Concept and Introduction of Tax :

Taxation is the inherent power of the state to impose and demand contribution upon persons ,
properties , or right for the purpose of generating revenues for public purposes.

Taxes are enforced proportional contributions from persons to property levied by the law making
body of the state by virtue of its sovereignty for the support of the government and all public needs.

Brief History of Taxation :

Tax is today an important source of revenue for the government in all the countries . More than 3000
years ago , the inhabitants of ancient Egypt and Greece used to pay tax , consumption taxes and
custom duties. Income tax was first introduced in India in 1860 by James Wilson who become
Indians First Finance Member.

In order to meet the losses sustained by the government on account of military mutiny of 1857. In
1918 A New Income Tax bill was passed and which was further again replace in 1922. Finally, The
Ministry of Law and Finance The Income Tax was Passed in 1961 and brought came in force on 1st
April 1962. and this is also known as the Financial Year in Current Era. I e. ( 01.04.18 – 31.03.2019)

Taxation System :

Tax system of raising money to finance Government. All governments require payment of money
taxes from people.

Government use revenues to pay soldiers and police to build dams and roads, to operate schools and
hospitals, to provide food to the poor and medical care facilities etc and also hundreds of other
purposes without taxes to fund its activities, govt could not exist.

So, taxation is the most important source of revenues for modern government typically according for
90% or more of their income .
Essentials Characteristics of Tax :

1. It is an enforced Contribution.

2. It is generally payable by Money.

3. It proportionate in character , usually based on ability to pay .

4. It is levied on person and property with the jurisdiction of the state.

5. It is levied for public purpose.

6. It is commonly required to be paid a regular intervals.

What are the Reasons of Taxation ?

1. Provide the basic facilities for every citizen of country.

2. Finance government multiple projects and schemes.

3. Protection of Life.

4. Responsibility of citizen to the Nation.

Meaning of Tax :

The word Tax came from Latin word “Taxo , Tax are '' which means To asses or estimate .

Tax can be defined in the following ways :

“ The compulsory payments made to governments associated with certain activities are called Taxes.
“ A general purpose, compulsory contribution by the people to public treasury to meet the expenditure
of government is called Tax ''

“ A specific amount of money demanded by government from its public levied on their income ,
sales, wealth etc. ''

“ Taxes are the price we pay for a civilized society ''

Tax in general, is the imposition of financial charge upon an individual or a company by the govt of
India or their respective state or similar other functional equivalents in a state. The computation and
imposition of the varied taxes prevalent in the country are carried on by the Ministry of Finance
Department of Revenue.

Different Types Of Taxes :

Different Types of Taxes In India :

Prevalence of various kinds of taxes is found in India. Taxes in India can be either direct or indirect.
However, the types of taxes even depend on whether a particular tax is being levied by the central or
the state government or any other municipalities . Following are some of the major Indian
government are :

1. Direct Taxes :

It is names so because it is directly paid to the union government of India. As per a survey, the
Republic of India has witnessed a consistent rise in the collection of such taxes over a period of past
years . The visible growth in these tax collections as well as the rates of taxes reflects a healthy tax
along with better administration of taxation. To name a few of the direct taxes, which are imposed by
the Indian government are :

(I) Banking cash Transaction Tax.

(II) Corporate Tax.

(III) Capital Gains Tax.

(IV) Double Tax Avoidance treaty.

(V) Fringe Benefit Tax.

(VI) Securities Transaction Tax.

(VII) Personal Income-tax.

(VIII) Tax Incentives.

2. Indirect Taxes :

As opposed to the direct taxes, such a tax in the nation is generally levied on some specified services
or some particular goods . An indirect tax is not levied on any particular organization or an
individual. Almost all the activities , which fall with in the periphery of the indirect taxation , are
included in the range starting from manufacturing goods and delivery of services to those that are
meant for consumption. 5.
Usually, the indirect taxation in the Indian Republic is a complex procedure that involves laws and
regulations, which are interconnected to each other. These taxation regulations even include some
laws that are specific to some of the states of the country. The organizations offer services in all or
most of the related fields , some of which are as follows :

(I) Anti Dumping Duty

(II) Custom Duty.

(III) Excise Duty.

(IV) Sales Tax.

(V) Service Tax .

