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8/12/2019 Indirect Taxes 2012 - Useful ppt
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INDIRECT TAXES
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INDIRECT TAXES
Excise duty
Import duty
VAT
CST
Octroi
Service Tax
GST
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Share of Direct and Indirect Taxes in
Total Tax Revenue
Source: Eco nom ic Surv ey 2010-11
010
20
30
40
50
60
70
80
90
100
2008-09 2009-10 2010-11
Indirect tax
Direct tax
55%
45 %
43%
57%
43%
57%
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EXCISE DUTY
Levy
Excise duty is leviable on all excisable goodswhich are manufacturedor produced in India
Meaning of manufactureManufacture - emergence of a new
commercial product, different from the
raw material used
In other words, it must be an article with
different name, character or use
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Notification 179/77 CE, dated
18.06.1977.
Exempted goods in or in relation tothe manufacture of such goods noprocess is ordinarily carried on with
the aid of power.
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Sr.No.
Specified Processes Goods
1 Repacking from bulk to retail packs,
labelling or re-labelling of containersor adoption of any other process torender the product marketable
Beverages, spirits and vinegar
2 Conversion of ores into concentrates Ores, slag and ash
3 Galvanisation process Iron and steel
4 Refining of gold ore bars Precious metals, metals cladwith precious metals
5 Affixing a brand name on the product,labelling or re-labelling of containersor repacking from bulk packs to retailpacks or adoption of any othertreatment to render the productmarketable
Textile articles, wornclothes and worn
textile articles etc
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Classification issues- 1
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Medicament or toothpowder
1. Common parlance test- it must be usedfor medicinal purposes by the users
2. Ingredients test- it must have medicalcontent
CCE V/s Shree Baidyanath Ayurved BhawanLtd. (Supreme court) 2009
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Classification issues -2
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Puzzle\quiz or game
a) Outcomepredetermined and fixed
b) Clues- no clues in Scrabble, while in crossword wordsare written as per clues
c) Chabce and skillIn Scrabble there is an element of
chance and skill, which is not present in a puzzleCommon parlance test- place of storage in departmental
store- games section
Educational toy- toy is an object to play with. Chance and
skill are absent in a toyPleasantime Products V/s CCE- Supreme Court 2009
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Rates of Excise duty
a) Specific amount- items suchas liquor, cigarettes,
cementon the basis oflength, weight, volume,
thickness
b) Specific rate (% of value) atpresent 12%
c) Education and higher andsecondary education cess- 3%of duty
Effective rate- 12.36%
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Valuation
1. Tariff value-Readymade garments, pan masala60% of retail sale price declared on the retailpackage
2. M.R.P. valuepackaged goods where MRP ismandatory less notified amount of abatementhaving regard to excise, VAT and other local
taxes-mineral water 45%3. Transaction value-excisable goods must be
sold by the assessee
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Dutywhen payable ?
Removal of goods
1) from factory gate
2) fromwarehouse/depot
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CENVAT CREDIT
InputsRaw materials and intermediaries
Capital goods
CVD and SAD on imports
Service tax
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Manufacturers Liability for Excise
Rs.
