Understand GST || Everything you should know about GST–

On July 1st, 2017 Indians is going to witness a common Tax for the entire country ie, GST. This is the instant which is widely discussed these days, But everyone had a common query, Whether GST helpful to middle-class people?? Some support this and some don’t.  Today in this article I will provide you the facts related to GST, So, let’s get into it.

What is a tax?

Before going into GST thing we will first know what is a tax, A tax is a money paid to the government, It is imposed on your income, business profit, the cost of goods and services, So, The government can use this money in public interest and pay off its debts.

There are two types of taxes one is the direct tax and the other Indirect Tax, the Direct tax is something whose liability cannot be transferred to someone else, like corporate tax, Income tax, wealth tax. Indirect tax is something whose liabilities can be transferred, like the central excise tax, sales tax,services tax etc, Here we will discuss out interest towards indirect tax bexcause GST replaces excise tax, service tax, additional duty, customs tax, VAT, sales tax , Entertainment tax etc.

How GST differ from current tax system-

To understand this let us consider a simple example,  Consider a manufacturer manufacturing a product,

Current system-

  • The manufacturer buys raw materials for rupees 50 and he produces the product with a production cost of 50. So, Total cost of the manufacturing of the product is rupees 100.
  • For selling this product he has to pay 10% so he adds it to original cost and transfers it to distributor. So, Now the cost of the product at distributor site is rupees 110.
  • Now the distributor adds the value of 20 as his profit. Now the product value becomes rupees 130. He also pays 10% so the final cost at distributors site is rupees 143.
  • Now the product is at Wholesalers site. Now, Wholesaler adds 20 as profit and the price becomes rupees 163. He also pays 10%. so the final cost at wholesaler is rupees 179.3.
  • Now the product is at retailers site.Now, Retailer adds 20 as profit and the price becomes rupees 199.3. He also pays 10% So the final cost for the consumer is rupees 219.3.

Proposed GST system-

  • The manufacturer buys raw materials for rupees 50 and he produces a product with a production cost of 50. So, Total cost of the manufacturing a product is rupees 100.
  • But now he had to pay for the amount he added ie, He has to pay tax for 50 rather than pay for 100. He pays the tax of rupees 5, Selling price will not be affected and the cost of the product for distributor is rupees 100.
  • At distributors site, He adds the profit of rupees 20 to the product and the price becomes 120. And now he pays 10% tax on 20 rupees that he adds. But the selling price will not be affected. So, The cost at Wholesaler  site will be rupees 120.
  • At Wholesaler site, he adds a profit of rupees 20 to the product and the price becomes 140. and now he pays 10% tax on 20 rupees that he added but the selling price will not be affected, So, The cost at retailer site will be rupees 140.
  • At retailer site, He adds a profit of rupees 20 to the product and the price becomes 140 and now he pays 10% tax on the 20 rupees that he adds, But the selling price will not be affected, So, The cost to the consumer will be rupees 160.

When we compare these two systems the cost of the product is 59 rupees cheaper in the GST system.

GST in India is categorized into 5 categories

  1. 0%—–>Applied on food grains and etc
  2. 5%—–>Mostly and widely used items.
  3. 12%—->Normal items.
  4. 18%—–> Semi luxury items.
  5. 28%—->Luxart items.

After GST how prices changes??

Whose prices increases,

  • Packaged food.
  • Jewellery
  • Readymade garments
  • Mobile services
  • credit card services etc

Whose prices Decreases-

  • Home
  • Restaurant
  • AC
  • microwave oven
  • small cars
  • washing machines etc

Exemptions for GST-

  • Alcohol for human consumption.
  • petrol
  • High-speed diesel
  • natural gas
  • aviation fuel
  • stamp duty tax
  • property tax
  • tool tax
  • electricity duty

This is how the GST works and now you can get rid of all misconceptions regarding GST,  Please do comment below for any other queries .

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Naveen Surampally

Naveen Surampally, The founder of Apexbyte is an passionate blogger and a computer security expert.

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