(VI) Value Added Tax . Or VAT

(3) Local Taxes In India :

The most known tax , which is levied by the local municipal jurisdictions on the entry of goods, is
known as the Entry Tax or the Doctor Tax.

(4) Income Tax

Income tax in India includes all income except the agricultural income that is levied and collected by
the central government. This particular income is also shared with the states. The income tax was
incorporated in India from the year 1860.

However, after many alteration, finally with the Indian Income-tax Act , 1922, there was a
revolutionary change brought by the All India Income Tax Committee. The significant as after this
the administration of the Income Tax came under the direct control of the central Government. This
act got amended again in the year 1961 , and the present Income Tax regime in India is still
following the provisions of the act of 1961.

5) Consumption Tax :

Consumption Tax is applicable on the consumption of any type of goods or service. This particular
tax is based on consumption and not on income. The consumption Tax can be regarded as a sales tax,
as this tax is also regressive in nature like the other pure sales taxes. However , there are some
remedies by which the consumption tax can be made progressive in nature.

1.1 Background of Goods and Service Tax Outside India

Goods and Service also known as the value added tax (VAT) or Harmonized sales tax. Following are
some successfully implemented GST models in other countries :

1. France :

a. Rate of GST 19.6%

b. France was the first country to introduced GST in 1954.

World wide , almost 150 countries have introduced GST in one or the other form since now. Most of
the countries have a unified GST System. Brazil and Canada follow a dual system vis a vis India is
going to introduce . In china , GST applies only to goods and the provisions of repairs , replacements
and processing services.

2. Australia :

a. Rates of GST 10%

b. GST is administrated by the tax office on behalf of the Australian Government, and is appropriated
to the states and territories.

c. Every company whose turnover exceeds $ 75000 is liable for registration under GST and in
default 1/11th of the income and some amount is form of penalty.

3. Canada :

a. GST is imposed at 5% in Part ix of the excise tax act . GST is levied on goods and service made
in Canada except items that are either exempt or zero rated.

b. When a supplier makes a zero rated supply, he is eligible to recover any GST paid on purchases
but the supplier who makes a supply of exempt goods he is not eligible take input tax credit on
purchases for the purpose of making the exempt goods and services.

4. New Zealand :

a. Rate of GST 12.5%

b. Exceptions are rent collected on residential rental properties, donations and financial services.

Historical Background of Goods and Service Tax in India :

1. Amaresh Baghchi Report , 1994 suggests that the introduction of Value Added Tax will act as
root for implementation of Goods and Service Tax in india.

2. Ashim Dasgupta, 2000 empowered committee, which introduces VAT system in 2005 ,
which has replaced old age taxation system in India.

3. Vijay Kelkar Task Force 2004, it strongly recommended that the integration of indirect taxes
in to the form of GST in India.

4. Announcement of GST to be implemented by 1st April , 2010 After successfully

implementation of VAT system in India and suggestion various committees and task forces on GST,
the union government first time in union budget 2006-07 announced that the GST would be
applicable from 1st April 2010.

5. The Government has formed various joint working groups of state finance ministers to study
the impact of GST various states.

6. The empowered committees of state finance ministers after various meetings reached on
amicable formula for implementation of GST in India.

7. Task force of finance ministers has submitted their report in December 2009 on structure of
GST in India.

8. In August , 2013 Standing committee on Finance tabled its report on GST Bill.

9. In December, 2014 revised constitution Amendment bill was tabled in Parliament.

10. On June 14, 2016 , the ministry of finance released draft model law on GST in public domain
for views and suggestions .

11. GST bill passed in Rajya Sabha on 3rd August , 2016 the constitution amendment (122nd ) bill
2014 was passed by Rajya Sabha with concern amendments.

a. The changes made by Rajya Sabha were unanimously passed by Lok Sabha.
b. After the passage of amendment bill in Rajya Sabha and the charges subsequently ratified and
passed by the lok sabha unanimously, the bill was adopted by a majority of state Legislatures where
in approval by at least 50% of the state Assemblies was required.

c. The final step to the constitution (122nd ) amendment bill, 2014 becoming an act was taken when
the Honorable President of India gave his final assent on September 8, 2016.

12. In 2017 – Four GST related bills become act to following Presidents assent and passage in
parliament:

a. Central GST Bill.

b. Integrated GST Bill .

c. Union Territory GST Bill.

d. GST (compensation to states ) Bill.

