Are you tired of the old tax system and want to know what taxes have been subsumed in GST 2? Well, you’re not alone. GST 2 has been the topic of conversation and confusion for the past few years. So, what exactly are the taxes that have been subsumed under this new system?
GST 2 or the Goods and Services Tax 2 is the new unified tax system that has replaced multiple indirect taxes imposed by the Central and State Governments. The taxes that have been subsumed under GST 2 include Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty (CVD), Special Additional Duty of Customs (SAD), Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, and Entertainment Tax. That’s quite a list, but don’t worry, we’ll break it down and make it easy for you to understand.
The main aim of GST 2 was to simplify the tax structure, reduce corruption, and bring transparency into the system. By subsuming these taxes, the government aims to make the taxation system uniform across the country, avoiding multiple taxations and ending the cascading effect of taxes. With that said, GST 2 has faced its fair share of criticisms and has posed challenges for businesses in terms of compliance and implementation. But, let’s focus on the positive and explore what benefits GST 2 has to offer.
History of taxation in India
India has had a long and complex history of taxation, dating back to ancient times. In the early days, taxes were primarily collected by local rulers and were often in the form of agricultural produce. As the country became more centralized, different kinds of taxes were introduced, including customs duties, land taxes, and income taxes. By the time of British colonization in the 18th century, the Indian tax system was predominately based on land revenue.
The British colonial government made significant changes to the Indian tax system, which largely remained in place after India gained independence in 1947. These changes included introducing income tax, customs duties, and excise duties. Over the years, additional taxes were added, such as the service tax in 1994 and the value-added tax (VAT) in 2005. However, these taxes were all separate and often complicated to administer.
It wasn’t until the introduction of the Goods and Services Tax (GST) in 2017 that India had a unified tax system. This single tax replaced over a dozen central and state taxes, including excise duty, service tax, and VAT. The GST was created to streamline the tax system, reduce corruption, and boost economic growth by making it easier for businesses to operate across state borders.
What is GST?
The Goods and Services Tax (GST) is a comprehensive indirect tax that was implemented in India on July 1, 2017. The GST is a destination-based tax that is levied on the consumption of goods and services. It has been implemented to replace the complicated system of multiple indirect taxes that were levied by the Central and State Governments. Before the implementation of GST in India, there were myriad taxes such as Excise Duty, Service Tax, VAT, CST, Central Excise, and so on.
Which taxes have been subsumed in GST 2?
- Central Excise Duty
- Additional Excise Duty
- Service Tax
- Additional Customs Duty (Countervailing Duty)
- Special Additional Duty of Customs
- State VAT/Sales Tax
- Central Sales Tax
- Entertainment Tax (Others)
- Luxury Tax
- Taxes on lottery, betting, and gambling
- Octroi and Entry Tax
- Purchase Tax
- State Surcharges and Cesses, as far as they relate to supply of goods and services
The Impact of Subsuming Taxes in GST 2
The subsuming of taxes in GST has made the tax regime simpler and more transparent. The elimination of cascading taxes has led to a reduction in the overall tax burden on businesses.
Earlier, businesses had to deal with multiple taxes at different levels that increased the tax burden. The GST has reduced the compliance burden by unifying the tax system and reducing the number of tax returns that need to be filed by businesses.
The implementation of GST has also helped in the rationalization and simplification of tax rates. The GST Council has the mandate to revise tax rates based on the changing economic scenario.
A Table of GST Tax Rates on Various Goods and Services
| Goods/Services | GST Tax Rate |
|---|---|
| Essential goods | 0% |
| Processed food, textiles, and footwear | 5% |
| Capital goods and industrial intermediaries | 18% |
| Services such as healthcare and education | Exempted |
| Luxury items such as cars and aerated drinks | 28% |
This table highlights the GST tax rate for various goods and services. The GST Council has revised the tax rates on several occasions to make the tax system more consumer-friendly while also ensuring that the overall tax revenue targets are met.
GST Council and its functions
The Goods and Services Tax (GST) Council is a constitutional body that governs the GST regime in India. It consists of the finance ministers of the central and state governments, with the Union Finance Minister as the chairperson.
The main functions of the GST Council are:
- To recommend tax rates, including the slab-wise rates of GST, keeping in mind the revenue requirements and the prevalent tax rates in different states.
- To decide the threshold exemption limit for businesses under GST, which reflects the annual turnover of a business and whether it needs to be registered for GST.
- To finalize the list of goods and services that attract GST, known as the GST rate schedule. The GST rate schedule includes 4 tax slabs: 5%, 12%, 18%, and 28%, along with a category for exempted goods and services.