Basic Sales PriceRs. 1,00,000
Excise @ 12.36% on the sales price 12,360
Less: Input credit
Excise on raw materialsRs. 50,000 6,180
Service Tax charged by service
provider- Rs. 10,000 1,236 7,416
Net Excise duty Payable 4,944
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Exemptions
1. Exports
2. Deemed exports- SEZs, STPIs, EOUs
3. Notified goods
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PRACTICAL ASPECTS
SSI units
Labour job for others
Samples Warranty clearances
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IMPORT DUTY
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DIFFERENT TYPES OF DUTY
Basic Custom dutyIt is a standard rate or in the case of importfrom some countries, at the preferential rate.Maximum rate is 10%
Additional duty (commonly known as CVD)It is equal to the Central Excise duty leviable onsimilar product if manufactured in India. If the
same product is not manufactured in India, thenon the like product manufactured in India
Anti dumping/safeguard duty
It is leviable with a view to protect domestic
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Education cess and Secondary and HigherEducation cess
@ 2% and 1% respectively on aggregate ofbasic custom duty and additional custom duty
Special Additional duty (SAD)
To provide a level playing field to indegenous goods whichhave to bear VAT. It is 4% of assessable value + allduties
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RATE OF DUTY AND VALUATION
The rate of duty and tariff valuation shall be asapplicable on
a) The date of presentation of the bill of entry, in
case of goods directly cleared for homeconsumption
b) In the case of goods cleared from bondedwarehouse, the date of presentation of bill ofentry for home clearance of such goods fromthe warehouse
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CIF Value
FOB + Freight + InsuranceCurrency Conversion rate
Announced by Central Board of Excise and Custom on the 1 st day ofeach monthFreight
Actual freight. 20% of FOB if freight not determinableInsurance
1.125% of FOB, if insurance is not ascertainableLanding charges
1% of CIF, added only for duty calculation purposes
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IMPORT DUTY WORKING
Sr. No.
1 CIF Value in Rs. 100
2 Add Landing charges 1% of item 1 1
3 SubTotal (1+2) 101
4 Basic Custom duty 10% of item 3 10.10
5 SubTotal (3+4) 111.10
6 Additional Duty (CVD) 12% of item 5 13.33
7 SubTotal (5+6) 124.43
8 Education Cess on Basic & CVD 3% of (4+6) 0.70
9 Sub Total (7+8) 125.13
10 Special Additional duty (SAD) 4% of item 9 5.00
11 Total Landed Cost (9+10-2) 129.13
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IMPORTS
By a manufacturer ofExcisable goods
By a trader for resaleTo manufacturer of
Excisable goods
By a trader for resaleTo end customers
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IMPACT OF IMPORT DUTY- MANUFACTURER
If the imported goods - an input inmanufacturing excisable goods, then CVDand SAD paid on imported goods can be
set off against excise duty collected
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When Manufacturer sells the goods to the
consumers the position would be as under
Sl. No. Particulars Rs.
1 Sale price of goods 200
2 Excise duty on the above @ 12.36% 24.72
3 Invoice value charged to the consumers 224.72
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Manufacturers liability for Excise duty
Rs.
Excise duty on the sales price 24.72
Less: Set-off of CVD and SAD (13.72+5.00) 18.72
Net Excise duty Payable 6.00
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IMPACT OF IMPORT DUTY- TRADER
If the goods are imported by a trader for resaleto manufacturer of excisable goods, and
The trader is registered under Excise duty
He has shown in his invoice, CVD and SADcharged ,
The manufacturer can set off CVD and SADagainst Excise duty collected and pay the net
amount to Govt.
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IMPACT OF IMPORT DUTY- TRADER
If the goods are imported by a trader forthe purpose of resale, and
He has charged VAT to his customers andpaid the same ,
entitled to a refund of SAD paid onimports.
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EXEMPTIONS FROM DUTY
Pilfered goods
Damaged or deteriorated goods
Lost or destroyed goods Goods abandoned by the importer
Denatured or mutilated goods
Goods notified by Government
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VAT
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VAT RATES
State subject
Classification of goods
Rates4%, 5%, 8%, 12.5%
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TAXANOMY OF VAT
Trader Manufacturer Wholesaler
Retailer Consumer
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ManufacturerPurchasing from
Trader- outside State Trader-within State Other Manufactures
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Sl. No. Particulars Rs.
1 A's cost of raw material ( from other state) 10000
( A will deposit Rs. 1250 duty on the above. Since this is not a 1250
State VAT it will form a cost of input)
2 A's cost of local materials 20000
(VAT charged by local suppliers Rs. 2,500. Since the credit of this
would be available it will not be included in cost of input)
3 Other expenditure ( such as for storage transport, interest etc. 8750
incurred and profit earned by A)
4 Sales price of goods 40000
5 VAT on the above @ 12.50% 5000
6 Invoice value charged by A to the manufacturer, B 45000
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As Liability for VAT
Rs.
