Are you ready to unravel the mysteries behind India’s latest GST laws? Brace yourselves, because we’ve got all the latest updates and essential information that you need to stay ahead in these times of constant change. From crucial amendments to game-changing regulations, this blog post is your ultimate guide to everything you should know about Indian GST laws. So tighten your seatbelts and get ready for an informative ride through the complexities and intricacies of this ever-evolving tax regime.
Introduction to Indian GST Laws
Goods and Services Tax (GST) is an indirect tax system that was implemented in India on July 1, 2017. It replaced multiple existing taxes such as Value Added Tax (VAT), Service Tax, Excise Duty, and others, with a single comprehensive tax. GST is considered to be one of the biggest tax reforms in India since its independence.
The introduction of GST has brought about significant changes in the way businesses operate in the country. It has simplified the taxation process by bringing all transactions under one umbrella and has also helped in eliminating cascading effect of taxes. The new tax system aims to create a common national market for goods and services and boost economic growth.
Structure of Indian GST
The Indian GST is a dual structure that comprises Central Goods and Service Tax (CGST) levied by the central government and State Goods and Services Tax (SGST) levied by state governments on intra-state supplies. In case of inter-state trade or import/export transactions, an Integrated Goods and Services Tax (IGST) is levied by the central government which will later be divided between the Centre and states.
Exemptions under Indian GST
Under the GST regime, certain goods are exempted from paying any taxes while providing some services at concessional rates. These include basic necessities such as food grains, agricultural products, healthcare services, education services etc., to ease the burden on lower-income groups.
GST Rates
The goods and services are classified into five different categories based on their respective tax rates – 0%, 5%, 12%, 18% and 28%. Some essential items like milk, bread, books fall under zero percent category while luxury items like cars have been placed under higher slabs. The council has rationalized rates over time taking into consideration various factors like revenue requirements, impact on inflation etc.
Registration Under GST
Businesses with a turnover exceeding 20 lakh rupees are required to register for GST. However, the threshold limit is reduced to 10 lakh rupees for states with lower economic activity. Registration under GST can be done online through the Goods and Services Tax Network (GSTN) portal.
Compliance Under Indian GST
Businesses registered under GST have to comply with various regulations like filing monthly or quarterly returns, maintaining detailed records of transactions, and proper invoicing as per prescribed formats. Failure to comply with these rules may attract penalties and fines.
It can be said that although the implementation of GST has faced some challenges initially, it has now stabilized and proved to be beneficial for businesses in India. The latest updates on Indian GST laws are constantly evolving and businesses need to stay updated with these changes in order to ensure compliance and avoid any repercussions.
History of GST in India
The Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. It was implemented on July 1, 2017, after years of discussions, debates, and amendments by the Indian government. The idea of implementing a unified indirect tax system to replace multiple indirect taxes had been proposed as early as 2000 but it wasn’t until April 2015 that the Constitutional Amendment Bill for GST was passed by the Parliament.
The history of GST in India can be traced back to the year 2000 when a committee headed by former Finance Minister R Vennkataraman proposed implementing a Value Added Tax (VAT) system. This proposal aimed at replacing the existing sales tax structure with a VAT system at both state and central levels. However, due to various political and administrative issues, this proposal couldn’t be executed at that time.
In late 2009, during Prime Minister Manmohan Singh’s tenure, a second attempt was made to introduce GST in India. A sub-committee consisting of representatives from states and central governments was formed under the leadership of then Finance Minister Pranab Mukherjee to come up with recommendations for implementing GST.
Several rounds of deliberations along with opposition from some states led to further delays in implementing GST. In order to address concerns raised by different states regarding revenue losses due to GST implementation, it was decided that compensation would be provided for five years post-implementation.
In August 2016, after several rounds of negotiations between the Centre and state governments led by current Finance Minister Nirmala Sitharaman, Rajya Sabha passed the Central Goods and Services Tax (CGST) Bill along with three other supporting bills related to IGST (Integrated Goods & Services Tax), UTGST (Union Territory Goods & Services Tax), and Compensation Cess.