Taxes subsumed in GST 2
GST 2, also known as the Goods and Services Tax (GST) Amendment Act, 2018, brought significant changes to the GST regime. One of the most significant changes was the subsuming of several taxes into GST. Here is a table showing the taxes subsumed in GST 2:
| Taxes Subsumed in GST 2 |
|---|
| Central Excise Duty |
| Service Tax |
| State Value Added Tax (VAT)/ Sales Tax |
| Octroi and Entry Tax |
| Luxury Tax |
| Entertainment Tax (not levied by local bodies) |
| Advertisement Taxes (not levied by local bodies) |
| Purchase Tax |
| Taxes on Lotteries, Betting, and Gambling |
The subsuming of these taxes into GST has led to a simplified tax structure and the elimination of the cascading effect of taxes. The GST regime aims to reduce compliance costs for businesses and provide a uniform tax structure across the country.
GST Rates and Classifications
Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services. Under the GST regime, several taxes and cesses were subsumed. Let’s take a look at some of the taxes that have been subsumed in GST 2:
- Central Excise Duty
- Service Tax
- Central Sales Tax
- Value Added Tax (VAT)
- Entry Tax
- Octroi
- Entertainment Tax
The GST rates and classifications are based on the Harmonized System of Nomenclature (HSN) code. The HSN code is a globally recognized system for classifying goods and services for tax purposes. The GST regime has four tax slabs, which are 5%, 12%, 18%, and 28%.
| GST Rates | Description |
|---|---|
| 5% | Goods: Commonly used items such as essential food items, books, medical equipment, and services such as transportation of passengers and economy class air travel |
| 12% | Goods: Industrial intermediaries, fertilizers, telecom services, business class air travel, and services such as non-AC hotels, IT services. |
| 18% | Goods: Most goods fall under this category, including white goods, cement, cosmetics, capital goods, and services such as AC hotels and restaurants, financial services, and telecom services. |
| 28% | Luxury items such as automobiles, tobacco products, and personal jets; services such as 5-star hotels and cinemas. |
It’s important to note that some goods and services are exempted from GST, such as healthcare and educational services, and some goods are taxed at 0%. Additionally, the GST rates and classifications can change based on government policies, making it essential for businesses to stay up-to-date with the latest regulations to avoid any compliance issues.
List of Taxes Subsumed in GST
GST or Goods and Services Tax is an indirect tax that replaced various indirect taxes in India. It is a comprehensive tax levied on the supply of goods and services across the country with an aim to create a unified market. GST has subsumed several taxes, such as central excise duty, service tax, state-level taxes, value-added tax, and more. Here is a list of taxes that have been subsumed under GST:
- Central Excise Duty
- Service Tax
- State VAT
- Central Sales Tax
- Entry Tax / Octroi
- Luxury Tax
- Entertainment Tax
- Purchase Tax
- Countervailing Duty (CVD)
- Special Additional Duty of Customs (SAD)
All these taxes were levied on the production, sale, and consumption of goods and services in India. However, GST has replaced them and consolidated them under a single tax regime, making it easier for businesses to manage their taxes and for the government to administer and collect taxes.
Impact of GST on Various Taxes
GST has impacted various taxes differently since its implementation. Here are some of the effects of GST on different taxes:
Excise Duty: Excise Duty was levied on manufactured products and was paid by the manufacturer while selling the product to a dealer. Under GST, Excise duty has been replaced by Central GST (CGST) and is paid by the dealer while selling the product to the end consumer.
VAT: VAT was levied by the state government on the sale of goods within the state. Under GST, VAT has been replaced by State GST (SGST) and is levied by the state government on the sale of goods within the state.
Service Tax: Service Tax was levied by the central government on the provision of services. Under GST, it has been replaced by Integrated GST (IGST) and is levied on the supply of services across states.
The table below shows the impact of GST on different taxes:
| Tax | Old Tax System | New Tax System |
|---|---|---|
| Excise Duty | Manufacturers paid Excise Duty | Dealers pay Central GST (CGST) |
| VAT | State Government levied VAT on sale of goods | State Government levies State GST (SGST) on sale of goods |
| Service Tax | Central Government levied Service tax on provision of services | Integrated GST (IGST) levied on supply of services across states |
GST has simplified the tax structure in India by subsuming various taxes and creating a uniform tax regime across the country. With GST, businesses can manage their taxes more efficiently, and the government can boost tax collections, which can eventually lead to economic growth and development.
Impact of GST on Indian economy
GST (Goods and Services Tax) is an indirect tax that has effectively replaced the previous tax structures including VAT, Excise Duty, and Service Tax. The introduction of GST has had a significant impact on the Indian economy. Here are some of the ways GST has influenced the economy:
- Streamlining of tax system: GST has simplified the tax structure by eliminating multiple taxes. It has created a uniform tax system across all states, which has made it easier for businesses to comply with tax regulations.