Tax on the sales price 5000
Less: Set-off of VAT paid on purchases
On imported goods Nil
On local goods 2500 2500
Net Tax Payable 2500
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B manufactures finished products from the raw materials
purchased from A and other materials purchased from
other suppliers.
Sl. No. Particulars Rs.
1 B's cost of raw materials 40000
(VAT recovery by A Rs. 5000)
2 B's cost of other materialsLocal Purchases 20000
(VAT charged on the above Rs. 2500)
Inter State Purchases 10200
(CST paid Rs. 200 included in purchases value since credit is not
available)
3 Manufacturing and other expenses incurred and profit earned by B 29800
4 Sale price of finished products 100000
5 VAT on the above 12500
6 Invoice value charged by B to the wholesalers, C 112500
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Bs Liability for VAT
Rs.
Tax on the sales price 12500
Less: Set-off of VAT paid on purchases
To A 5000To other suppliers 2500 7500
Net Tax Payable 5000
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C, after repacking the goods into other packing, sells the
finished product to a retailer.
Sl. No. Particulars Rs.
1 C's cost of goods 100000
(VAT recovered by B Rs. 12500)
2 Cost of packing material 2000
(VAT charged on the above Rs.250)
3 Expenses incurred and profit earned by C) 18000
4 Sale price of goods 120000
5 VAT on the above 15000
6 Invoice value charged by C to D, a retailer 135000
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Cs Liability for VAT
Rs.
Tax on the sales price 15000
Less: Set-off of VAT paid on purchases
To B 12500
To other suppliers 250 12750
Net Tax Payable 2250
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Ds liability for VAT
Rs.
Tax on the sales price 17500
Less: Set-off of VAT paid to C 15000
Net Tax Payable 2500
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ELIGIBLE PURCHASES FOR INPUT TAX
CREDIT
Raw materials
Capital goods (if not for 36 months, withdrawal)
Consumable stores
Packing materials
Finished goods for resale
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PURCHASES NOT ELIGIBLE FOR INPUT TAX
CREDIT
Purchases from unregistered dealers
Purchases from other States
Invoice does not show tax amount
separately High-seas purchases
Motor cars
Motor spirit Building material
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EXEMPTIONS/REFUNDS
Exporters
SEZ
EOU Stock transfers
High seas sales
Bond sales Consignment sales
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CENTRAL SALES TAX (CST)
Tax on inter-State sale of goods
Tax Rate = local (as per the State fromwhere sale is effected) VAT rate applicable
to the goods -4%, 5% or 12.5%
Inter-State purchase - for resale or for usein the manufacture of goods- concessional
rate of 2% against Form C
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Cascading of taxessince inter-State purchasesliable to CST are not eligible for input tax credit
Trade becomes uncompetitive for the States thatare net importers because in those Statesconsumer prices will be high
Contrary to basic objective of VAT system viz.lowering of prices
CST is an origin-based tax collected by exportingState and VAT is a destination basedconsumption tax, hence both cannot go together
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However, when liability of CST arises on ainter-State sale, the input tax credit (local
VAT) can be used for set-off.
This is because revenue does not go toany other State
Slow phasing out of CST- 4% to 3% to
2%
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OCTROI
The term Octroi has itsroots in the French wordOctroyer meaning toauthorise or to grant
It is a local tax collectedon articles brought into atown for local use byvarious bodies likemunicipalities, zilla
parishads etc. Levy of octroi is based on
the value, weight, lengthand number of articles
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Octroi is levied on specified articles attheir time of entry into the limits of thecity or town for consumption, use or sale
Places of import for purpose of levy
1. Import by sea - Docks, wharfs
2. Import by Rail - Rly. Stations, sidings
3. Import by Air - Airport terminals
4. Import by Road - Municipal posts/naka
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CALCULATION OF OCTROI
At present octroi in Mumbai is 5.5% of value ofgoods
Value of goods - value as per invoice including
freight, all taxes and duties charged till the entryof goods in city/town
In case of samples of no commercial value,
-invoice for octroi purpose
In case parts under warranty,
- invoice for octroi purpose
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VARIOUS OCTROI FORMS
A and B Forms
For payment of octroi-
C and CC Forms
For refund of octroi in the event of wrongpayment or rejection of the material by theconsignee
Form C - export of goods -by Sea or Air
Form CC- export by roadThe Octroi paid wrongly is refunded afterdeducting 6.25% as service charge
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N Formapplication for exemption in respect of articles imported forimmediate export within 7 days
R Form
It is an application for exemption in respect of goods imported orexported into or out of city or town for demonstration, repairs etc.
