GST has been described as one of the most significant indirect tax reforms in India’s history, seeking to bring clarity, simplicity and unification in the arena of indirect taxes across the country. GST is a destination-based consumption tax levied at multiple stages of production and distribution of goods & services in which taxes paid on inputs are allowed as a set-off against taxes payable on output. Thus, GST is proposed to be a single comprehensive, integrated indirect tax on pure value added at each stage.
The present tax structure of India has a number of indirect taxes collected both by the State and Central Governments as per power vested in them under the Constitution of India. Due to such multiple taxes, there has been a cascading effect of taxes (tax on tax) and double taxation (a value being subject to tax twice or subject to two or more than two taxes).
GST will subsume all these indirect taxes and will thus, facilitate the seamless flow of credit, resolving the problem of double taxation and cascading effect of taxes. This will check the cost of goods along with making compliances easy and bringing stability in the government’s tax revenues.
GST in India will be based on a dual model, i.e. the State and Central Governments will both levy GST termed as SGST and CGST respectively. The following Central and State taxes will get subsumed in GST: 1) Central: Central Excise duty, Countervailing duties (CVD), Special Additional duties of Customs, various cesses and surcharges levied by the Central Government on these taxes. 2) State: VAT, entertainment tax, luxury tax, entry tax, tax on lottery, betting and gambling.
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