13. In 2017 GST Council finalizing the GST Rules and GST Rates.

14. When GST is Applicable – Modi Govt. Want to applicable GST Bill from 1st July 2017, Due
to a some legal Problems GST Bill is not applicable before 1st July 2017.
Concept Of Goods and Service Tax (GST)

Introduction Of GST

The reference of GST was first made in the Indian Budget in 2006-07 by the Finance Minister
Mr. P. Chidambaram as a single centralized Indirect tax. The GST constitution ( 122nd )
Amendment Bill 2014 was introduced on December 19, 2014 and passed on May 06, 2015 in
the lok sabha and yet to be passed in the Rajya Sabha.

The bill seeks to amend the constitution to introduce Goods and Services tax vide proposed
new article 246 A. This article gives power to Legislature of every state and parliament to
make laws with respect to goods and services tax where the supplies of goods or of service
take place . Recently, Union Minister Mr. Arun Jaitley said that GST could be implemented as
early as January 1, 2016.

Note: The word bill may be interpreted as the constitution (122nd ) Amendment Bill 2014.
Meaning Of Goods and Service Tax (GST)

Clauses 366 (12A) of the constitution Bill defines GST as “ goods and service tax” means
any tax on supply of goods, or services or both except taxes on the supply of the liquor for
human consumption. Further the clause 366 (26A) of the Bill defines Services means anything
other than Goods.

Thus it can be said that GST is a comprehensive tax levy on manufacture , sale and
consumption of goods and services at a national level . The proposed tax will be levied on all
transactions involving supply of goods and services, except those which are kept out of its
preview.

Purpose of GST :

The Two Important Purposes of GST are followings:

Single Umbrella Tax Rate:

GST shall replace a number of indirect taxes being levied by union and state government.

Removing Cascading Effect :

GST is intended to remove Tax on Tax Effect and provides to common national market for
Goods and Services.

Types Of Categories under GST rate

The GST tax is levied based on Revenue Neutral Rate . For the purpose of imposing GST tax
in India, the goods and services are categorized in to four.

These are four categories of goods and services are follows :

Exempted Categories under GST in India :

The GST and council and other GST authorities notifies list of exempted goods. Such goods
are not fallen under payment of GST tax. The authorities may modify or amend the list time to
time by adding deleting any item if required by notification to public.

Essential Goods and Services for GST in India :

 Essential Category of goods and services are charged very lower GST rate. Essential goods and
services are the goods and services for necessary items under basic importance.

Standard Goods and services for GST in India :

A major share of GST tax payers falls under this category of Standard Goods and Service. A
Standard rate is charged against the goods and services under this category.

Special Goods and Services for GST tax Levy :

Under special category of goods and services, GST rates would be high. Precious metals
including luxury items of goods and services fall under special goods and services for GST rate
implementations.

GST rates in India at a glance :

Exempted categories : 0

Commonly used Goods and Services : 5%

Standard Goods and Services fall under 1st Slab : 12%

Standard Goods and Services fall under 2nd Slab : 18%

Special category of Goods and Services including Luxury Goods : 28%

`
15. Types Of Goods and Service Tax in India.

1. CGST ( Central Goods and Service Tax) :GST to be levied by the center.

2. SGST ( State Goods and Service Tax ) : The GST is to be levied by the states is State
GST (SGST) .

3. IGST ( Integrated Goods and Service Tax ) : Integrated GST will be levied by the center
and the states concurrently .
Different Taxes are Cover under GST :

1. State taxes which will be subsumed in SGST :

VAT/ Sales Tax.

Luxury Tax.

Entertainment Tax ( unless it is levied by local bodies)

Taxes on Lottery, betting, and gambling.

2. Central Taxes which will be subsumed in CGST :

Central Excise Duty.

Additional Excise Duty.

Service Tax.

The Excise duty levied under the medical and toilet preparation Act.

Additional Customs Duty.

Education Less.

Surcharges.

3. Taxes that will not be subsumed:

Stamp Duty.

Electricity Duty.

Other Entry taxes and Octori Entertainment Tax ( levied by local bodies.)

Basic Customs duty and safeguard duties on import of goods in to India.