The octroi amount is to be paid first. Goods to be returned within 6months
X FormFor exemption of octroi for articles imported into city/town bycharitable institution
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EXEMPTION FROM OCTROI
Units located in areas such as SEEPZ
Containers of durable nature- gas cylinders,aerated water bottles
Personal luggage Personal belongings of MPs, MLAs, Govt.
servants in case of shifting
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PRACTICAL ASPECTS
Goods purchased from supplier located outsidecity limits for resale to customers out of citylimits
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Service Tax
Concept
- Service Tax is a tax on services
- Service means a useful result/product of labour,
which is intangible.- Thus, service is a value addition that can only
be felt and cannot be seen
- Definition- Service means a) any activity, b) forconsideration, c) carried out by a person foranother, and d) includes a declared service
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Body of service tax law
No independent statute on service tax
Chapter V of Finance Act, 1994 containsprovisions on levy and collection,
registration and other procedures likeappeals, interest and penalties
.
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Input Service Tax
Amount payable = Service tax collectable
Less
Service tax payable
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Reverse Charge Mechanism
Recipient of services liable to pay tax
1. Insurance agent
2. Sponsorship service
3. Legal services from advocate or firm ofadvocates
4. Goods transport agency
5. Support services by Govt. or local authority6. Import of services
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Joint charge
Service provider (if individual or HUF orpartnership firm) and service recipientboth liable to pay tax
1) Hiring or renting of motor vehicle
2) Supply of manpower
3) Works contract
E t f S i
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Export of ServicesFor the purpose of defining export of service in relation toeach service, the services have been classified under 3
categories- Category A - Such taxable services are provided in
relation to an immovable property situated outside India.EgArchitect services
- Category BSuch services are wholly or partly
performed outside India. EgCredit Rating Agencyservices
- Category C(a) When service is provided in relation to business orcommerceprovision of such services to a recipient
located outside India(b) When service is provided otherwise - provision of suchservices to a recipient located outside India at the time ofprovision of the service.EgBanking & Other Financial Services
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Import of Services
Import of taxable service is said to takeplace when it is
(a) provided by a person who -
(i) has established a business or(ii) has a fixed establishment from which
the service is provided
(iii) has his permanent address or usualplace of residence,
in a country other than India and
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Negative List
From July 1, 2012 Service Tax would beapplicable on all services except thosementioned in
a) Negative list (17 items), or
b) Mega exemption notification
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GST M d l
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GST Model
Central Level GST
State Level GST
Centre and State to legislate, levy and administer
GST R I i l i
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GST Rates - International comparison
* CENVAT: 12.36 % + VAT;12.5 %
=26.40%)
10.012.5 13.0
14.0 15.0 17.017.5
19.0 19.6 20.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Australia
New
Zealand
Canada
South
Africa
Mexico
China
UK
Germany
France
Italy
India
12
15
26.4
GST - NEW ERA OF INDIRECT
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TAXATION
- CERTAIN HIGHLIGHTS1) A Dual GST model with appropriate binding mechanismto harmonize the various aspects of GST
2) A dual GST structure shall have two components,Central GST (CSGT) and State GST (SGST) which would
be implemented through multiple statutes.3) Applicable to all transactions of goods and servicesexcept the exempted goods / services, goods outside thepurview of GST and the transactions below theprescribed threshold limits.
4) The CGST and SGST are to be paid to the accounts ofthe Centre and the States separately.5) Cross utilization of ITC between the CGST and the SGST
would not be allowed.
