GST & PRE-GST

PRE-GST

In the earlier indirect tax structure, there were many indirect taxes levied by both state and centre. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations.

Interstate sale of goods was taxed by the Centre. CST (Central State Tax) was applicable in case of interstate sale of goods.  Other than above there were many indirect taxes like entertainment tax, octroi and local tax that was levied by state and centre.

This led to a lot of overlapping of taxes levied by both state and centre.

For example, when goods were manufactured and sold, excise duty was charged by the centre. Over and above Excise Duty, VAT was also charged by the State. This lead to a tax on tax also known as the cascading effect of taxes.

The following is the list of indirect taxes in the pre-GST regime:

• Central Excise Duty
• Duties of Excise
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duty of Customs
• Cess
• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entertainment Tax
• Entry Tax
• Taxes on advertisements
• Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST has replaced all the above taxes.

However, the chargeability of CST for Inter-state purchase at a concessional rate of 2%, by issue and utilisation of c-Form is still prevalent for certain Non-GST goods such as:

(i) Petroleum crude;

(ii) High-speed diesel;

(iii) Motor spirit (commonly known as petrol);

(iv) Natural gas;

(v) Aviation turbine fuel; and

(vi) Alcoholic liquor for human consumption.

in respect of following transactions only:

• Resale
• Use in manufacturing or processing
• Use in the telecommunication network or in mining or in the generation or distribution of electricity or any other power

 GST

In the pre-GST Tax Structure, every purchaser including the final consumer paid tax on tax. This tax on tax is called Cascading Effect of Taxes.

GST has removed this cascading effect as the tax is calculated only on the value-addition at each stage of the transfer of ownership. Understand what the cascading effect is and how GST helps by watching this simple video:  

(Courtesy Clear Tax)

This indirect tax system under GST has improved the collection of taxes as well as boosted the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.

TAX CALCULATION in GST & PRE-GST

Tax calculations in earlier regime:

Action	Cost	10% Tax	Total
Manufacturer	1,000	100	1,100
Warehouse adds label and repacks @ 300	1,400	140	1,540
Retailer advertises @ 500	2,040	204	2,244
Total	1,800	444	2,244

Tax calculations in current regime: 

Action	Cost	10% Tax	Actual Liability	Total
Manufacturer	1,000	100	100	1,100
Warehouse adds label and repacks @ 300	1,300	130	30	1,430
Retailer advertises @ 500	1,800	180	50	1,980
Total	1,800		180	1,980

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