On July 1st ,2017 all existing Indirect Taxes such as Excise Duty, Service Tax, VAT, and others were subsumed under GST. This marked a significant milestone in the Indian tax system by introducing One Nation One Tax. However, it wasn’t without its initial challenges such as technical glitches on the GSTN (Goods & Services Tax Network) portal and confusion regarding various tax rates.
The journey towards implementing GST in India has been a long one with its own set of challenges and roadblocks. But with continuous efforts from both the central and state governments along with feedback from taxpayers, it is constantly evolving to become a more simplified and efficient indirect tax regime for the country.
Latest Updates on GST Laws
The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services in India. Since its implementation in July 2017, GST has been subject to multiple revisions and updates to address various issues faced by businesses and consumers alike. In this section, we will discuss some of the latest updates on Indian GST laws that you need to be aware of.
One significant development in the GST landscape is the introduction of a new return filing system. The current system of filing monthly returns (GSTR-3B) and annual returns (GSTR-9/GSTR-9C) has been replaced with a quarterly return filing system for small taxpayers with an aggregate turnover up to Rs.5 crore. This move aims to reduce the compliance burden for small businesses while promoting ease of doing business.
Additionally, several changes have been made in the GST rates for various goods and services over the past year. The COVID-19 pandemic necessitated a reduction in tax rates for essential commodities such as hand sanitizers, medical equipment, and certain medicines. On the other hand, certain luxury items saw an increase in taxes due to efforts towards rationalizing rates across different product categories.
In terms of administrative measures, GST officials have implemented stricter protocols for timely processing of GST refunds. As per recent guidelines issued by the Central Board of Indirect Taxes & Customs (CBIC), refunds must now be processed within 60 days from the date of receipt of application or date when all necessary documents are submitted by taxpayers.
In another crucial update, e-invoicing was made mandatory for businesses with an annual turnover exceeding Rs.500 crore from October 2020 onwards. E-invoicing aims at reducing errors while facilitating seamless reporting under GST through automated data entry processes.
Furthermore, changes have also been made regarding input tax credit claims under rule 36(4). Taxpayers can now claim credit on invoices that were uploaded by their suppliers until the due date of furnishing GSTR-2A for Sep 2020 returns. The scope of input tax credit has also been expanded to include input services used for exempt or non-taxable supplies.
Staying updated with the latest developments in GST laws is crucial for businesses to ensure compliance and avoid penalties. It is advisable to consult a tax professional or refer to official government sources regularly to stay informed about any changes in GST regulations.
Changes in Tax Rates
The Indian government has introduced several changes in the tax rates under the Goods and Services Tax (GST) regime in order to simplify tax compliance for businesses while also boosting revenue collection. These changes have been implemented keeping in mind the feedback received from various stakeholders, such as taxpayers, industry experts, and tax authorities. In this section, we will discuss the recent changes made in GST tax rates and how they impact businesses.
- Reduction in Tax Rates:
In a bid to promote ease of doing business and reduce compliance burden for small businesses, the government has reduced GST rates on numerous goods and services. As per these changes, items like daily use products, such as detergents, shampoo, deodorants, perfumes, cosmetics; food items including frozen vegetables; sanitary napkins; handmade carpets; tractor parts; marble rubble have all been moved from 28% to 18% slab. This reduction has resulted in significant cost savings for consumers while also providing relief to manufacturers. - Rationalization of Tax Slabs:
In addition to the reduction of taxes on certain goods and services, the government has rationalized GST slabs by merging multiple slabs into one. For instance, all types of footwear except leather ones now fall under a single rate of 12%. Similarly, there is now only one GST rate for movie tickets instead of three earlier (18%, 12%, &5%). These measures aim at simplifying taxation structures while also reducing ambiguity for both taxpayers and tax authorities. - Changes in Composition Scheme:
The composition scheme was introduced under GST with an intention to provide respite to small businesses by allowing them to pay taxes at a lower rate without complying with lengthy procedures of return filing. Recently announced amendments have extended this benefit to even more taxpayers by increasing the annual turnover limit from Rs 1 crore to Rs 1.5 crores. - Addition of New Categories:
Under GST law revision approved by the government, new categories such as electric vehicles (EV), fertilizers, & storage and warehousing services have been added to the list of goods and services eligible for concessional tax rates. This move is expected to boost the EV industry while also encouraging investment in new types of services.
