Model Answer
0 min readIntroduction
The Goods and Services Tax (GST), launched in India on July 1, 2017, was a landmark indirect tax reform. It subsumed most of the existing indirect taxes levied by the Central and State governments, aiming to create a unified national market. GST is a destination-based tax, meaning it is levied on the consumption of goods and services at the point of sale. The proposed GST model, as finally implemented, is a dual GST system with components levied by both the Centre and the States, designed to address the fiscal autonomy concerns of states while achieving economic integration.
Broad Features of the Proposed GST Model
The GST model in India is characterized by several key features:
1. Dual GST Structure
- Central GST (CGST): Levied and collected by the Central Government on intra-state supplies of goods and services.
- State GST (SGST): Levied and collected by the State Government on intra-state supplies.
- Integrated GST (IGST): Levied and collected by the Central Government on inter-state supplies of goods and services. IGST is a mechanism to ensure seamless credit flow across states.
- Union Territory GST (UTGST): Levied and collected by the Union Territories.
2. Tax Rate Structure
The GST rates are structured into multiple tiers:
| Tax Slab | Rate (%) | Examples |
|---|---|---|
| Nil | 0 | Essential goods like food grains, vegetables, etc. |
| Lowest | 5 | Daily use items |
| Standard | 12 & 18 | Most commonly used goods and services |
| Highest | 28 | Luxury goods, demerit goods (e.g., automobiles, tobacco) |
Certain goods and services are exempt from GST.
3. Input Tax Credit (ITC) Mechanism
A core feature of GST is the ITC mechanism. It allows businesses to claim credit for the GST paid on inputs (raw materials, services) against the GST payable on their output (finished goods, services). This prevents cascading of taxes and ensures a seamless flow of credit throughout the supply chain. The ITC rules are complex and subject to conditions.
4. GST Council
The GST Council is a constitutional body (Article 246A) responsible for making recommendations on all matters related to GST. It comprises:
- Union Finance Minister (Chairman)
- Union Minister of State for Finance
- All State Finance Ministers
Decisions are taken by a majority of at least three-fourths of the members present and voting, with each state having one vote. The GST Council plays a crucial role in harmonizing the interests of the Centre and the States.
5. Composition Scheme
A simplified scheme for small taxpayers with an annual turnover of up to a specified limit (currently ₹1.5 crore). Taxpayers opting for the composition scheme pay a fixed rate of tax on their turnover and are exempt from collecting GST on sales. They cannot claim ITC.
6. E-way Bill
An electronic waybill generated for the movement of goods valued over a specified threshold (₹50,000). It facilitates seamless transportation of goods across states and reduces tax evasion.
7. Reverse Charge Mechanism (RCM)
Under RCM, the recipient of goods or services is liable to pay GST instead of the supplier in certain cases, such as imports and supplies from unregistered dealers.
Conclusion
The GST model, despite initial challenges, has significantly reformed India’s indirect tax system. The dual GST structure, ITC mechanism, and the GST Council have been instrumental in creating a more unified and efficient national market. While complexities remain, ongoing refinements and technological advancements are expected to further streamline the GST system and enhance its contribution to economic growth. Addressing issues like rate rationalization and simplifying compliance procedures will be crucial for maximizing the benefits of GST.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.