Executive Summary

India is geared up to introduce a dual GST on a common taxing event of supply by central as well as state government. Keeping in mind that GST will be in effect from 1st of July, 2017. The Indian companies have begun pushing their IT vendors and tax advisors to upgrade their systems to be GST compliant. To meet this goal, both finance software companies as well as ERP vendors have made desired changes to accommodate the prescribed methodology of calculating GST. They are aligning their processes to accommodate GST in order to have a smooth transition from pre GST to post GST phase without causing inconvenience to their customers.

Introduction to GST

With the advent of Goods and Service tax (GST) in India proposed from July 1st 2017, the biggest and most impactful change in Indian indirect taxation is bound to happen. The GST will replace the existing indirect taxes on consumption and will be applied on both goods and services. For goods, it will be levied destination based, whereas for services, it will be levied consumption based.

Genesis of GST

The idea of moving towards the GST was first mooted in the Budget for 2006-07. The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for the GST. Joint Working Groups of officials having representation of the States as well as the Centre were set up to examine various aspects of the GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within and between it and the Central Government, the Empowered Committee released its First Discussion Paper on the GST in November, 2009. This spells out the features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.

GST is one tax that is levied on manufacturing, selling and consumption of goods and services, distributed among the Central Government and the State Governments. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on the value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. Being a destination based consumption tax; GST is usually levied on import of goods and services with export transactions being zero rated under the GST scheme.