All You Need to Know About GST!

GST is going to be a reality from 1st July onwards and despite the brouhaha around it, it is touted to be a ‘win-win’ situation for the common man.

So what is GST? GST (or Goods and Services Tax), which will be implemented nationwide from 1st July, is applicable on supply of goods and services. It will replace the current taxes of excise, VAT, sales tax and service tax, resulting in reduced tax burden on many items. It promises to bring transparency on the taxes levied on the supply of goods and services.

Here’s how GST will have a positive impact on the life of a typical Indian household:

  • A unified tax system removing a bundle of indirect taxes like VAT, CST, Service tax, CVD, SAD, Excise etc.
  • A simplified tax policy as compared to earlier tax structure. However, it’s not as simple as it seems to be
  • Removes cascading effect of taxes, meaning, removes tax on tax
  • Due to lower burden of taxes on the manufacturing sector, the manufacturing costs will be reduced, hence prices of consumer goods likely to come down
  • Due to reduced costs some products like cars, FMCG etc. will become cheaper
  • This will help in lowering the burden on the common man i.e. you will have to shed less money to buy the same products which were earlier costly
  • The low prices will further lead to an increase in the demand/consumption of goods
  • Increased demand will lead to increase in supply. Hence, this will ultimately lead to rise in the production of goods
  • The increased production will lead to more job opportunities in the long run. But, this can happen only if consumers *actually* get cheaper goods

Will it have a negative impact on our desh ka aam aadmi? Let’s see...

  • The first and the foremost point of concern: All small traders and service providers dealing in interstate supply of goods or services need to get registered, pay GST and file GST returns also irrespective of the sales/income they generate (whether high or low)
  • Number of GST returns: You have to file 3 monthly returns, this amounts to a total of (3X12) 36 returns plus 1 annual return. Filing 37 returns in a year... Moreover, this applies to one state, if you function in different states, you need to register in each state separately and file the respective returns. Isn’t that too much for a small trader or service provider or an online service provider who has just started working?

And probably what you are really interested in – what becomes cheaper, what becomes expensive - here's a quick cheat sheet on how this tax legislation will impact your budget:

Things to get cheaper:

  • Everyday household items including milk, fruits & vegetables, jaggery, food grains and cereals have been exempted from tax, whereas, items like sugar, tea, coffee, edible oil, sweets and newsprint have been placed at 5% tax
  • Personal care items like soaps, hair oil and toothpaste (currently taxed at 24-28%) are set to become cheaper at 18% tax
  • Processed food items will be taxed at 5% (currently taxed at 15%)
  • Entertainment will get cheaper at 18% tax. It is currently taxed at 35-40%. Entertainment industry will be able to avail full credit of input services which currently not able to avail due to different nature of levies like VAT, CST, excise duty, etc.
  • Buying cars and bikes will be cheaper
  • Medicines & cosmetics will become cheaper
  • LED TV will be taxed at 18%, so watching TV could get cheaper. As part of the Make in India campaign, the GST is expected to be lower. Currently, we pay roughly 24.5% tax
  • Readymade garments to get cheaper, as the effective excise duty (7.5%) and VAT of average 5% will be included in GST slab
  • Air fares for economy class are expected to shrink with a tax of 5%. However, business class will have 12% GST
  • Hotels will be taxed at 18%, which is a good news for travelers! Only high-end hotels with Rs 5,000 plus tariff will attract 28%. Hotels with tariff below Rs 1,000 are exempted from GST. Currently, 22% is levied on hotels. Restaurants too will have 18% tax, a drop from almost 22%
  • Salons will be exempted from this tax

Things to get costlier:

  • Food bill will be slightly expensive: Currently food bill contains service tax and VAT put together 18.5%. Post GST, it will be 18% or higher depend on state law. This sector should not have much impact
  • Phone bills could see escalation of taxes. From current 15% tax rate it may be fixed at 18% going forward
  • Imported mobile phones to get expensive. Currently, the duty and VAT comes to 12.8%, but the GST could be pegged at 18%
  • Home appliances like air conditioners, washing machines will be expensive
  • FMCG: While soaps and toothpaste will be cheaper, other personal care products like shampoos, deodorants and sanitary napkins (which will now be taxed at… hold your breath – 12%!!) will be more expensive
  • Jewellery, which is currently taxed at just 2%, could be taxed at 6% impacting your jewellery purchase
  • Online purchase of bags, shoes, electronics will be getting more expensive as the e-commerce industry comes into a tax net and will have to pay tax deducted at source for every purchase from its sellers
  • Real estate will be taxed at 18%, leading to a significant negative impact on the industry (it is currently taxed at 3.9%)
  • Gambling/Casinos: Those fond of gambling will now have to shell out more as they will have to pay a higher tax of 28%
  • Tobacco, beer & aerated drinks (categorized under ‘sin goods’) will be taxed at 28%
  • School fees, phone bills, courier services, insurance premiums, banking charges, DTH and WiFi services will get costlier
  • Air tickets: Business class is going to cost more

So, after the implementation of GST, some might gain and some might lose. But, ultimately we’ll have to get used to this new tax system that’s going to be a landmark reform having a great impact on India and its taxation system.

However, GST is a long term strategy planned by the Government of India and its positive impact could be seen in the long run only. A well-designed GST policy can bring a qualitative change in the tax system of India!

No matter which services will be taxed and what will be cheaper or costlier, you will still get exciting deals on!


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