The Goods and Services Tax (GST) is a new indirect tax law introduced in India in April 2017. It is a unified tax system that is based on the Harmonised System of Nomenclature and the Scheme of Classification of Service. It is aimed at providing a level playing field to all businesses, and has various features to make the process simpler and more transparent. The GST system is currently only in place in the central government and can only be applied on a state-to-state basis.
Under the GST regime, goods imported from outside the country are taxed at 28%. This applies to luxury goods such as cars, motorcycles, and refrigerators. Compared to the previous system, under the GST system, a seller must pay the GST on his raw materials, while the receiver must pay the tax on the finished good. The difference between these two situations is that in a reverse charge scenario, the supplier of the service will be liable to pay the IGST to the customer.
Under the GST, businesses can apply for a tax credit. In other words, they can claim a credit for the taxes paid on raw materials and semi-finished goods. In other words, if you buy raw materials or semi-finished products, you can claim tax credits on those purchases. The only catch is that you can only claim input tax credits for purchases made for business purposes.
A notebook manufacturer pays Rs. 10 for the raw materials. In the process of manufacturing it, he will apply a 1% tax on the value of the raw materials. The resulting finished product is worth Rs. 15 – the amount of tax due is Rs. 1.50. Moreover, in the GST system, the previous tax can be deducted from the additional tax.
The main benefits of the GST are: it reduces the amount of paperwork for goods and services and simplifies the supply chain. Besides, it eliminates double taxation and improves efficiency. It also reduces transportation cycle time and costs. The single indirect tax system is beneficial for the business because it improves the business and consumer’s finances. The unified system also creates a better environment for businesses.
The Goods and Services Tax (GST) has been implemented in India since April 2017. The GST has replaced the previous indirect tax laws that prohibited the taxpayer from claiming input tax credits. Moreover, the GST has improved the efficiency of the tax collection system by allowing companies to get a higher credit for their taxes. With the new scheme, the dealer can get a refund of all the input taxes that they paid.
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