These changes in GST tax rates reflect the government’s continuous efforts towards creating a more business-friendly tax environment in India. While there may be some initial challenges in adapting to these amendments, they are likely to benefit both businesses and consumers in the long run. It is advisable for businesses and taxpayers to keep themselves updated with these revisions in order to stay compliant with GST laws.
New Regulations and Policies
In recent years, there have been several new regulations and policies introduced in India regarding GST laws. These changes aim to simplify the tax system, promote compliance, and make it easier for businesses to navigate the complex structure of Goods and Services Tax (GST). As a business owner or individual taxpayer, it is crucial to stay up-to-date with these new regulations and policies to avoid any penalties or setbacks.
One of the significant changes that have recently been implemented is the introduction of e-invoicing. E-invoicing mandates electronic generation of invoices through GST portal for all taxpayers whose annual aggregate turnover exceeds Rs 100 crore. This move aims to reduce manual intervention and increase transparency in the invoice generation process. It also helps reduce errors and fraudulent activities by creating a standardized format for invoices across all industries.
Another essential regulation that has come into effect is the implementation of dynamic QR codes on B2C (business-to-consumer) invoices from December 2020. This code contains vital details such as GSTIN number, UPI ID, date of invoice generation, total invoice value, etc., making it easier for customers to verify the authenticity of their purchases. This regulation will help combat fake invoicing practices that lead to revenue leakages.
Apart from these technological advancements, several other policy changes have been introduced to ease compliance burdens on small businesses. The composition scheme has been extended to service providers with an annual turnover limit of Rs 50 lakhs at a concessional rate of 6%. Additionally, late fees for delayed filing of returns have been reduced or waived off altogether for taxpayers with nil liabilities.
One critical policy decision taken by the government was introducing an e-way bill system for inter-state movement of goods in 2018. This measure aimed at curbing tax evasion by ensuring proper documentation and real-time tracking of goods being transported. Recently, e-way bills were made mandatory even for intra-state transportation in some states like Maharashtra and Gujarat, with other states expected to follow suit.
It is also essential to note that the GST Council has introduced a quarterly return filing system for small taxpayers with an annual turnover of up to Rs 5 crores. This move aims at reducing the compliance burden and simplifying the filing process for small businesses.
Staying informed about these new regulations and policies is crucial for businesses and individuals alike. Not only does it ensure smooth GST compliance but also helps in avoiding any penalty or legal complications. It is advisable to regularly monitor updates from the government regarding GST laws and consult a tax expert for any queries or clarifications.
Impact on Businesses and Consumers
The implementation of the Goods and Services Tax (GST) in India has had a significant impact on both businesses and consumers. This new tax regime, which came into effect in July 2017, replaced various indirect taxes such as VAT, service tax, and excise duty with a single unified tax system. While the aim of GST was to simplify the taxation system and enhance ease of doing business in the country, its impact has been felt differently by different entities.
Businesses have had to make adjustments to comply with the new tax laws, resulting in changes in their operations and financial structures. The following are some major impacts of GST on businesses:
- Increased Compliance Burden: Under the previous indirect tax regime, businesses were required to file separate returns for each type of tax they paid. However, GST introduced a single return known as GSTR-3B that encompassed all types of taxes. This has simplified things for businesses but also increased their compliance burden as they have to file this return monthly instead of quarterly.
