VAT & GST (Goods and Services Tax)...pptx

VAT & GST

1. Nature and Scope of Excise Duty Even during the Maurian Empire (4th Century B.C.) there is proof available of the levy of tax on manufactured goods. Later, in 19th century , excise duties started levied with a duty in 1994 on cotton yarn of finer counts, which was later extended to fine cloth. Excise duties have been collected in the form of a tax or a toll. In the 20th century, the British imposed excise duty on salt . During the year 1927 , excise duty was levied on motor spirit and in 1922 on kerosene . In 1910, the levy was on silver article and later extended to many other articles of manufacture. Prior to the Central Excises and Salt Act.

2. 1944, there were separate excise Acts and these several statutes had their own rules. The Central Excises Act, 1944 has been enacted to consolidate and amend the law relating to Central Excise duty. Excisable goods imply goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty. Further, it is only till the stage when the duty liability is discharged by actual payment, that the goods can be called 'excisable goods'. Once the duty is paid, the goods have been subjected to duty and they are not excisable goods. Thus, duty paid goods are not excisable goods.

3. Steps to Pay Excise Duty   With the help of Electronic Accounting System in Excise and Service Tax (EASIEST), the payment gateway of CBEC, one can pay excise duty in a few steps. These are discussed below – Step 1 – Go to EASIEST and select the option for e-payment. Step 2 – Enter the allotted Assessee number and verify it online. Step 3 – Provide details like – address, name and information related to the jurisdictional commissionerate among others. Step 4 – Navigate to the menu for tax-type and then choose the Codes for Excise. Step 5 – Once the accounting code is selected, proceed to select the financial institution through which one can make payment.

4. Step 6 – Verify the information shared and then make requisite payments. Step 7 – With the help of user-ID and password, log in to the gateway for net banking. Step 8 – Enter the tax to be paid and the account for making payment. Step 9 – Once payment is made, a Challan Counterfoil will be generated.  Such a challan contains CIN which serves as a proof of payment. Step 10 – Use the Challan Status Inquiry feature to verify the payment status on EASIEST portal.  Often individuals tend to confuse excise duty with other types of taxes like – custom duty. To ensure the same is charged and treated accurately, taxpayers need to become familiar with more than excise duty meaning. For instance, they should also check out the fundamental differences between GST and excise tax, or excise duty and customs duty, among others.

5. VALUE ADDED TAX The term ‘Value A dded ' refers to increase in value of goods and services at each stage of production/transfer of goods or commodities/services. Thus VAT (Value Added Tax) basically means the tax likely to be levied on the value added by an organization at each stage of its rendering services or producing goods.

6. Features of VAT Elimination of cost cascade : In the earlier sales tax system, ultimate innocent consumers were subject to duty on duty leading to cost cascade. The VAT is aimed to eliminate the cost cascade so as to result in reduction of sales price. Input duty credit : Under VAT there is no tax on tax since only value added at any stage of production or distribution of goods is made subject matter of tax and an allowance is offered for the previously taxed raw material cost and other overhead charges so incurred. Multipoint tax : VAT is a multi-point tax. It is chargeable at every point of sale/ transfer of goods and services.

7. Improved sales tax system : The VAT aims to reform the prevailing system of sales tax laws contributing to double taxation. So it is known as improved sales tax. Socio-economic development : Due to elimination of cost cascade, the consumers and society as a whole get the benefit of lessened sale price of commodities. For the socio-economic growth and prosperity of an economy, introduction of VAT is mandatory which is already tested in advanced countries that have been implementing VAT for many decades. Additional revenue : VAT is simple as well as transparent indirect tax system with in-built capacity to raise more tax revenues without distorting the existing tax structure. Prevention of tax avoidance : VAT system has the unique feature of preventing the scope of tax avoidance.

