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Published on:
February 23, 2023
By
Paramita

Practical Examples on Present Indirect Tax System  Tax in GST regime

The Indian government has implemented a new indirect tax system called the Goods and Services Tax (GST) that brings together all the different indirect taxes that were previously levied on goods and services. GST is a destination-based tax that aims to simplify the overall tax structure and make it more transparent, efficient, and business-friendly. In this article, we will look at some practical examples of how the present indirect tax system works and how it has changed under the GST regime.

Example 1: Sales Tax on Goods

Under the present indirect tax system, sales tax is levied on the sale of goods. Let's take an example of a company that manufactures and sells furniture. The company sells a dining table for Rs. 10,000 that includes Rs. 1,000 as sales tax. The company pays the sales tax to the government and keeps the remaining Rs. 9,000 as revenue. Under the GST regime, the company will charge GST on the sale of the dining table instead of sales tax. If the GST rate on furniture is 18%, the company will charge Rs. 1,800 as GST on the sale of the dining table. The company will pay this GST to the government and keep the remaining Rs. 8,200 as revenue.

Example 2: Service Tax on Services

Under the present indirect tax system, service tax is levied on the provision of services. Let's take an example of a company that provides IT consulting services. The company charges Rs. 50,000 for its services, which includes Rs. 5,000 as service tax. The company pays the service tax to the government and keeps the remaining Rs. 45,000 as revenue. Under the GST regime, the company will charge GST on the provision of its services instead of service tax. If the GST rate on IT consulting services is 18%, the company will charge Rs. 9,000 as GST on the provision of its services. The company will pay this GST to the government and keep the remaining Rs. 41,000 as revenue.

Example 3: Excise Duty on Manufactured Goods

Under the present indirect tax system, excise duty is levied on the manufacture of goods. Let's take an example of a company that manufactures shoes. The cost of manufacturing a pair of shoes is Rs. 1,000, and the company sells it to a retailer for Rs. 1,500, which includes Rs. 100 as excise duty. The company pays the excise duty to the government and keeps the remaining Rs. 1,400 as revenue. Under the GST regime, the company will not pay excise duty on the manufacture of shoes. Instead, the company will charge GST on the sale of the shoes to the retailer. If the GST rate on shoes is 18%, the company will charge Rs. 270 as GST on the sale of the shoes. The company will pay this GST to the government and keep the remaining Rs. 1,230 as revenue.

Example 4: Value Added Tax (VAT) on Goods

Under the present indirect tax system, VAT is levied on the sale of goods. Let's take an example of a company that manufactures and sells mobile phones. The company sells a mobile phone for Rs. 10,000 that includes Rs. 1,000 as VAT. The company pays the VAT to the government and keeps the remaining Rs. 9,000 as revenue. Under the GST regime, the company will not pay VAT on the sale of mobile phones. Instead, the company will charge GST on the sale of the mobile phone. If the GST rate on mobile phones is 18%, the company will charge Rs. 1,800 as GST on the sale of the mobile phone. The company will pay this GST to the government and keep the remaining Rs. 8,200 as revenue.

Conclusion

The GST regime has brought significant changes to the indirect tax system in India. It has simplified the overall tax structure, reduced the cascading effect of taxes, and made it more transparent and efficient. The examples given in this article show how the present indirect tax system works and how it has changed under the GST regime. It is important for small and medium business owners and startup founders to understand these changes and adapt to them to comply with the law and avoid penalties.

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