- Change in Pricing Structure: Under GST, taxes are levied at every stage of production instead of just at the final point of sale like before. This change has led to an increase in prices for some goods and services while others have become cheaper due to a lower overall tax rate.
- Impact on Cash Flow: During the transition period from the old tax system to GST, many businesses faced cash flow issues due to delays in input credit claims or refunds. The one-time payment made during the switch from VAT to GST further strained businesses’ finances.
On the other hand, consumers have also been affected by GST in several ways:
- Increase/Decrease in Prices: As mentioned earlier, GST brought about changes in pricing structures which have led to fluctuations in prices for various products and services depending on their respective tax rates.
2. Inter-state Transactions: Prior to GST, goods and services were subject to both central and state taxes when traded across state borders. With GST, this has been replaced with the Integrated GST (IGST), which is levied on inter-state transactions. This has led to an increase in the cost of goods for consumers.
- Simplification of Taxation: One positive impact of GST for consumers is the simplification of tax rates. The previous system had multiple taxes at different levels, making it difficult for consumers to understand what they were being charged. With GST’s unified tax rate, it is easier for consumers to know how much tax they are paying.
While there have been some challenges in implementing the new GST laws, its impact on businesses and consumers largely aims towards simplification and standardization of taxation in India. However, as with any major reform, there may be a period of adjustment before its full benefits can be realized by all parties involved.
How Does the GST System Work?
The Goods and Services Tax (GST) system in India is a comprehensive, multi-stage, destination-based tax that was implemented on 1st July 2017. This indirect tax has replaced various other taxes such as Excise Duty, Service Tax, VAT, and others, with the goal of simplifying the taxation process and creating a unified national market. The GST system is governed by the GST Council which comprises of representatives from both central and state governments.
The primary objective of GST is to streamline the taxation structure by removing cascading effects or double taxation and replacing it with a single tax for goods and services across the country. This means that taxes are levied at each stage of production or service delivery but only on the value added to the product or service, ultimately leading to reduced costs for consumers.
Under GST, all goods and services are divided into different tax slabs based on their nature and essentiality. Currently, there are four main tax slab rates- 5%, 12%, 18%, and 28%. Some goods like alcohol for human consumption, petroleum products such as petrol and diesel, as well as electricity have been kept out of the purview of GST.
The entire process under GST is digitalized through an online portal called Goods & Services Tax Network (GSTN). All businesses with an annual turnover of over Rs.40 lakhs (Rs.10 lakhs in case of northeastern states) are required to register under GSTN. A unique identification number known as ‘Goods & Services Tax Identification Number’ or GSTIN is issued to these businesses upon registration.
One key feature of GST is Input Tax Credit (ITC), which allows businesses to claim credit for taxes paid on inputs used in producing goods or providing services against their final output liability. This ensures that there is no double taxation along the supply chain and also promotes transparency in transactions.
Moreover, returns filing under GST has also been simplified with only one return to be filed every month. This takes the place of various returns that businesses had to file under the previous taxation system.
The GST system works by levying taxes at each stage of production or service delivery but with a focus on value-added taxation. This has simplified and harmonized the Indian tax structure, promoting economic growth and development while also ensuring transparency in transactions.
- Goods and Services Tax Network (GSTN)
Goods and Services Tax Network (GSTN) is a non-government, private limited company which was created to provide a robust IT infrastructure for the implementation of Goods and Services Tax (GST) in India. GSTN serves as the backbone of the entire GST eco-system, providing technological support to taxpayers, tax authorities, banks, and other stakeholders involved in the GST process.
The primary objective of GSTN is to provide a reliable, efficient, and secure platform for all GST related activities such as registration, return filing, payment processing, etc. It acts as a single source of truth for all information related to taxpayers’ compliance under GST. The system ensures real-time data sharing between the central and state tax authorities to facilitate smooth administration of GST in India.
