivity,” the statement added. 

New Tax Slabs

The cabinet’s decision on 20 March 2017 means it has approved the GST Council’s proposal for four different tax slabs – of 5%, 12%, 18% and 28% – all within an overall cap of 40%.

Apart from this, there will be a cess on demerit goods – products that are considered unhealthy or otherwise socially undesirable due to the perceived negative effects associated with them; tobacco products such as cigarettes, luxury cars and aerated drinks are examples of demerit goods.

Incidentally, for GST to become a reality in India, the GST Bill needs to be passed by a two-thirds majority in both Houses of Parliament (Lok Sabha and Rajya Sabha), and by the legislatures of half of the 29 States. The four mentioned bills were passed by the Lok Sabha on 30 March 2017, and will soon be discussed in the Rajya Sabha.


Common Market

Let’s face it: the introduction of GST, at a time when the Indian economy is emerging as a force in the world economic order, had become the need of the hour, and more so as most of the world has switched to GST.

A booming economy like India’s implies is that there is a surge in production and distribution of goods and services across sectors. As mentioned earlier, this has entailed a multiplicity of taxes. GST will change this in several ways:

  • The GST system eliminates or reduces the cascading effect of taxes on the final price of the product, and instead integrates all types of taxes
  • Makes it possible for tax liability to be divided between manufacturing and services
  • Once barriers between states are removed, there will be no tax on tax – which is what happens when goods move across state borders
  • GST will be levied only at the final destination of consumption, based on VAT principle, and not at multiple points.

This means that if a product is taxed at 12%, it will include taxes imposed by both the centre and the state government. This will help in the development of a common national market, and will reduce overall taxes that consumers have to pay on products.


Products and tax slabs

Taxes on all products and services haven’t been spelled out yet. However, here are some of the changes that GST is expected to bring.

  • While food grains will remain untaxed, mass consumption products such as packaged salts and spices will fall under the 5% tax bracket.
  • Products like oil, soaps, toothpaste etc. that were previously taxed at over 20%, will be taxed between 12% and 18% under GST.
  • White goods -such as washing machines, air conditioners and refrigerators – that were previously taxed at 30%-31%, will be taxed at around 28% post the GST roll out.
  • Some services that will not fall under GST and will remain untaxed, include healthcare, education, distribution and transmission of electricity, pilgrimages, public conveniences, and services rendered by the RBI and Government.

Related: GST 101: What India’s biggest tax reform means for you

Gains for Businesses

A simplified tax structure getting simplified, can reduce the hassles of filing tax forms by merchants, and transaction costs for manufacturers.

Moreover, with the tax filing process going digital, transparency will be brought into tax administration, leading to less tax evasion. At the macro level, the national economy is set to benefit, as eventually, competitiveness will increase, as will be job opportunities and exports.

With the emergence of a common national market, one area to get a massive leg-up is the e-commerce market, expected to cross the $100 billion by 2020. Managing CST and VAT issues in the GST regime stands to get easier in coming days.

Overall, the GST Bill has more positives than negatives, which are minor. Hopefully, with GST, the confusion over multiple taxations, tax evasions and accumulation of black money will be things of the past.


Quotes of The Day




5 situations where you should never use a credit card
Financial Planning

5 situations where you should never use a credit card

While credit cards come with a host of benefits, they must be used carefully, and never in these situations!

All about IPOs in India
Financial Planning

All about IPOs in India

Investing in IPOs can bring financial success in the future. But before doing so, here are some things you should know.

Global investment in Gold ETF [Infographic]
Financial Planning

Global investment in Gold ETF [Infographic]

Planning to invest in gold? If yes, here’s why you should consider putting your money in Gold ETFs.

Short term investment options for high returns
Financial Planning

Short term investment options for high returns

Looking to earn maximum returns in a quick and easy manner? Find out 6 investment option on how exactly you can do short term investment to get high returns.

Best ways to improve financial security for women
Financial Planning

Best ways to improve financial security for women

In India, there is a lot of scope for women to further cement their financial security. For this to happen, it is important women are aware of the various options they have.

Are subsidies good or bad for India?
Financial Planning

Are subsidies good or bad for India?

Does India need subsidies? Yes, if the poor benefits

10 hacks that can save money in day to day life
Financial Planning

10 hacks that can save money in day to day life

One of the major costs all families incur is excursions-movies, vacations, eating out, theme parks, etc.


We would love to hear from you!

Question, comment or concern? Our contact form is the best way to get in touch. We will respond to you within 5 working days.