The historic Goods and Services Tax (GST) has become a reality. It was launched at an event in Central Hall of Parliament on Friday midnight. The new tax system embodies the principle of "one nation, one tax, one market" and is aimed to unify the nation's $2 trillion economy and 1.3 billion people into a common market.
There are five categories under GST: 0%, 5%, 12%, 18%, and 28%. The elimination of multiple state taxes will ease the businesses and for consumers, it would reduce the overall tax burden on goods.
"Inflation will come down, tax avoidance will be difficult, India's GDP will be benefitted and extra resources will be used for the welfare of poor and weaker section," Finance Minister Arun Jaitley said at GST launch event in Parliament.
Prime Minister Narendra Modi said: GST is a “good and simple tax” which would help businesspersons by putting an end to tax terrorism and inspector raj.
The biggest game changer in GST is input tax credit, where credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. This means that the end consumer will thus only bear the GST charged by the last point in the supply chain, with set-off benefits at all the earlier stages.
Small entities with annual turnover less than Rs 20 lakh are exempt from GST registration. If business below Rs 75 lakh turnover opts for composition scheme they will have to pay 1% tax.
Manufacturers will have to pay 2% while restaurant businesses will have to pay 5%.
Petroleum products and use of alcohol for human consumption have been kept out of GST as of now. The GST Council will take a decision on it at a later date. Alcohol has also been kept out of GST.
Commenting on the benefits of GST, Chanda Kochhar, MD & CEO of ICICI Bank said, "The GST is a transformational structural reform which will have multiple benefits - the creation of a national market; enhanced ease of doing business; greater productivity and efficiency; and improved tax compliance. This reform will result in benefits for all participants in the Indian economy, including both businesses and consumers."