Perhaps one of the most significant changes that the Indian economy has undergone recently is the implementation of the Goods and Services Tax (GST). GST has effectively subsumed a range of different indirect taxes, in a bid to streamline the tax system and simplify it for both businesses and consumers. Two of the taxes that have been subsumed in the new GST regime are the Central Excise Duty and the Value-Added Tax (VAT).
The Central Excise Duty was a tax that was levied on goods that were manufactured or produced in the country. It was essentially a tax on the production process itself, and it was collected at the time of clearance of the goods from the factory. The VAT, on the other hand, was a tax that was levied on the value that was added at each stage of the production process. This meant that the tax was levied on the final price of the product, with the tax paid by the end consumer.
With the introduction of GST, both these taxes have been subsumed into a single tax. This has not only simplified the system, but it has also eliminated a number of complexities that were associated with the earlier tax regime. The new system is more transparent, and it ensures that taxes are levied only on the value of the final product, rather than at each stage of the production process. All in all, the subsuming of these two taxes in GST marks a significant shift in the tax landscape in India.
Introduction to GST
GST, or Goods and Services Tax, is a comprehensive indirect tax that has replaced a gamut of indirect taxes such as VAT, Excise duty, Service Tax, and Central Sales Tax. The GST was introduced in India on 1st July 2017, and since then, it has brought about a significant change in the tax structure of the country.
One of the primary reasons for introducing GST was to provide a seamless and simplified tax structure that would promote ease of doing business and simplify tax compliance for businesses. Under the GST, businesses are required to file a single tax return, and there is no need to file multiple tax returns for different types of taxes, as was the case earlier.
Let us now understand which taxes have been subsumed under the GST regime:
Taxes subsumed in GST
- Central Excise Duty
- Service Tax
- State VAT
- Central Sales Tax
- Entry Tax
- Octroi and Local Body Taxes
- Luxury Tax
- Entertainment Tax (other than the tax levied by local bodies)
How does GST work?
Under the GST system, a business is required to register and obtain a GSTIN (Goods and Services Tax Identification Number) number. Once a business is registered under the GST regime, it is required to collect GST from its customers and deposit the same with the government. The GST is levied at the point of consumption, i.e., when the final customer purchases the product or service.
There are three main components of GST:
- CGST (Central GST)
- SGST (State GST)
- IGST (Integrated GST)
Composition Scheme under GST
The GST regime has introduced a Composition Scheme that enables small businesses with a turnover of up to Rs. 1.5 crore (Rs. 75 lakhs for Special category states) to pay a lower rate of tax. Businesses opting for the composition scheme are required to pay a fixed percentage of their turnover as tax, and they are not eligible for input tax credit.
| Composition Scheme | Normal Scheme | |
|---|---|---|
| Tax rate for suppliers of goods | 1% | Multiple rates based on goods and services |
| Tax rate for suppliers of services | 2% | Multiple rates based on goods and services |
| Eligible for Input Tax Credit | No | Yes |
| Return filing frequency | Quarterly | Monthly/Quarterly/Annually |
In conclusion, the GST regime has brought about a significant change in the tax structure of India, making it more streamlined and efficient. With the subsumption of various taxes under the GST, businesses can now focus on their core activities, rather than worrying about tax compliance. The Composition Scheme under GST has also provided a relief to small businesses, thereby promoting ease of doing business in the country.
Overview of pre-GST taxes
Before the introduction of the Goods and Services Tax (GST) in India, there were numerous indirect taxes imposed by the central, state, and local governments. The pre-GST tax regime was complex, and businesses had to deal with multiple tax laws, regulations, and procedures, leading to high compliance costs and inefficiencies.
Taxes subsumed in GST
- Central Excise Duty
- Service Tax
- Additional Duties of Excise & Custom
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Octroi, Entry Tax, Purchase Tax, and Luxury Tax
Central Excise Duty
Central Excise Duty was an indirect tax levied on the manufacture of goods in India and was payable by the manufacturer. The tax was based on the value of goods manufactured and was collected at the time of clearance of goods from the factory. It was also applicable to goods imported into India. The rates of Central Excise Duty varied depending on the type of goods, and there were several exemptions and rules governing the tax.
Under GST, Central Excise Duty has been subsumed, and manufacturers have to pay a single tax on their output, i.e., GST. Businesses with an annual turnover of up to Rs. 20 lakhs are exempt from GST, and those with a turnover of up to Rs. 1.5 crores can opt for the Composition Scheme and pay a lower tax rate.