Professional Tax.
Challenges of GST implementations :

1. With respect to Tax Threshold

The threshold limit for turnover above which GST would be levied will be one area which would
have to be strictly looked at. First of all, the threshold limit should not be so low to bother small
scale traders and service providers. It also increases the allocation of government resources for such
a petty amount of revenue which may be much more costly than the amount of revenue collected.
The first impact of setting higher tax threshold would naturally lead to less revenue to the
government as the margin of tax base shrinks; second it may have on such small and not so
developed states which have set low threshold limit under current VAT regime.

2 With respect to nature of taxes

The taxes that are generally included in GST would be excise duty, countervailing duty, cess, service
tax, and state level VAT among others. Interestingly, there are numerous other states and union taxes
that would be still out of GST.

3 With respect to number of enactments of statutes

There will two types of GST laws, one at a center level called ‘Central GST (CGST)’ and the other
one at the state level - ‘State GST (SGST)’. As there seems to have different tax rates for goods and
services at the Central Level and at the State Level, and further division based on necessary and
other property based on the need, location, geography and resources of each state.

4 With respect to Rates of taxation

It is true that a tax rate should be devised in accordance with the state’s necessity of funds.
Whenever states feel that they need to raise greater revenues to fund the increased expenditure, then,
ideally, they should have power to decide how to increase the revenue.

5 With respect to tax management and Infrastructure

It depends on the states and the union how they are going to make GST a simple one. Success of any
tax reform policy or managerial measures depends on the inherent simplifications of the system,
which leads to the high conformity with the administrative measures and policies.
Opportunities of GST

1. An end to cascading effects

This will be the major contribution of GST for the business and commerce. At present, there are
different state level and center level indirect tax levies that are compulsory one after another on the
supply chain till the time of its utilization.

2 Growth of Revenue in States and Union

It is expected that the introduction of GST will increase the tax base but lowers down the tax rates
and also removes the multiple point This, will lead to higher amount of revenue to both the states and
the union.

3 Reduces transaction costs and unnecessary wastage's

If government works in an efficient mode, it may be also possible that a single registration and single
compliance will suffice for both SGST and CGST provided government produces effective IT
infrastructure and integration of such infrastructure of states level with the union.

4 Eliminates the multiplicity of taxation

One of the great advantages that a taxpayer can expect from GST is elimination of multiplicity of
taxation. The reduction in the number of taxation applicable in a chain of transaction will help to
clean up the current mess that is brought by existing indirect tax laws.

5 One Point Single Tax

Another feature that GST must hold is it should be ‘one point single taxation’. This also gives a lot of
comforts and confidence to business community that they would focus on business rather than
worrying about other taxation that may crop at later stage. This will help the business community to
decide their supply chain, pricing moralities and in the long run helps the consumers being goods
competitive as price will no longer be the function of tax components but function of sheer business
intelligence and innovation.

6 Reduces average tax burdens

Under GST mechanism, the cost of tax that consumers have to bear will be certain, and GST would
reduce the average tax burdens on the consumers.

7 Reduces the corruption

It is one of the major problems that India is overwhelmed with. We cannot expect anything
substantial unless there exists a political will to root it out. This will be a step towards corruption free
Indian Revenue Service.

Impact of Goods and Service Tax

I. Food Industry

The application of GST to food items will have a significant impact on those who are living under
subsistence level. But at the same time, a complete exemption for food items would drastically
shrink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and dairy products,
fruits and vegetables, candy and confectionery, snacks, prepared meals for home consumption,
restaurant meals and beverages. Even if the food is within the scope of GST, such sales would
largely remain exempt due to small business registration threshold. Given the exemption of food
from CENVAT and 4% VAT on food item, the GST under a single rate would lead to a doubling of
tax burden on food.

II. Housing and Construction Industry

In India, construction and Housing sector need to be included in the GST tax base because
construction sector is a significant contributor to the national economy.

III. FMCG Sector

Despite of the economic slowdown, India's Fast Moving Consumer Goods (FMCG) has grown
consistently during the past three – four years reaching to $25 billion at retail sales in 2008.
Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are expected to
fuel the growth and raise industry's size to $95 Billion by 201835.

IV. Rail Sector

There have been suggestions for including the rail sector under the GST umbrella to bring about
significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the
added benefit of ensuring that all inter – state transportation of goods can be tracked through the
proposed Information technology (IT) network.

V. Financial Services

In most of the countries GST is not charged on the financial services. Example, In New Zealand
most of the services covered except financial services as GST. Under the service tax, India has
followed the approach of bringing virtually all financial services within the ambit of tax where
consideration for them is in the form of an explicit fee. GST also include financial services on the
above grounds only.

