Further to the First Discussion Paper released by the Empowered Committee of State Finance Ministers on 10 November 2009, the Finance Commission has released its report giving its recommendations on GST design implementation.
Dual GST Model (Central GST and State GST) to be implemented concurrently by the Centre and the States.
The CGST and SGST should be levied on a common and an identical base.
No classification between goods and services in order to avoid classification disputes.
GST to be structured on a destination principle whereby the tax base shall shift from production to consumption.
Rate of CGST and SGST on all goods and services at 5% and 7% respectively.
Additionally, SIN goods to attract other taxes (other than those subsumed with GST) as a single levy.
Credit and refund
Cross utilization of credits between CGST and SGST not permissible
Full and immediate input credit to be allowed (CGST and SGST) on all purchases of capital goods in the year which the capital goods are purchased. Any transfer of capital goods at later stage to attract CGST and SGST liability.
Threshold limit under CGST and SGST for goods and services to be uniform across states at Rs 1 million.
Small dealers (turnover of Rs 1 million to Rs 4 million) allowed opting for compounded levy of one percent each for CGST and SGST without ability to claim input credit.
Dealers of high value goods (gold, silver ornaments etc) permitted to opt for compounded levy without the ceiling of Rs 4 million.
Payment of CGST and SGST
Registered dealer to make a single payment of aggregate of all sums due to Centre and other States, electronically by furnishing Form GST-I.
Taxes to be subsumed
Central levies to be subsumed
Central Excise Duty, Additional Excise Duty, Additional Customs Duty (CVD), Service Tax, Surcharges and Cess.
States levies to be subsumed
VAT, Sales Tax, Entertainment Tax (not levied by local bodies), Entry taxes not in lieu of Octroi, Luxury tax, taxes on lottery, betting and gambling, State Cesses and Surcharges. Additionally, stamp duty, taxes on vehicles, taxes on goods and passengers, taxes and duties on electricity also should be subsumed,
Alcohol, emission fuels and tobacco to be subject to dual levy of GST and excise without any credit of the excise component. Industrial fuels should be subject to GST only.
Inter-state transaction of goods and services
Does not recommend the IGST model proposed in the First Discussion Paper.
All inter-state transactions of goods and services will be effectively zero-rated based on the ‘Modified Bank Model’ mechanism.
Inter-state seller to collect SGST from buyer in the destination state as if sale in origin state after adjusting input SGST for payment of output SGST.
Excess of output SGST over input SGST will be paid into a nodal bank.
Importing dealer shall use SGST paid in state of origin for payment of output SGST in destination state.
Consignment sales and branch transfers across states to be subject to treatment as an inter-state transaction and as transaction between two independent dealers.
Exemptions, if any, to be restricted to public services of the Government, transactions between employer and employee, unprocessed food articles covered under the public distribution system, education and health services.
Exemption up to turnover of Rs 15 million for small scale industries to be discontinued.
Area-based exemption (presently enjoyed in case of central excise duty) proposed to be discontinued under GST. Support would be provided in the form of direct investment linked cash subsidy for balanced regional development.
Exemption for developers of, or units in, SEZ to be discontinued.
Exports and imports
Exports to be zero rated.
Imports subject to both SGST and CGST.
Date of implementation
Date of GST implementation shall be postponed to October 2010. Administration and Registration
Central Board of Excise and Customs (CBEC) responsible for implementing CGST and State Tax administrations separately responsible for SGST.
Persons with annual aggregate turnover above Rs 1 Million required obtaining GST registration number based on PAN.
The Authority for Advance Ruling and the Appellate Authority shall be common for CGST & SGST.