Value Added Tax (VAT)
Value Added Tax was a state-level tax levied on the sale of goods within the state and was payable by the seller. The tax was based on the value added at each stage of the supply chain, and the burden of the tax was ultimately borne by the end-consumer. The rates of VAT varied by state and by category of goods, and there were several exemptions and rules governing the tax.
| Goods Category | Pre-GST VAT rates (in %) |
|---|---|
| Essential Commodities | 0 |
| Gold | 1.2 to 2% |
| Electronics | 12.5 to 15% |
| Textiles | 5 to 6% |
Under GST, VAT has been subsumed, and businesses have to pay a single tax on their sales, i.e., GST. The rates of GST are uniform across the country, and there are four slabs – 5%, 12%, 18%, and 28% – depending on the category of goods. Businesses with an annual turnover of up to Rs. 20 lakhs are exempt from GST, and those with a turnover of up to Rs. 1.5 crores can opt for the Composition Scheme and pay a lower tax rate.
Explanation of subsumed taxes
Before the implementation of Goods and Services Tax (GST) in India, there were several indirect taxes levied by the central and state governments. GST has subsumed many of these taxes, which means that they are no longer applicable as separate taxes but are now part of the GST system. The subsumed taxes can be broadly classified into two categories: Central taxes and State taxes. Here is a detailed explanation of the subsumed taxes:
Subsumed Taxes
- Central Excise Duty
- Service Tax
- Value Added Tax (VAT)
- Central Sales Tax (CST)
Central Excise Duty was a tax levied by the central government on goods manufactured in India. It has been subsumed under GST as Central Goods and Services Tax (CGST). CGST is applicable on the supply of goods and services within the same state.
Service Tax was a tax levied by the central government on services provided in India. It has also been subsumed under GST as CGST. CGST is applicable on the supply of services within the same state.
VAT was a tax levied by the state government on the sale of goods within the state. It has been subsumed under GST as State Goods and Services Tax (SGST). SGST is applicable on the supply of goods and services within the same state.
CST was a tax levied by the central government on the sale of goods from one state to another. It has been subsumed under GST as Integrated Goods and Services Tax (IGST). IGST is applicable on the supply of goods and services from one state to another.
Advantages of subsuming taxes under GST
The subsuming of taxes under GST has many advantages:
- Reduces the cascading effect of taxes
- Simplifies the tax structure
- Increases compliance
- Promotes ease of doing business
Conclusion
Subsuming taxes under GST has made the tax structure in India much simpler and has reduced the burden on businesses. It has also made the tax system more transparent and has improved compliance. The implementation of GST has been a significant step towards making India a more business-friendly country.
| Subsumed Taxes | New GST Taxes |
|---|---|
| Central Excise Duty | Central Goods and Services Tax (CGST) |
| Service Tax | Central Goods and Services Tax (CGST) |
| Value Added Tax (VAT) | State Goods and Services Tax (SGST) |
| Central Sales Tax (CST) | Integrated Goods and Services Tax (IGST) |
Subsuming taxes under GST has made the tax structure in India much simpler and has reduced the burden on businesses. It has also made the tax system more transparent and has improved compliance. The implementation of GST has been a significant step towards making India a more business-friendly country.
Comparison of GST with pre-GST taxes
Goods and Services Tax (GST) was introduced in India on 1st July 2017. It has replaced many indirect taxes that existed prior to its implementation. Here we will be discussing the subsumption of two such taxes that have been included in GST.
Subsumption of Central Excise and Service Tax
- Before the introduction of GST, the Central Excise tax was levied on the manufacture and production of goods, whereas Service Tax was levied on the provision of services.
- Under GST, both of these taxes have been subsumed into one tax, which is known as the GST (Goods and Services Tax).
- With the introduction of GST, the manufacturing sector and service sector are both taxed under the same system. Hence, GST has eliminated the old distinction between goods and services.
Impact on Industry
The subsumption of Central Excise and Service Tax into GST has had a significant impact on multiple industries in India. Some of them are as follows:
- Manufacturing: The introduction of GST has brought about transparency and reduced the tax burden on manufacturers. With the implementation of GST, the cascading effect of taxes has been eliminated.
- Service: The service sector has also benefited from the implementation of GST. With the introduction of GST, there has been a reduction in compliance burdens which has led to the growth of the service industry.