One of the key features of GSTN is its web portal – gst.gov.in. This portal provides easy access for taxpayers to register under GST, file returns, make payments and perform other related activities. It also serves as a one-stop-shop for all information regarding GST laws and procedures including FAQs, tutorials, user manuals and updates on latest developments.
Another important aspect of GSTN is its offline utility tool called “GST Offline Tool”. It allows taxpayers to prepare their returns offline by importing data from their accounting software or by manually entering it into an Excel-based template provided by the government. This feature makes it easier for small businesses with limited online capabilities to comply with GST requirements.
Moreover, with an aim to increase transparency and reduce manual intervention in tax processes, the government has introduced e-invoicing through the GSTN portal for businesses having annual turnover exceeding Rs 50 crore. E-invoicing enables automatic exchange of invoices between suppliers and buyers in electronic format without any need for manual data entry. This move will not only reduce errors but also speed up invoice generation thereby making compliance easier for businesses.
Furthermore,GSTN has rolled out various initiatives like electronic credit ledger facility that helps taxpayers to view, edit and amend their GST returns, API based integration with accounting softwares for seamless data flow, mobile application for easier access and processing of GST related activities on the go.
GSTN plays a crucial role in simplifying and streamlining the implementation of GST in India. Its technological support ensures efficiency and accuracy in tax processes, reducing the compliance burden on businesses. With constant updates and enhancements, GSTN continues to make significant contributions towards building a robust and transparent indirect tax system in the country.
- Registration and Filing Process
Registration and Filing Process
Under the Indian Goods & Services Tax (GST) regime, every business or individual supplying goods or services in India with an annual turnover exceeding Rs. 40 lakhs (for most states) is required to register for GST. This limit is set at Rs. 20 lakhs for businesses operating in certain special category states such as Arunachal Pradesh and Manipur. The registration process is fairly simple and can be completed online through the GST portal.
To register for GST, businesses need to provide basic details such as their name, PAN number, contact details, and address of their principal place of business. Additionally, they are also required to submit documents such as proof of ownership/tenancy of the premises, bank statements, and cancelled cheques.
Once the application is submitted on the GST portal along with the required documents, a unique Goods & Services Tax Identification Number (GSTIN) will be allocated within 3-5 working days. This number serves as a unique identity for businesses under GST and must be mentioned on all invoices and returns filed by them.
After registering for GST, businesses are also required to maintain proper records of all their sales and purchases in accordance with the rules laid out by the government. These records include purchase invoices/receipts from suppliers registered under GST, sales invoices issued to customers registered under GST along with their respective GST numbers.
When it comes to filing returns under GST, there are three main forms that need to be filed – GSTR-1 (outward supplies), GSTR-2 (inward supplies), and GSTR-3B (summary return). These forms need to be filed monthly or quarterly depending on the annual turnover of the registered business.
GSTR-1 entails furnishing details of all outward supplies made during a given period while GSTR-2 captures details of all inward supplies received by a business during that period. Based on these two forms, the government will automatically generate GSTR-3B which will contain a summary of all sales and purchases made by the business along with the corresponding tax liabilities.
Additionally, businesses are also required to file an annual return (GSTR-9) and get their accounts audited if their annual turnover exceeds Rs. 2 crores. Non-compliance with any of these filing requirements can result in penalties ranging from late fees to cancellation of registration.
It is imperative for businesses operating in India to understand and comply with the GST registration and filing process to avoid any potential legal ramifications. As always, staying updated on the latest updates and changes in GST laws is crucial for smooth functioning under this tax regime.
Critical Issues with Indian GST Laws
The Indian Goods and Services Tax (GST) was introduced in 2017 to replace the existing system of multiple indirect taxes. While it was hailed as a game-changer for the country’s economy, there have been several critical issues with the implementation and functioning of these GST laws.
