The Goods and Services Tax (GST) is the most constructive tax change India has
seen in a long time. It aims to absorb certain indirect taxes and replace it with one standard Goods and Service Tax which came into effect on July 1st, 2017.
The main benefit of GST is to simplify the taxation laws for businesses that provide services and commodities. With its implementation, GST aims to reduce corruption and sales without receipts and also, to maintain accountability and regulation in unorganised business sectors, making the possibility of tax evasion considerably minimal.
There are five tax slabs (0%, 5%, 12%, 18% and 28%) under GST. Excluding this, a rate of 3% applies to metals such as gold while unrefined diamonds and precious stones attract a rate of 0.25%.
While many of us are familiar with GST, if checking an invoice on the total GST rate, it is written as CGST + SGST, or CGST + UTGST. Let’s break down what each of them represents.
Types of GST
Central Goods and Services Tax (CGST)
Collected by the central government on goods and services for the intrastate supply of goods and services for business operations.
State Goods and Services Tax (SGST)
The SGST is administered by the state government. Included under SGST are the following taxes like the state sales tax, value-added tax, luxury tax, entertainment tax, betting, gambling, entry tax, taxes on lottery winnings, state cesses, and surcharges.
Integrated Goods and Services Tax (IGST)
The IGST is collected instead of the CGST or SGST by the central government which includes the supply of goods and services whereas exports will be rated at zero. It is applicable all over India.
Union Territory Goods and Services Tax (UTGST)
A union territory is directly under the administration of the central government. This differentiates them from states where they have their own elected governments. It is applicable to goods and services that take place in any of the five union territories of India, including Andaman and Nicobar Islands, Dadra and Nagar Haveli, Daman and Diu, Chandigarh and Lakshadweep.
What is the GST Council
To formulate the GST regulations, the government has appointed a GST Council that consists of 33 members, headed by the current Union Finance Minister, Nirmala Sitharaman.
The designated members are:
- The Union Finance Minister, who will be appointed Chairman of the Council.
- The Union Minister of the state in charge of revenue will be a member of the Council.
- One member from each state and union territory who is a Minister of Finance.
- The members of the GST Council will elect a vice-chairman from the ministers of state.
- The Secretary of Revenue will work as the ex-officio secretary to the GST Council.
The chairperson of the Central Board of Excise and Customs will be a permanent invitee in all the proceedings. The head office of the GST Council is located in New Delhi and so far, they have held 37 meetings in person or through a video call.
The vision of the GST Council (taken from their website), is to establish the highest standards of cooperative federalism in the functioning of the GST Council, which is the first constitutional federal body vested with powers to take all major decisions relating to GST.
The mission of the GST Council is to evolve by a process of wider consultation, a goods and services tax structure which is user-friendly and information technology-driven.
Role of the GST Council
The GST Council will make recommendations to the center and the states on the following:
- Taxes, cesses, and surcharges levied by the center, states and local bodies which might be incorporated under GST.
- The goods and services that are subjected to or exempted from GST.
- The model of GST laws and allocation of Integrated Goods & Services Tax (IGST) and the principles governing the place of supply.
- Special rates for a specific period to raise additional resources during a natural calamity.
- Special provisions for the respective north and north-east states (Jammu and Kashmir, Uttarakhand and Himachal Pradesh).
- The date on which GST is to be levied on high-speed diesel, petroleum crude, natural gas, and aviation turbine fuel.
- The maximum limit of turnover below which goods and services might be exempted from GST.
- The rates including GST bands of floor rates.
- Any other GST related concern as deemed by the Council.
Decision Making of GST Council
There are 3 main requirements when it comes to passing GST related decisions in the Council.
- For a meeting to be valid, at least 50% of the total number of members of the GST Council should be present.
- During a meeting, each decision made should garner support by at least 75% of the majority of the votes from the members who are present as detailed below.
Article 279A states a principle which divides the total votes weighted cast between central and state governments:
The vote of the central government shall have one-third of the total votes. And, the votes of the state government shall have two-third of the total votes cast in the meeting.
An act or decision shall not be declared invalid on the basis of any remaining deficiency at the time of the establishment of the GST Council such as:
- Whether there is any vacancy remaining.
- Whether there is any defect in the Council’s constitution.
- Whether there is any procedural non-compliance.
- Whether there is any defect in the appointment of a Council member.
In case a dispute arises among the GST Council members, there are contingencies in place to adjudicate any disagreements. Referred to as a ‘dispute mechanism’, the constitution has provided rules to follow when in need.
The One Hundred and First Amendment Act, passed in 2016 in the constitution states a mechanism to adjust any dispute between:
- The Government of India and one or more states.
- The Government of India along with any state against one or more other States.
- Two or more States, arising out of the recommendations of the GST Council.
- And between, The Government of India.