- Retail: With the implementation of GST, the retail sector has also benefited. Earlier, retailers had to pay tax on top of the tax already paid by the manufacturer. However, with the implementation of GST, the tax paid by the manufacturer is available as a credit which can be used to offset the tax liability of a retailer.
GST Rates for Central Excise and Service Tax items
The table below shows the GST rates for some common items that were earlier taxed under Central Excise and Service Tax:
| Item | Old Tax Rate | GST Rate |
|---|---|---|
| Textile | 12.5% | 5% |
| Tobacco Products | 65% | 28% |
| IT Services | 15% | 18% |
The above table shows that the GST rates are mostly lower than the pre-GST tax rates. This has resulted in lower tax burdens for businesses and consumers.
Benefits of GST implementation
The Goods and Services Tax (GST) is a comprehensive indirect tax that replaced a number of indirect taxes in India. One of the most significant benefits of GST implementation is the subsuming of several taxes, including Central Excise Duty and Service Tax, which were earlier levied by the Central Government, and Value-added Tax (VAT), which was collected by the State Governments.
- Elimination of multiple taxes: The GST regime has eliminated the cascading effect of taxes, which means that businesses only have to pay a single tax on the value added at each stage of production or distribution. This has simplified the tax structure and reduced the compliance burden for businesses.
- Increased competitiveness: GST has created a level playing field for businesses across India by allowing seamless flow of input tax credit and eliminating state-level taxes. This has increased competitiveness and reduced the cost of goods and services, benefiting both businesses and consumers.
- Improved tax collection: The GST regime has made tax collection more efficient and transparent by bringing more businesses into the formal sector and increasing the number of indirect tax payers. This has resulted in higher tax revenues for the government.
In addition to these benefits, GST implementation has also led to several other positive outcomes:
- Encouraged e-commerce and digital transactions by providing a single taxation system for online businesses.
- Streamlined the logistics and supply chain management system by reducing interstate barriers and simplifying compliance procedures.
- Reduced corruption and tax evasion by requiring businesses to maintain accurate and transparent records.
Overall, the implementation of GST has been a game changer for the Indian economy, leading to increased efficiency, transparency, and competitiveness, and benefiting all stakeholders.
| Previous taxes subsumed in GST | Taxes still outside GST ambit |
|---|---|
| Central Excise Duty | Basic Customs Duty (BCD) |
| Additional Excise Duty | Stamp Duty |
| Service Tax | Gambling and Betting Taxes |
| Value-added Tax (VAT) | Real Estate Taxes |
| Central Sales Tax (CST) | Electricity Duty |
While GST implementation has had its challenges, including initial teething problems and resistance from certain quarters, the benefits have far outweighed these difficulties, making it one of the most significant tax reforms in India’s history.
Challenges faced during GST implementation
The Goods and Services Tax (GST) is considered to be one of the most significant tax reforms in India’s history. However, its implementation was not without challenges. Here are some of the challenges faced during GST implementation:
- Technical glitches: The GSTN (Goods and Services Tax Network) portal, which was set up to facilitate GST registration and tax payments, faced several technical issues. The portal was not able to handle the large volume of registrations and filings, which led to delays and inconvenience for taxpayers.
- Complexity: GST is a comprehensive tax that replaced multiple indirect taxes, such as excise duty, service tax, and VAT. It brought many changes in the tax compliance procedures, which made it difficult for taxpayers to understand and comply with the new regulations.
- Confusion about rates: GST has different tax rates for different goods and services. However, there was confusion among businesses and consumers about the applicable rates. Many businesses faced challenges in calculating the correct tax amount.
Despite these challenges, the implementation of GST has had several benefits. It has led to a reduction in the overall tax burden on businesses, provided a level playing field for all businesses, and simplified the tax compliance process.
Impact on taxes subsumed under GST
One of the key features of GST is the subsuming of various indirect taxes that were previously levied by the central and state governments. These taxes include:
- Central Excise Duty
- Service Tax
- Central Sales Tax
- Value Added Tax (VAT)
- Entertainment Tax
- Entry Tax
Under the GST regime, these taxes are subsumed into the following taxes:
| Old Taxes | New Taxes |
|---|---|
| Central Excise Duty | Central Goods and Services Tax (CGST) |
| Service Tax | Central Goods and Services Tax (CGST) or Integrated Goods and Services Tax (IGST) |
| Central Sales Tax | Central Goods and Services Tax (CGST) |
| Value Added Tax (VAT) | State Goods and Services Tax (SGST) |
| Entertainment Tax | State Goods and Services Tax (SGST) |
| Entry Tax | State Goods and Services Tax (SGST) |
The implementation of GST has resulted in a reduction in the cascading effect of taxes and has made the tax system more transparent and efficient. It has also increased the ease of doing business in India by providing a uniform tax system across the country.