One of the biggest challenges faced by businesses and individuals is the complicated structure of Indian GST laws. With multiple tax rates, exemptions, and various compliance requirements, understanding and complying with these laws can be overwhelming for many. The complexity also leads to increased compliance costs for businesses, especially small and medium-sized enterprises.
Another major issue with Indian GST laws is the frequent changes made to tax rates and regulations. In its four years since implementation, there have been over 400 amendments to these laws. This has caused confusion among taxpayers and compliance-related difficulties for businesses. Frequent changes also make it challenging for businesses to plan their financials and forecast their expenses accurately.
The Input Tax Credit (ITC) mechanism under GST has been another area of concern for taxpayers. ITC allows businesses to claim credit on taxes paid on inputs used in manufacturing or providing services. However, due to technical glitches in the online portal or incorrect filing by suppliers, many taxpayers face difficulties in claiming ITC. This can result in higher tax outflows and impact their cash flow.
Moreover, while GST aimed to eliminate cascading taxation by allowing credits on all stages of value addition, certain sectors such as petroleum products are still outside its purview due to political reasons. This leads to double taxation on these goods as both central excise duty and state VAT are applicable.
The issue of fake invoices has also posed a significant challenge under GST laws. Many unscrupulous traders exploit loopholes in the system by issuing fake invoices or committing tax frauds through shell companies. This results in revenue loss for the government, unfair competition among genuine taxpayers and adds burden on the authorities to identify and address such malpractices.
The issue of delayed GST refunds has been a persistent problem for businesses. Due to technical glitches in the online portal or processing delays by the tax authorities, businesses often face delays in receiving their rightful refund amount. This puts a strain on their cash flow and hampers their ability to invest in business growth.
While GST has simplified taxation and brought transparency, there are still critical issues that need to be addressed to ensure smooth implementation of these laws. The government must continue to iron out these issues and work towards making GST a simpler and more efficient tax regime for all stakeholders involved.
- Tax Evasion and Fraud
Tax evasion and fraud are serious offenses that can have severe consequences for both individuals and businesses. These actions not only undermine the integrity of the tax system but also deprive the government of essential revenue that is crucial for funding public services. With the implementation of the Goods and Services Tax (GST) in India, the government has taken significant steps to prevent tax evasion and fraud.
The GST regime has put in place various measures to deter and detect tax evasion and fraudulent activities. One such measure is the introduction of a robust IT infrastructure that facilitates real-time tracking, monitoring, and analysis of taxable transactions. This system enables authorities to identify discrepancies or suspicious activities promptly.
Additionally, GST laws mandate strict compliance with record-keeping requirements, making it easier for authorities to conduct audits and investigations in case of any potential violations. It is essential for all registered taxpayers to maintain accurate records at all times, as failure to do so can result in penalties or legal action.
Furthermore, GST laws have provisions for stringent penalties for non-compliance with tax regulations. Fines can range from 10% to 100% of the evaded tax amount, depending on the severity and intentionality of the offense. In cases where fraudulent activities are suspected or detected, criminal proceedings may also be initiated against individuals or entities involved.
One significant change introduced by recent updates in GST laws is the implementation of e-invoicing for businesses with an annual aggregate turnover above Rs. 50 crores. This digital invoicing system aims to bring transparency and reduce instances of fake invoices used in fraudulent practices such as claiming input tax credits (ITC) illegally.
Another development worth noting is the introduction of a new rule called Rule 86B, which restricts taxpayers from utilizing ITC available on their account more than 99% towards discharging their output liability unless they fulfil specific conditions specified by law.
Moreover, under anti-profiteering provisions in GST laws, businesses are required to pass on the benefits of reduced tax rates or increased ITC to the end consumer. Failure to comply with these regulations can lead to penalties and even cancellation of GST registration.
The Indian government has taken significant steps towards preventing tax evasion and fraudulent activities under the GST regime. It is essential for taxpayers to understand and comply with these laws, as non-compliance can result in severe consequences. The implementation of stringent measures not only protects the interests of the government but also promotes fair and ethical business practices.
