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Working of GST

Working of GST

Ideally, Working of GST in India taxes are levied at various stages of retail, supply and production based on the value assigned to the product by retailers, suppliers and producers individually. Unfortunately, the current tax system is unjust to most of the manufacturers in India. Here is an example to help you get a gist of our current tax system.

Imagine a soap manufacturer that procures raw materials at 500 lakhs/batch. Here, the manufacturer sets the operating profits as 100 lakhs and holds back a processing cost of 50 lakhs.

In this case, the manufacturer pays 120 lakhs in tax i.e., 70 lakhs on sales and 50 lakhs on procurement. Now with GST in place, total tax to be paid by the manufacturer would be 70 lakhs. Let us find out how.

The manufacturing company initially paid 50 lakhs as input tax. Now when the company decides to sell the batch for 700 lakhs, it receives a tax credit of 50 lakhs. Thus, the tax amount for the final transaction comes to 20 lakhs bringing the total to 70 lakhs.

GST takes off the tax burden for manufacturers. Most importantly,working of GST in India would include various indirect taxes that are currently imposed on various partakers in the supply chain. Bringing down such taxes would not only curb overall production costs, but would also improve the country’s economy in long run.

Need of GST
Need of GST is VAT rates and regulations differ from state to state. In working of GST observed that states often resort to slashing these rates for attracting investors. This results in loss of revenue for both the Central as well as State government.

On the other hand, Need of GST brings in uniform tax laws across all the states spanning across diverse industries. Here, the taxes would be divided between the Central and State government based on a predefined and pre-approved formula. In addition, it would become much easier to offer services and goods uniformly across the nation, since there won’t be any additional state-levied tax.

GST rollout missed several deadlines due to disagreement among many states over certain important issues on the new tax reform. However, as per recent reports, GST is scheduled for a nation-wide rollout on April 1, 2016.