GST Council approves the Central Goods and Services Tax (CGST) Bill and Integrated Goods and Services Tax (IGST) Bill

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The Government is all set to kick start GST from July 1, 2017. The GST Council, in a meeting held on today approved the draft of key supporting legislations. GST is a consumption-based tax levied on sale, manufacture and consumption on goods and services at a national level. Under the new indirect tax regime, various indirect taxes of central excise duty, central sales tax and service tax are to be merged with C-GST, while S-GST will subsume state sales tax, VAT, luxury tax and entertainment tax.

The Council approved the final draft of Central GST (C-GST) and Integrated GST (I-GST) and will take up for approval the State-GST and Union Territory-GST (UT-GST) laws at its next meeting on March 16.

The C-GST, which will give powers to Centre to levy GST on goods and services after union levies like excise and service tax are subsumed, and I-GST that is to be levied on inter-state supplies, will go to Parliament for approval in the second half of the Budget session beginning March 9, Finance Minister Arun Jaitley said.

The S-GST, which will allow states to levy the tax after VAT and other state levies are subsumed in the GST, will have to be passed by each of the state legislative assemblies. UT-GST will also go to Parliament for approval.

Jaitley said the model GST Law will have a clause to enable levy of up to 40 per cent tax (20 per cent by the Centre and an equal amount by the states) but the effective tax rates will be kept at the previously approved levels of 5, 12, 18 and 28 per cent.

“The rates will be what has been decided by the Council. There won’t be a higher rate of taxation. But the cap rate in the legislation is always put at a higher level to leave a head space, just as in the Customs Act you have a difference between the bound rate and applied rate. So the applied rate is going to be what the council has decided,” Jaitley said. This is being done to obviate the need for going to Parliament in case the levy is to be raised on certain goods and services.

This will also help in a scenario where the cess on de-merit goods being proposed to compensate states for loss of revenue from GST, is to be merged with the tax rate itself, he told reporters after the meeting. “As it looks like, it looks on track. Hopefully the laws would be before Parliament this session and subject to the Parliament approving them, July 1 this year now optimistically looks like the possible date for GST implementation,” he said.

The Council also fixed a 5 per cent tax rate on small hotels and restaurants and dhabas with an annual turnover of up to Rs 50 lakh. Revenue Secretary HasmukhA dhia said there were demands that restaurants should be included in the composition scheme, particularly those with less turnover. “So the Council decided that there would be a composition scheme for restaurants up to a turnover of Rs 50 lakh and the rate for them is 5 per cent. So the remaining restaurants, they will come in the regular service tax rate,” Adhia said.

Adhia said the first meeting of GST Council had decided that composition scheme in GST regime would be applicable on trading and manufacturing units with up to Rs 50 lakh turnover.

The composition scheme provides for a easier method of calculating tax liability and allows GST registration for dealers with turnover below the compounding cut-off.

The scheme has been introduced to reduce the administrative cost associated with collection of tax from small traders. Hence, businesses below a turnover of Rs 50 lakh can pay taxes at a defined floor rate of 1 per cent, and manufacturers can pay at 2 per cent, much lower than the GST rate. For services, it would be 5 per cent.

Jaitley said the Council will have its 12th meeting on March 16 in which SGST and UTGST bills will be cleared.

“In a nutshell, compensation law was approved in last meeting (and) today (GST Council) approved the CGST and IGST law and in next meeting we will be approving the SGST and UTGST law which will then complete the legislative exercise and enable us to take these before Parliament.

“If they are approved, then four laws — Compensation Law, CGST law, UTGST law and IGST law — will get cleared by Cabinet and taken to Parliament in the forthcoming session. SGST law will go to state legislatures”. He said.

After this, the officers will start work on putting different goods and services in the four tax slabs of 5, 12, 18 and 28 per cent.

“…the exercise is substantially arithmetical except in certain products where the Council will decide to grade it accordingly,” Jaitley said, adding it would be discussed at the 13th meeting of the Council.

The GST Compensation Law provides for compensating states that incur losses because of implementation of the Goods and Service Tax (GST) in first five years. The compensation will be funded by imposing cess on demerit and luxury goods.

“The maximum cess rate will be mentioned in the compensation law. But the applicability of it would be what the Council has decided so far,” Jaitley said.

Read the Salient features of the Bills as follows;

  1. A State-wise single registration for a taxpayer forfiling returns, paying taxes,and to fulfil other compliance requirements. Most of the compliance requirements would be fulfilled online, thus leaving very little room for physical interface between the taxpayer and the tax official.

  2. A taxpayer has to file one single return state-wise to report all his supplies, whether made within or outside the State or exported out of the country and pay the applicable taxes on them. Such taxes can be Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Union Territory Goods and Services Tax (UTGST) and Integrated Goods and Services Tax (IGST).

  3. A business entity with an annual turnover of upto Rs. 20 lakhs would not be required to take registration in the GST regime, unless he voluntarily chooses to do so to be a part of the input tax credit (ITC) chain. The annual turnover threshold in the Special Category States (as enumerated in Article 279A of the Constitution such as Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh, Assam and the other States of the North-East) for not taking registration is Rs. 10 lakhs.

  4. A business entity with turnover upto Rs. 50 lakhs can avail the benefit of a composition scheme under which it has to pay a much lower rate of tax and has to fulfil very minimal compliance requirements. The Composition Scheme is available for all traders, select manufacturing sectors and for restaurants in the services sector.

  5. In order to prevent cascading of taxes, ITC would be admissible on all goods and services used in the course or furtherance of business, except on a few items listed in the Law.

  6. In order to ensure that ITC can be used seamlessly for payment of taxes under the Central and the State Law, it has been provided that the ITC entitlement arising out of taxes paid under the Central Law can be cross-utilised for payment of taxes under the laws of the States or Union Territories. For example, a taxpayer can use the ITC accruing to him due to payment of IGST to discharge his tax liability of CGST / SGST / UTGST. Conversely, a taxpayer can use the ITC accruing to him on account of payment of CGST / SGST / UTGST, for payment of IGST. Such payments are to be made in a pre-defined order.

  7. In the Services sector, the existing mechanism of Input Service Distributor (ISD) under the Service Tax law has been retained to allow the flow of ITC in respect of input services within a legal entity.

  8. To prevent lock-in of capital of exporters, a provision has been made to refund, within seven days of filing the application for refund by an exporter, ninety percent of the claimed amount on a provisional basis.

  9. In order to ensure a single administrative interface for taxpayers, a provision has been made to authorise officers of the tax administrations of the Centre and the States to exercise the powers conferred under all Acts.

  10. An agriculturist, to the extent of supply of produce out of cultivation of land, would not be liable to take registration in the GST regime.

  11. To provide certainty in tax matters, a provision has been made for an Advance Ruling Authority.

  12. Exhaustive provisions for Appellate mechansim have been made.

  13. Detailed transitional provisions have been provided to ensure migration of existing taxpayers and seamless transfer of unutilised ITC in the GST regime.

  14. An anti-profiteering provision has been incorporated to ensure that the reduction of tax incidence is passed on to the consumers.

  15. In order to mitigate any financial hardship being suffered by a taxpayer, Commissioner has been empowered to allow payment of taxes in installments.