The Goods and Service Tax or GST was released on 1st of July. So, first of all we should know that what exactly GST is? Whether it will be different from the current tax structure? And why does the country needs this type of tax policies? We will answer all these pressing question in this blog.
What is GST?
Goods & Services Tax is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.
To understand this, we will understand the above definition which means that the life cycle of products starts from the purchasing raw material. This is the first stage and in the second stage it goes with manufacturing or production then next comes, sale products to the retailer and in the final stage, the retailer sells products to the consumer. This is the life cycle of the products. GST follows these rates, 0%, 5%, 12%, 18%, 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.
GST will be levied in each stage which makes it multi stage tax. Let us know about the “Value Addition”.
Let’s us consider that a Production want make a shirt. For this he must purchase spun thread. This gets turned into a shirt and then product. So the value of a yarn increased after woven into a shirt. And then the manufacturer sells the products to the warehouses agent who attach label on each shirt. That is another addition of value after which the warehouse forward to the retailer and retailer package the each shirt to invest in market there is also increase the addition of value in packaging.
Goods and Services Tax will be levied at every point of sale. Assume that the entire manufacturing of product happening in Utter Pradesh and it will be goes for selling in Punjab. Between U.P and Punjab all the manufacturing to packaging of product all value addition taxes including in it in every stage.
Now next we have why GST so important?
Let’s talk about how GST play significant role in transforming the current tax structure.
We know that the current tax structure divided into two stages that are Direct tax and Indirect tax. Direct Taxes are levies where the liability cannot be passed on to someone else. An example of this is Income Tax where you earn the income and you alone are liable to pay the tax on it.
The case of Indirect Taxes, the liability of the tax can be passed on to someone else. It means when we purchase goods from the shopkeeper the VAT included in product and shopkeeper can deposited tax to government. Case of Indirect Taxes, the liability of the tax can be passed on to someone else. He has a higher outlay when he buys an item. It has a system of Input Tax Credit which will allow sellers to claim the tax already paid, so that the final liability on the end consumer is decreased. If you want to make career in accounts, you can visit at VIP Studies Pathankot. At VIP Studies we offer GST related courses in Pathankot.