In June, the Ministry of finance released a model of Goods and service tax (GST) Law. The GST law absorbs several indirect taxes including sales tax, service tax and exise duty.  The model law provides for the levy of:

(i)    the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) by the centre, and
(ii)   State Goods and Services Tax (SGST) by the states

Key features of the GST Model.

  1. Applicability: The law states that GST will be levied on supply of good and services including sale, trade, exchange, rental, lease, or any other actions for which a payment has been made to further one’s business. This includes businesses which operate electronically (e-commerce).
  2. Taxable Persons: A person who is carrying out any business, except: (i) an agriculturist, or (ii) whose annual turnover is less than Rs 10 lakh, or (iii) whose annual turnover is less than Rs 5 lakh and the business is conducted in North-eastern states including Sikkim.
  3. Tax Liability: A person becomes liable to pay GST at the time of supply of goods and services to a recipient.
  4. Registration: Every person for whom the Law is applicable needs to register and shall obtain a unique identification number to file returns and accept returns.
  5. Penalties: Persons violating provisions of the Model law will be subject to fine and imprisonment of one year to five years.

*Tax Rates have not been yet specified in model law.

The GST Bill may be presented in Rajya Sabha and the government will try their level best to pass it in the upcoming Monsoon Session starting from 18th July.

GST and E-commerce

The law is expected to increase up the compliance cost for online market places. As per the model law, online marketplaces will have to deduct taxes directly on the total sales made by merchants on their platforms and pay it to the government. Till now, online marketplaces passed on the payments made by customers to sellers after deducting their commissions and fees (such as for logistics or advertisement.)