8. Assessee friendly: VAT is more tax-payer-friendly than the existing sales tax system and the traders/common people need not have any fear on account of its simplicity and transparency. It does not exert any undue pressure of shouldering additional tax burden. Simplicity: VAT is quite simple, easily understandable and ascertainable by a common man. In India, the income tax credit system is utilised to evaluate and collect VAT from various product and service categories, with tax rates ranging between 4% and 12.5%. 

9. History of Value-Added Taxes The idea of a value-added tax was a largely European creation. It was introduced by French tax authority Maurice Lauré in 1954, although the idea of taxing each stage of the production process was said to have first been floated a century earlier in Germany.4The Guardian. The vast majority of industrialized countries that make up the  Organisation for Economic Co-operation and Development (OECD)  have a VAT system. According to an  International Monetary Fund (IMF)  study, any nation that switches to VAT initially feels the negative impact of reduced tax revenues. In the long run, however, the study concluded that VAT adoption has in the majority of cases increased government revenue and proved effective.

10. How to Register for VAT? Offline VAT Registration Complete the VAT registration application accurately and thoroughly. Once completed, kindly submit the application along with all the required documents to your local VAT office. Upon the completion of the document and application submission, the VAT office will undertake a comprehensive inspection of your premises within a span of three days. Upon inspection approval, you must pay a deposit fee to the VAT office. Upon completion of payment, a Taxpayer Identification Number (TIN) will be allocated to you. Furthermore, your VAT certificate will be efficiently issued within a single day.

11. Online Registration Process Access the official VAT website, log in, and navigate to the registration tab.  Provide the necessary information and upload scanned copies of essential documents. Following submission, you may receive a temporary VAT registration number.  Once your application and documents have been verified, your company will be assigned a permanent VAT registration number.

12. Tax Payer's Identification Number (TIN) TIN (Tax Payer's Identification Number) is a code to identify a tax payer.  (a) It is the registration number of the dealer. (b) It consists of 11 digit numerals throughout the country.  First two characters will represent the State code as used by the Union Ministry of Home Affairs. The set of the next nine characters will be, however, different in different States.  TIN will facilitate computer applications, such as detecting stop filers and delinquent accounts. TIN will help cross-check information on tax payer compliance, for example, the selective cross-checking of sales and purchases among VAT taxpayers

13. How to File VAT Return Online? Step 1: Log in Log in to the online portal of the Directorate of Commercial Taxes for your state. Since VAT comes under the purview of state governments, each state has different VAT e-filing portals. However, the procedure is the same for all of them. Step 2: Password Change If you are entering the website for the first time, you will be needed to change the password which you should certainly do. Step 3: Form 14D Next, you will have to download the PDF version of zipped Form 14D file; on unzipping it, you will find a PDF version of the form. This is the VAT return filing form which you need to fill completely, along with the annexures. Step 4: Complete the Form Once the download is complete, the form and all the downloaded annexures need to be filled duly with data contained in your VAT receipts and other relevant details. This can take you a couple of hours or a whole day depending on the number of transactions .

14. Step 5:Generating XML Using the downloaded software from the Directorate of Commercial Taxes online portal, you can create XML files out of the filled forms within minutes. Only Form 14D should be uploaded to be in XML, not the annexures, as only it needs to be digitally processed Step 6:Upload Upload the generated XML file as well as the duly filled annexures. Step 7:Correct Mistakes If Any The filing system instantly spots mistakes you’ve made at this point, so make sure that all data uploaded is correct otherwise the server will prompt and ask you to rectify. Step 8: Acknowledgement Once all the forms have been submitted successfully, an acknowledgement receipt will be generated. This is proof of your VAT returns filing for the month. You can either download or print this receipt.  

15. VAT has three variants, (a) Gross Product Variant (b) Income Variant (c) Consumption Variant.

16. (a) Gross Product Variant : The gross product variant allows deductions for taxes paid on all purchases of raw materials and components, but no deduction is allowed for taxes paid on capital inputs. (b) Income Variant : The income variant of VAT on the other hand allows for deductions on purchases of raw materials and components as well as depreciation on capital goods. This method provides incentives to classify purchases as current expenditure to claim set-off.

