GST Council to meet today: A simple understanding of the tax reform

A review of over 50 items in the form of rate changes and clarifications along with discussions to extend the compensation mechanism for states beyond the existing legal mandate till June 2022 are some of the key issues on the agenda of the Goods and Services Tax (GST) Council in its 45th meeting to be held in Lucknow on Friday. Chaired by Finance Minister Nirmala Sitharaman, the GST council is likely to extend tax concessions on 11 Covid drugs till 31 December. According to sources, the GST council will also be discussing the issue of bringing petrol and diesel under the GST regime and a proposal to treat food delivery apps such as Zomato and Swiggy as restaurants and levy five percent GST on supplies made by them. With all eyes of the Council, let’s do a quick recap on what is GST and what are the functions of the GST Council. GST explained The Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services and is ultimately paid by the consumer. The Government of India introduced GST in 2017 under their “one nation, one tax” reform. It is a single tax levied on the supply of goods and services right from the manufacturer to the consumer and essentially replaces multiple indirect taxes, such as VAT, service taxes, excise, etc. The main objective of the reform was to unite different types of taxes in the ambit of a single tax system. All goods and services are primarily divided into a four-tier rate structure of five percent, 12 percent, 18 percent and 28 percent at this point in time. However, certain goods and services, such as petroleum crude, high-speed diesel, motor spirit, natural gas are exempted from GST. Just ahead of the GST regime completing four years, Prime Minister Narendra Modi in June, lauding the reform, had said, “GST has been a milestone in the economic landscape of India. It has decreased the number of taxes, compliance burden and overall tax burden on the common man while significantly increasing transparency, compliance and overall collection.”

GST has been a milestone in the economic landscape of India. It has decreased the number of taxes, compliance burden & overall tax burden on common man while significantly increasing transparency, compliance and overall collection. #4YearsofGST

— Narendra Modi (@narendramodi) June 30, 2021

Types of GST There are four different types of GST, which are as follows – Central Goods and Services Tax: This is the tax levied by the Centre – State Goods and Services Tax: This is a tax levied by the state – Integrated Goods and Services Tax: This is levied for interstate supply of goods. Imports of goods are treated as inter-state supplies. In addition to IGST, imports will also be subject to customs duties as applicable – Union Territory Goods and Services Tax: This tax is levied by Union Territories and charged on all transactions carried out in any UT in India The benefits of GST GST replaced a plethora of indirect taxes such as states’ sales tax, service tax, excise, etc, with a single central tax regime applied uniformly on all products and services. However, the biggest benefit of GST was that it opened up entire India as a single unified market allowing for free movement of goods across states’ borders, as opposed to the earlier scenario where state borders became barriers. Items not included in GST – Alcohol for human consumption: On alcohol, the power to tax remains with the states – Petroleum products: GST is not imposed on five petroleum products – crude oil, diesel, petrol, natural gas and aviation turbine fuel – Tobacco: Along with GST, the Central government has the power to levy additional excise duty on tobacco products – Entertainment tax: The power to decide on entertainment tax levied by local bodies remains with the states With inputs from agencies