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PRINCIPLES OF GST
(i) Taxes or levies to be subsumed should be primarily inthe nature of indirect taxes, either on the supply ofgoods or on the supply of services.
(ii) Taxes or levies to be subsumed should be part of thetransaction chain which commences with import/
manufacture/ production of goods or provision ofservices at one end and the consumption of goods andservices at the other.
(iii) The subsumation should result in free flow of taxcredit in intra and inter-State levels.
(iv) The taxes, levies and fees that are not specificallyrelated to supply of goods & services should not besubsumed under GST.
(v) Revenue fairness for both the Union and the Statesindividually would need to be attempted.
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CENTRAL TAXES
GSTSGST,CGST,
IGST
STATE TAXES------ ------
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CENTRAL TAXES SUBSUMED
1. Excise Duty
2. Service Tax
3. Additional Custom Duty (CVD)
4. Special Additional Duty (SAD)
5. Surcharges
6. Cesses
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PROPOSED RATE STRUCTURE
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PROPOSED RATE STRUCTURE
UNDER GST
1. For goods- Two rate structure-
a) lower rate for necessary items and items
of basic importance
b) standard rate for goods in general
There will be a special rate for precious metals and
also a list of exempted items2. For servicesa single rate for CGST and SGST
R S CGST SGST
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Rate Structure-CGST+SGST
GoodsLower
GoodsStandard.
Services
Year1
12% 20% 16%
Year
2
12% 18% 16%
Year
3
16% 16% 16%
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GST M h i
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GST Mechanism
Supplychain
PurchaseValue ofInput
Valueaddition
Value tonextstage
RateofGST
GSTAmount
Input taxcredit
Net GST
Manfacturer 100 30 130 20% 26 20 (20% of100 inputs)
26-20=6
Whoesaler 130 20 150 20% 30 26 (20% of130 inputs)
30-26=4
Retailer 150 10 160 20% 32 30 (20% of
150 inputs)
32-30=2
Total GST 20+6+4+2=32
IMPACT
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IMPACT
Goods- cheaper
Household services-Telephone, mobile,cable, insurance will be costlier since
presently the service tax @12.36%
The impact may not be 4% if serviceproviders pass on benefit of tax on
procurements
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A 2% point rate difference between goods andservices would mean that the classification ofcertain items (e.g. intangibles) as goods orservices would continue to be relevant underGST.
One would hope that the GST law would provideabsolute clarity on the distinction between goods
and services, to ensure that there is noambiguity over classification.
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Th h ld li it
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Threshold limit
Exemption threshold and composition forsmall dealers-
- Threshold for both goods and services at
INR 1 million for CGST and SGST.
- Composition to be made available tosmall dealers up to an agreed common
limit under both CGST and SGST to bringsimplification and improve compliance.
C ti f t t
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Compensation for states
In line with the Thirteenth FinanceCommissions recommendations, Stateswould be compensated for initial four
years for loss of VAT and Purchase taxrevenues.
This will remove the apprehension ofstates that GST would adversely affect
their revenue and will ensure speedyimplementation
E ti
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Exemptions
Exemptions under Central Excise to bealigned with current exemptions under
VAT which would ensure alignment of
CGST and SGST exemptions.
B fit f GST
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Benefits of GST
Agriculture, industry, trade
Exporters
Entrepreneurs
Traders
Common consumers
GST CHALLENGES
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GST CHALLENGES
1. Finance & Taxation
2. Operational
3. Documentation
4. Information Technology
5. Logistics
6. Legal
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While GST is a welcome change which aims tosimplify the regulations and making businesses
more tax efficient and would be heralded as one
of the significant Tax reforms happening in Indiain the recent times, the road ahead on
implementation is a turbulent one. Business
entities with professional help should target to
address this challenge and effectively manage
change.
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I CANT CHANGE THE DIRECTION OFTHE WIND, BUT I CAN ADJUST
MY SAILS TO ALWAYS REACH MY
DESTINATION SAFE AND SOUND
- ANONYMOUS
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THANKS
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