GST Impact on Different Industries and Sectors
Goods and Services Tax (GST) is an indirect tax that has been implemented in India to replace multiple taxes levied by the Central and State governments. With the introduction of GST, two major taxes that have been subsumed are Value Added Tax (VAT) and Central Sales Tax (CST).
Under the GST regime, different industries and sectors have witnessed varying levels of impact. Here are a few examples:
- Manufacturing Industry: The manufacturing industry has been one of the biggest benefactors of the GST regime. With the elimination of multiple taxes such as excise duty, CST, and VAT, companies can now save on the costs of compliance and benefit from greater transparency in the supply chain. Additionally, the seamless flow of goods across state borders has increased efficiency and reduced inventory costs.
- Real Estate: Prior to the implementation of GST, different taxes such as Service Tax, VAT, and Stamp Duty were levied on real estate transactions, adding to the overall cost for buyers. With the introduction of GST, the sector has experienced some level of standardization, with a 12% GST rate applicable to under-construction properties. However, GST is not applicable for the sale of completed properties, which may put the developers of such properties at a slight disadvantage.
- E-commerce: GST has had a positive impact on the e-commerce industry, as it has simplified tax compliance for online sellers. Under the previous tax regime, sellers had to comply with different state-wise VAT regulations, which was a cumbersome process. With the introduction of GST, online sellers now only have to register in one state and file a single return, thereby saving on compliance costs.
In addition to the industries mentioned above, GST impact has also been felt in the services sector and the overall tax revenues for the government. The introduction of GST has led to greater transparency in the tax system and increased compliance, resulting in higher tax revenues for the government.
GST Impact on Export Industry
The GST regime has had a mixed impact on the export industry in India. On one hand, the abolition of multiple taxes has made exports more cost-effective, which has led to increased competitiveness in international markets. Additionally, the seamless flow of goods across state borders has reduced logistics costs and administrative hassles for exporters.
On the other hand, the GST regime has also led to certain challenges for exporters. For instance, exporters have to first pay the GST and then apply for a refund, which can result in a liquidity crunch. Furthermore, a high GST rate of 18% has been imposed on certain export services, which may make them less competitive in international markets.
| GST Impact | Effect |
|---|---|
| Export of goods | No GST is levied on exports of goods, making them more cost-effective and competitive in international markets. |
| Export of services | 18% GST is levied on certain export services, making them less competitive in international markets. |
| Input tax credit for exporters | Exporters have to first pay the GST and then apply for a refund, leading to a liquidity crunch. |
Despite these challenges, the overall impact of GST on the export industry has been positive, with the elimination of multiple taxes and the increased efficiency in the supply chain.
Which of the Following Two Taxes Have Been Subsumed in GST?
FAQs:
1. What is GST?
GST stands for Goods and Services Tax, implemented in India on July 1, 2017. It refers to a tax levied on the supply of goods and services.
2. What are the taxes subsumed in GST?
The two major taxes subsumed in GST are Central Excise Duty and Value Added Tax (VAT).
3. What is Central Excise Duty?
Central Excise Duty was a tax levied by the Central Government of India on the manufacture or production of goods. It was paid by the manufacturer or producer of goods before the products were sold.
4. What is Value Added Tax (VAT)?
Value Added Tax, also known as Sales Tax, was levied by the State Government on the sale of goods within the state. It was paid by the end consumer of goods.
5. What was the need to subsume these taxes in GST?
Before GST was introduced, there were multiple taxes levied on goods and services like Central Excise Duty, VAT, Service Tax, etc., which made the taxation system complex. The introduction of GST aimed to simplify the taxation system by replacing the multiple taxes with a single tax.
6. How has GST impacted the Indian economy?
GST has helped to create a common market across India, leading to a reduction in the prices of goods and services. It has also improved compliance, increased transparency, and boosted revenue collection.
Closing Thoughts
Thanks for taking the time to read about which of the following two taxes have been subsumed in GST. Understanding GST is essential for every business owner operating in India. Stay tuned for more updates on the tax system in India by visiting us again soon.