Complications for Small Businesses
With the implementation of the Goods and Services Tax (GST) in India, small businesses have faced various complications. In this section, we will discuss some of the major challenges that small businesses have encountered due to GST.
- Increased Compliance Burden:
Under GST, small businesses are required to file multiple returns and maintain detailed records for every transaction. This has increased their compliance burden significantly, as they now have to invest more time and resources into managing their tax obligations. Moreover, the deadline for filing returns is strict and any delay can result in hefty penalties. - Cash Flow Issues:
One of the major concerns for small businesses has been the impact on their cash flow due to GST. Under GST, a business has to pay taxes on all its purchases, including raw materials and inputs used for manufacturing goods or providing services. This can lead to a shortage of working capital for small businesses, which can affect their day-to-day operations. - Limited Input Tax Credit:
Small businesses with a turnover of less than Rs 1.5 crore are not eligible for claiming input tax credit (ITC) on interstate supplies. This means that they cannot set off the taxes paid on inputs against the output tax liability. As a result, these businesses may end up paying higher taxes under GST. - Complex Tax Structure:
The introduction of GST has replaced multiple indirect taxes with one comprehensive tax regime. While this was aimed at simplifying the taxation system, it has created confusion among small business owners who are not familiar with complex tax procedures and laws. - High Compliance Cost:
For many small businesses operating at a local level, complying with GST procedures can be financially burdensome due to high compliance costs involved in hiring professionals or investing in software solutions to manage their tax obligations accurately.
6: Impact on Exports: Many small enterprises engage in exporting goods/services outside India; however, under GST rules, exports are treated as zero-rated supplies, which means that they are not subject to any taxes. However, small businesses still have to pay GST on their inputs and then claim a refund. This can create cash flow issues and increase the burden of compliance for these businesses.
The implementation of Indian GST laws has brought various complications for small businesses. These challenges require careful consideration and efficient management by business owners to ensure smooth operations and compliance with tax laws.
Double Taxation
Double taxation is a common concern among businesses, especially in the context of global trade and commerce. It refers to the situation where income or profits are taxed twice on the same source. In other words, it is a form of taxation where an individual or entity is liable to pay taxes in two different countries for the same income.
In India, effective management of double taxation has been a priority for the government, with several measures being taken over the years to tackle this issue. The introduction of the Goods and Services Tax (GST) in 2017 was one such measure that aimed at simplifying and streamlining indirect taxation in India. However, even after four years since its implementation, concerns regarding double taxation still persist.
The biggest challenge with GST and double taxation arises because both the Central and State governments have separate powers to levy taxes. This means that a business may end up paying both central and state taxes on their transactions if they involve multiple states. To resolve this issue, the government introduced a mechanism known as “IGST” (Integrated GST), which eliminates overlapping dual taxes in inter-state transactions.
Furthermore, to avoid double taxation on goods imported from overseas, India follows a system of ‘Dual VAT’. This means that while customs duty is collected by the Central Government upon importation of goods into India, GST is imposed by the State Government when these goods are finally sold within India.
The key takeaway here is that under Indian tax laws, any profit arising from operations carried out within India will be taxed irrespective of whether it is made by domestic entities or foreign entities operating through Permanent Establishment (PE). PE can be any fixed place like an office or warehouse used for conducting business activities within a country.
However, under certain circumstances outlined in Double Tax Avoidance Agreements (DTAA), businesses and individuals can claim relief from double taxation. DTAA are bilateral agreements between countries designed to prevent international taxpayers from being unduly penalized due to the existence of two tax jurisdictions. India has signed several DTAA with different countries, which provide relief by way of exemption or credit for taxes paid in another country.
While double taxation remains a concern in India, the government continues to take measures to mitigate its impact. It is essential for businesses and individuals operating in multiple states or countries to understand these tax laws and agreements to avoid dual taxation and seek applicable reliefs.
