The Rajya Sabha passed the 122nd constitutional amendment bill on Goods & Services Tax (GST)  by two-thirds majority. The Bill will now be returned to the Lok Sabha for its approval.

All About GST

Components of GST
The GST will have two components keeping in mind the federal structure of India: the Central GST (CGST) and the State GST (SGST).

What will GST subsume?
Central GST will subsume central indirect taxes like excise duty, countervailing duty and service tax and  State GST will subsume Value added tax, Octroi  and Entry tax, luxury tax, Purchase tax and Entertainment Tax.

GST will be based on consumption and not production
The final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. This is going to benefit consumer states.

SGST totally belongs to the state. Therefore, the consuming state (who is the recipient of SGST will get the total benefit).
For example, a manufacturing state Gujarat sales its goods priced Rs. 1000 to Bihar. Bihar, being an importer, will have the entire SGST and also the share from centre GS  while Gujarat will only get the share from central GST.

It means the poor states which are large consumers such as Bihar, UP, West Bengal, Assam, Odisha, etc. are all set to benefit from GST.

Commodities outside GST
The government of India will continue to charge central excise duty on all petroleum & natural gas products, tobacco and opium products. GST on above products will be applicable at a later stage, which will be decided by GST Council.
ONLY one product has been kept out of purview of GST and that is alcohol for human consumption, which means all central and state taxes will continue to apply for alcohol. The state and centre reserve full rights to increase or decrease VAT or any form of taxes on alcoholic beverages.

GST on Inter- state trade and Commerce
Only the Centre may levy and collect GST on supplies in the course of inter-state trade or commerce. The tax collected would be divided between the Centre and the states in a manner to be provided by parliament, on the recommendations of the GST Council.

Composition of GST Council
GST Council to be formed within 60 days of the commencement of GST Act. GST Council will have following members :
a) Union Minister of Finance as the chairman,
b) Union Minister of State in charge of Finance as member
c) Finance/revenue ministers of each state government as members.

GST Rate
GST rate has not been capped. It will be decided by the GST Council and will be reviewed from time to time.

Compensation to states
To compensate the manufacturing states, Parliament shall, by law, provide for compensation to states for any loss of revenues, for a period which may extend to five years (it may be less than 5 years, but not more). This would be based on the recommendations of the GST Council.

Implication of introducing GST
1. GST will provide uniform market, make taxation simple, efficient, transparent and hassle-free. GST will also drastically increase the ambit of taxation and improve tax compliance.

2. Most of the essential goods will become cheaper, since currently we pay about 26-28% of tax while GST will be much lesser. Government has also planned to keep the GST rate for “extremely important commodities” lower than the normal GST rate.

3. The reduced tax burden on companies will decrease the price of goods, will lower the production cost and improve exports. Implementation of GST, in long run, will create a large number of jobs and hence, it is rightly considered as the biggest economic reform in the history of independent India.

4. Services are presently taxed at 15%. The GST rate is expected to be around 18 %. Thus, services are expected to be costlier.