Decoding GST - How Things Can Change From April 1?

Rajya Sabha’s Monsoon session saw the passage of Goods and Services Tax (GST) bill last week, which appeared to be a landmark development in tax reforms. However, there were split opinions over the bill with some saying that it will benefit the consumers at large and other news segments highlighting the downside that it will have on services.

The bill, which has received clearance from Lok Sabha as well is likely to be rolled out starting April 1, 2017. In light of recent developments, it is crucial to understand the key aspects of this bill and to be clear as how it will impact common man. 

What is GST?

GST is aimed at implementing comprehensive tax on manufacture and sale of goods and services across India. The new tax regime, when come into force, will replace the existing taxes that are levied at several stages by the central and state government. Thus, the new system endeavours to eliminate duplication of taxes. 

How Things Will Change?

In order to clarify how things will change after implementation of GST, here is an example explained for non GST and post-GST tax scenario.

Non-GST Scenario		GST Scenario
Raw Materials Purchased Incl Taxes	Rs 900 + Rs 100 (Tax) Rs 1,000	Raw Materials Purchased Incl Taxes	Rs 900 + Rs 100 (Tax) Rs 1,000
Cost To Manufacturer	Rs 1,000	Cost To Manufacturer	Rs 1,000
Value Addition	Rs 200	Value Addition	Rs 200
Gross Value For Manufacturer	Rs 1,200	Gross Value For Manufacturer	Rs 1,200
Tax Applicable @10%	Rs 120	Tax Applicable @10% - Tax Already Paid (Rs 100)	Rs 120- Rs 100 Rs 20
Cost To Wholesaler	Rs 1,320	Cost To Wholesaler	Rs 1,220
Wholesaler Profit Added	Rs 200	Wholesaler Profit Added	Rs 200
Gross Value for Wholesaler	Rs 1,520	Gross Value for Wholesaler	Rs 1,400
Tax Applicable @10%	Rs 152	Tax Applicable @10% - Tax Already Paid (Rs 20)	Rs 140- Rs 20 Rs 120
Cost To Retailer	Rs 1,672	Cost To Retailer	Rs 1,520
Retailer Profit Added	Rs 200	Retailer Profit Added	Rs 200
Gross Value for Retailer	Rs 1,872	Gross Value for Retailer	Rs 1,720
Tax Applicable @10%	Rs 187	Tax Applicable @10% - Tax Already Paid (Rs 120)	Rs 52
Cost To Customer	Rs 2,059	Cost To Customer	Rs 1,772

The above illustration satisfactory proves how consumers will benefit post implementation of GST. GST bill will enable companies to set off taxes paid at various stages during the entire supply chain. 

Final Take

It is to be noted that GST will reduce tax burden on consumers, but at the same time it will bring broader goods and services under its ambit. It is estimated that goods entailing higher tax rate will see their prices going down after GST, while services that are taxed at lower rate, are likely to become dearer. Since price structure is an important element, therefore, it is difficult to predict the final impact as of now. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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