- Increase in tax revenue: GST has widened the tax base by bringing in more taxpayers into the system. This has led to an increase in tax revenue for the government.
- Fiscal federalism: GST has brought about fiscal federalism, meaning that the tax base is equally divided between the central and the state governments. This has led to greater cooperation between the central and state governments.
Impact of GST on specific sectors
While GST has had a positive impact on the overall economy, it has impacted specific sectors differently:
Manufacturing: GST has benefitted the manufacturing sector as it has eliminated the cascading effect of taxes. Earlier, manufacturers had to pay tax on taxes, which increased the cost of production. However, with the introduction of GST, the tax is levied only on the value added, leading to a decrease in the cost of production.
Services: The introduction of GST has had a mixed impact on the service sector. While many services have become cheaper due to a decrease in the tax rate, some services such as telecommunication, banking, and insurance have become costlier due to an increase in tax rates.
Impact of GST on exports
GST has had a positive impact on exports. As GST has made the tax system simpler, it has reduced the transaction costs and logistics costs for exporters. This has made exports more competitive in the global market.
| Export growth rate before GST | Export growth rate after GST |
|---|---|
| 5.72% | 10.8% |
Source: Ministry of Commerce and Industry
GST Implementation Challenges
When the Goods and Services Tax (GST) was implemented in India, it brought about a significant overhaul of the indirect tax system by subsuming multiple taxes into one unified tax. This move aimed to simplify taxation, reduce paperwork, provide ease of doing business, and curb tax evasion. However, the implementation of GST faced several challenges.
Challenges Faced During GST Implementation:
- Inadequate IT Infrastructure: The GST implementation required robust and modern IT infrastructure for efficient compliance, return filing, and invoice matching. However, the GSTN (Goods and Services Tax Network) system faced issues of low server capacity, crashing of the portal, and slow processing times, leading to inconvenience to taxpayers.
- Complex Return Filing: GST return filing involves the upload of numerous invoices and reconciliation of mismatches, leading to complexity for businesses. The introduction of a new return filing system was faced with several delays and deferrals, overburdening taxpayers.
- Classification Challenges: The GST tax rates were introduced based on HSN (Harmonized System of Nomenclature) codes, leading to classification challenges for businesses. Classification errors could lead to higher tax liabilities, interest payments, and penalties.
Important Taxes Subsumed in GST:
The comprehensive GST framework replaced several indirect taxes imposed by the Centre and State governments and unified them under one tax. The major taxes subsumed in GST are:
| Central Level Taxes Subsumed: | State Level Taxes Subsumed: |
|---|---|
| Central Excise Duty | Value Added Tax (VAT) |
| Service Tax | Central Sales Tax (CST) |
| Additional Excise Duty | Entry Tax |
| Special Additional Duty of Customs | Luxury Tax |
| Cess and Surcharges | Entertainment Tax |
| Octroi and Entry Tax |
The implementation of GST has brought about a significant transformation in the Indian tax system, leading to standardized tax rates, simplified compliance, and reduced tax cascading. However, the challenges faced during implementation emphasized the need for efficient IT infrastructure, taxpayer education, and harmonized policies. India has come a long way in GST implementation, and it is moving towards a more mature and stable tax system, benefitting businesses and the Indian economy as a whole.
Which taxes have been subsumed in GST 2?
Q: What is GST 2?
A: GST 2 refers to the second phase of implementation of the Goods and Services Tax (GST) in India, which aims to simplify the country’s tax regime by subsuming various indirect taxes.
Q: Which taxes have been subsumed under GST 2?
A: GST 2 has subsumed a number of indirect taxes such as central excise duty, service tax, value-added tax (VAT), entry tax, luxury tax, and entertainment tax.
Q: What is central excise duty?
A: Central excise duty is a tax levied by the central government on the manufacture and production of goods within the country.
Q: What is service tax?
A: Service tax is a tax levied by the central government on the services provided by service providers.
Q: What is value-added tax (VAT)?
A: VAT is a tax levied by the state governments on the sale of goods within the state.
Q: What happens to the revenue collected from these taxes after they are subsumed under GST 2?
A: The revenue collected from these taxes after they are subsumed under GST 2 will be shared between the central and state governments based on the GST Council’s recommendations.
Closing thoughts
Thanks for taking the time to read about which taxes have been subsumed in GST 2. We hope this article has helped clear up any confusion you may have had about this topic. Please visit us again for more informative articles!