India is well known for its complex tax system. It becomes almost impossible for the startups and businesses to navigate through several indirect and direct taxes. The constant changes of the taxes like Service tax are making things worse. When purchasing a product or service, paying taxes feels like a list of confusion. We get shocked to see the several taxes that are imposed on the amount. This is why the government has introduced Goods and Services Tax (GST). Goods and services Tax (GST) will impact all scales and sizes of businesses and transform the corporate landscape. The new tax regime will bring enhance the ease of doing business, increase efficiencies and more transparency.
Some frequently asked questions:
- What is GST and how does it work?
GST (Goods and Services Tax) is an indirect tax for the nation. It will be levied at all stages from manufacture to final consumption
- What are the types of GST?
Central Goods and Services Tax (CGST) paid on all transactions and collected by the Center
State Goods and Service Tax (SGST) paid on all transactions within a state, collected by the States
Integrated Goods and Services Tax (IGST) paid on all inter-state transactions or import of goods into India and collected by the Center
- What are the components of GST?
GST is the combination of State and Central taxes. So there will be 3 types of taxes- State GST, Central GST and IGST. As all the state and center taxes are merged and came up as one tax under GST, central and state government it will need to have the share of GST. There will be 3 types of taxes under GST. As GST is a consumption based tax, the tax revenue will be collected and charged by the consuming g state. It will help the consuming state to protect the tax base. There will be CGST and SGST, if the goods are transferred within the state that is the consumption state is same as the origin state. IGST will be levied if the goods are transferred from one state to other and the central government will settle the tax to the consuming state.
- What are the existing taxes proposed to be subsumed under GST?
At the Central level:
- Service Tax levied under Chapter V of the Finance Act, 1994
- Duties of Excise levied under Medicinal and Toiletries Preparation Act
- Additional Excise Duties (Textile and Textiles Products)
- Additional Customs Duty, commonly known as CVD (Countervailing Duty)
- Special Additional Duties of Customs (SAD)
- Central Cesses and Surcharges as they relate to supply of goods and services
At the State level:
- Luxury Tax
- State VAT
- Purchase Tax
- Central Sales Tax
- Entertainment and Amusement Tax unless it is levied by the local bodies
- Taxes on betting, gambling and lotteries
- Entry Tax
- State Cesses and Surcharges as they relate to supply of goods and services
- Will GST bring down the tax burden?
GST to remove the cascading effect of tax. On account of usage of credit, all the input credits will be used and will bring down the tax burden. The credit can be claimed when it matches the invoice of the respective suppliers. Tax credit claims under several tax laws are not allowed in the current tax regime.
- What are the various taxes levied on the Restaurant Bill?
GST Council has finalized a four-tier tax structure. The taxes will be levied at 5, 12, 18 and 28 percent. Restaurants will have different tax slabs depending on the turnover and AC or Non-AC. So depending on which restaurant you are visiting whether AC or Non-AC. In 5 star and 7-star hotels, the service tax will be much higher at 28%.
- Restaurants that have a turnover less than 50 lakh will be levied a tax rate of 5%
- Five star restaurants will charge luxury tax of 28%
- AC restaurants will shell out 18% tax
- Non-AC restaurants will have 12 percent tax
- Lodges, hotels with less than Rs 1,000 tariffs will be taxed 5 percent
- Lodges, hotels between Rs 1,000 -2,000 tariffs will be charged 12 percent tax
- Lodges, hotels between Rs 2,500-5,000 tariffs will be charged 18 percent
- What will be cheaper and costlier?
Categorization of many consumer products like hair oil, toothpaste, soaps under 18% is good news and you will get to see a price drop for the consumers. Food items like tea, edible oil, sugar, coffee etc have been kept at 5% with the exemption for foodgrain and milk which will also cheer the industry.
Hotels: Post the implementation of GST, staying at hotels will become cheaper. Currently, they are taxed at 22 percent and a posed to be under 18 percent tax bracket.
Foodgrains will cost less
Branded goods: Tax rates on branded goods are slashed to 18%. The tax rate currently for the 3 items is pegged at 23 to 24%.
Restaurants will come down to 18 percent
Processed food items under GST will be taxed at 5 percent
Things that will be costlier are:
- All luxury goods, tobacco products and aerated drinks are expected to be taxed at 28%
- Coffee, masala and tea will be taxed 5 percent
- Internet, mobile bills, DTH services, wifi can get costlier
- How the Restaurant will benefit from the GST?
Some of the positive impact on Restaurants:
- Payment system will be faster and effective
- Reduction of tax on food bill will be around 9.5 percent. It will attract more customers at the restaurants
- One Nation, One tax policy will bring uniformity in the global league for the GST regime
- There will be more transparency from the purchase of the product or service to the sale would be documented
- Depending on the yearly turnover, Small scale restaurants will benefit from the 5 to 12 percent tax slab or no tax
- Subsuming various taxes for one tax will help in easy billing for the restaurants
- New GST scheme will help to generate revenue, reduce business costs for restaurants and reduce corruption
- What are the negative impacts of the GST on Restaurants?
The new GST rates has some bad news for the 5 star and 7 star restaurants as they would charge 28 percent GST.
Some of the disadvantages of GST:
- Possibility of Increased Costs
- Medium scale restaurants will be pulled unnecessarily to the tax slab of 28 percent in budget and luxury hotels
- The tax bracket for budget and luxury hotels is wide
- Increased cost affect competition from Asian markets
- It will affect footfalls at these hotels and directly and indirectly will affect the footfall at the restaurants
Are you ready for GST?
ChronitoPOS is GST Ready software which will help to run your business with ease. It is a complete solution for the businesses and it is a cloud based that will provide you more benefits.