17. (c) Consumption Variant : Among the three variants of VAT, the consumption variant is widely used. Several countries of Europe and other continents have adopted this variant. Consumption variant of VAT allows for deduction on all business purchases including capital assets. Thus, gross investment is deductible in calculating value added. It neither distinguishes between capital and current expenditures nor specifies the life of assets or depreciation allowances for different assets. This form is neutral between the methods of production; there will be no effect on tax liability due to the method of production (i.e. substituting capital for labour or vice versa).

18. Major defects in the structure of Indirect Taxes before the GST regime Cascading Effect: One of the significant problems with the pre-GST indirect tax system was the cascading effect of taxes, also known as the tax on tax. In the pre-GST regime, taxes were levied at each stage of production and distribution, leading to a compounding effect of taxes. This resulted in an increase in the cost of goods and services, making them expensive for the end consumer.

19. Major defects in the structure of Indirect Taxes before the GST regime Multiple Taxes and Rates: The pre-GST indirect tax structure had multiple taxes levied at different stages of the supply chain. The central government levied taxes such as excise duty, service tax, and customs duty, while the state government levied taxes such as VAT, entry tax, and entertainment tax. Each tax had its own rate, making it complicated for businesses to calculate and comply with the tax laws.

20. Compliance Burden: Compliance with the pre-GST indirect tax system was complicated and time-consuming. Businesses had to comply with multiple tax laws, file separate tax returns, maintain separate records, and undergo multiple audits. This resulted in a high compliance burden for businesses, particularly small and medium-sized enterprises. Major defects in the structure of Indirect Taxes before the GST regime

21. Tax Evasion: The pre-GST indirect tax system was plagued with rampant tax evasion due to the complex tax laws and multiple tax rates. Many businesses found ways to evade taxes, such as underreporting sales, claiming false exemptions, and claiming input tax credits fraudulently. This resulted in a loss of revenue for the government and an uneven playing field for compliant businesses. Major defects in the structure of Indirect Taxes before the GST regime

22. Lack of Uniformity: The pre-GST indirect tax system lacked uniformity across states and industries. Different states had different tax rates, and industries were subject to different tax laws and exemptions. This resulted in a lack of transparency and predictability in the tax regime, making it difficult for businesses to plan and invest in the long term. Major defects in the structure of Indirect Taxes before the GST regime

23. Goods and Services Tax Goods and Services Tax  (GST) is a successor to  VAT  used in  India  on the supply of goods and service. Both VAT and GST have the same taxation slabs. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.

24. Goods and services are divided into 5 different tax slabs for collection of tax: 0%, 5%, 12%, 18% and 28%. However,  petroleum products ,  alcoholic beverages , and  electricity  are not taxed under GST and instead are taxed separately by the individual  state governments , as per the previous tax system.  There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on  gold . In addition a  cess  of 22% or other rates on top of 28% GST applies on several items like aerated drinks,  luxury cars  and tobacco products.  Pre-GST, the statutory tax rate for most goods was about 26.5%; post-GST, most goods are expected to be in the 18% tax range.

25. The tax came into effect from 1 July 2017 through the implementation of the  One Hundred and First Amendment to the Constitution of India  by the  Government of India . 1 July is celebrated as GST Day.  The GST replaced existing multiple taxes levied by the  central  and  state  governments. Also, to boost GST billing in India, the Government of India, in association with state governments, has launched an "Invoice Incentive Scheme" ( Mera Bill Mera Adhikaar ). This will encourage the culture of customers asking for invoices and bills for all purchases. The objective of the scheme is to bring a cultural and behavioural change in the general public to ‘Ask for a Bill’ as their right and entitlement.

26. The tax rates, rules and regulations are governed by the GST Council which consists of the finance ministers of the  C entral government  and all the states. The GST is meant to replace a slew of indirect taxes with a federated tax and is therefore expected to reshape the country's $3.5 trillion economy, but its implementation has received criticism.  Positive outcomes of the GST includes the travel time in interstate movement, which dropped by 20%, because of disbanding of interstate check posts.