VI. Information Technology enabled services

To be in sync with the best International practices, domestic supply of software should also attract
G.S.T. on the basis of mode of transaction. Hence if the software is transferred through electronic
form, it should be considered as Intellectual Property and regarded as a service. And if the software
is transmitted on media or any other tangible property, then it should be treated as goods and subject
to G.S.T. 35 According to a FICCI – Technopak Report. Implementation of GST will also help in
uniform, simplified and single point Taxation and thereby reduced prices.

VII. Impact on Small Enterprises

There will be three categories of Small Enterprises in the GST regime.

Those below threshold need not register for the GST

Those between the threshold and composition turnovers will have the option to pay a turnover based
tax or opt to join the GST regime.

Those above threshold limit will need to be within framework of GST Possible downward changes
in the threshold in some States consequent to the introduction of GST may result in obligation being
created for some dealers. In this case considerable assistance is desired. In respect of Central GST,
the position is slightly more complex. Small scale units manufacturing specified goods are allowed
exemptions of excise up to Rs. 1.5 Cr ores. These units may be required to register for payment of
GST, may see this as an additional cost.
 Benefits of GST

(A) Make in India

(i) Will help to create a unified common national market for India, giving a boost to Foreign
investment and “Make in India” campaign

(ii) Will prevent cascading of taxes as Input Tax Credit will be available across goods and
services at every stage of supply;

(iii) Harmonization of laws, procedures and rates of tax;

(iv) It will boost export and manufacturing activity, generate more employment and thus increase
GDP with gainful employment leading to substantive economic growth;

(v) Ultimately it will help in poverty eradication by generating more employment and more
financial resources;

(vi) More efficient neutralization of taxes especially for exports thereby making our products more
competitive in the international market and give boost to Indian Exports;

(vi) Improve the overall investment climate in the country which will naturally benefit the
development in the states;

(vii) Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate
arbitrage between neighboring States and that between intro and inter-state sales;

(viii) Average tax burden on companies is likely to come down which is expected to reduce prices
and lower prices mean more consumption, which in turn means more production thereby helping in
the growth of the industries . This will create India as a ” Manufacturing hub”.

(B) Ease of Doing Business

(i) Simpler tax regime with fewer exemptions;

(ii) Reductions in the multiplicity of taxes that are at present governing our indirect tax system
leading to simplification and uniformity;

(iii) Reduction in compliance costs - No multiple record keeping for a variety of taxes - so lesser
investment of resources and manpower in maintaining records;

(iv) Simplified and automated procedures for various processes such as registration, returns,
refunds, tax payments, etc;

(v) All interaction to be through the common GSTN portal- so less public interface between the
taxpayer and the tax administration

(vi) Will improve environment of compliance as all returns to be filed online, input credits to be
verified online, encouraging more paper trail of transactions;

(vii) Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax
return, common tax base, common system of classification of goods and services will lend greater
certainty to taxation system;

(viii) Timeliness to be provided for important activities like obtaining registration, refunds, etc;

(ix) Electronic matching of input tax credits all-across India thus making the process more
transparent and accountable.

(C) Benefit to Consumers:

(i) Final price of goods is expected to be lower due to seamless flow of input tax credit between the
manufacturer, retailer and service supplier;

(ii) It is expected that a relatively large segment of small retailers will be either exempted from tax
or will suffer very low tax rates under a compounding scheme- purchases from such entities will cost
less for the consumers;

(iii) Average tax burden on companies is likely to come down which is expected to reduce prices and
lower prices mean more consumption.

27
Perception About Study :

Meaning of Perception

Perception from the Latin word “Perceptio '' is the organization , identification , and interpretation of
sensory information in order to represent and understand the presented information or the
environment .

Based on previous studies , Perception can be made that individual with positive attitude towards tax
, Commonly believed in equality and fairness in the tax system, tax administration and compliance
with the commission of the tax law.

Positive attitude towards customers regarding tax system is important to enable individual have
responsible towards development of country.

Many opinion arise because consumer are interested to know how GST will effect and affect their
interest with some agree and some refuse of GST. Some peoples believed that GST would result in
negative impact on their lives. This is proven by a number of studies related to the implementation of
GST.

GST Return
GST SLAB and Structure Of GST Rates :
32