27. DIFFERENT TYPES OF GST India currently recognizes four types of Goods service tax returns. These are: CGST (Central Goods and Services Tax):  When buying or selling things within one state, CGST is collected as an  indirect tax  by the  central government  in order to raise money for activities like infrastructure development and public services. SGST (State Goods and Services Tax):  When purchasing or selling something within your state, an SGST tax is collected by your  government  and used for local projects,  schools  and other purposes that benefit the entire  population  of that particular state. The money collected stays within its borders to fund local needs or state initiatives.

28. IGST (Integrated Goods and Services Tax):  When buying something that originates in another state, IGST comes into effect to facilitate  transactions  smoothly across state boundaries and ensure a fair distribution of revenues among participating jurisdictions. UTGST (Union Territory Goods and Services Tax):  UTGST is applied only on sales occurring within  Union Territories  governed directly by the  central government ; thus enabling more consistent  financial management  and development across these regions.

29. Implementation The GST was launched at midnight on 1 July 2017 by the President of  India , and the  Government of India . The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central Hall of the Parliament. Though the session was attended by high-profile guests from the business and the entertainment industry including  Ratan Tata , it was boycotted by the opposition due to the predicted problems that it was bound to lead for the middle and lower class Indians.  The tax was strongly opposed by the largest opposition party, the  Indian National Congress . [21] [22]  It is one of the few midnight sessions that have been held by the parliament - the others being the  declaration of India's independence  on 15 August 1947, and the  silver  and  golden jubilees  of that occasion.

30. After its launch, the GST rates have been modified multiple times, the latest being on 10 May 2023 where taxpayer with over ₹5 crore turnover in any financial year from 2017 to 2018 shall issue e-invoices w.e.f . 1 August 2023. Members of the  Congress  boycotted the GST launch altogether. [24]  They were joined by members of the  Trinamool Congress ,  Communist Parties of India  and the  Dravida Munnetra Kazhagam . The parties reported that they found virtually no difference between the GST and the existing taxation system, claiming that the government was trying to merely rebrand the current taxation system. They also argued that the GST would increase existing rates on common daily goods while reducing rates on luxury items, and affect many Indians adversely, especially the middle, lower middle and poorer income groups.

31. FEATURES AND BENEFITS OF GST The comprehensive indirect tax comes with many features benefiting businesses. The GST features are subject to change with the evolving economic landscape and Government decisions. One Nation, One Tax : Replacing multiple taxes imposed by the Central and State governments, GST is a uniform tax structure eliminating cascading taxes. Dual Structure : Operating as Central GST under the Central Government and State GST (SGST) under the State Governments, the Inter-State Transactions Integrated GST (IGST) is collected by the Central Government and apportioned to respective states with additional customs duties.

32. Destination-based Tax : This tax is levied at each stage of the supply chain from manufacturer to the consumer, adding value at every stage and reducing the consumer burden. Input Tax Credit (ITC) : By claiming credit on the tax paid for inputs used in the production and provision of goods and services, one can avoid double taxation and lower the overall tax liability.

33. Composition Scheme: Taxpayers below the prescribed limit turnover in special category states can pay a fixed percentage of GST from their turnover simplifying their compliance requirement. Online Compliance : The online portal Goods and Services Tax Network (GSTN), streamlines taxpayers to meet tax obligations. Anti-Profiteering Measures : This ensures businesses do not practice unfair pricing and the benefits of GST are passed on to consumers, National Anti-Profiteering Authority (NAA) monitors the activities of businesses.

34. Increased Compliance and Transparency : Bringing businesses into a formal economy, GST has enhanced tax compliance through transparency, digitalization and maintenance of electronic records. Sector-specific Exemptions : Certain sectors like Health, Education and Food grain are either exempted or have reduced GST for affordability and accessibility. Threshold Exemption : Businesses that have a low turnover get GST exemption, reducing compliance burden on smaller businesses.