Transformation Of Indirect Tax System In India

If we look into past Indian indirect tax system, we will definitely find it very ambiguous and hectic because before the introduction of GST, Indian Indirect Tax system was divided in many acts or types like Excise duty, Service tax, Sales tax, etc. Further in some case of sales tax it was also divided in two different regions i.e. Central sales tax, Value added tax. Central sales tax was paid to the central government for any inter-state sales and Value added tax (VAT) was being paid to state government for the sales made within the state. Indirect tax structure and model was divided into many parts which were resulting hectic tax management in indirect tax compliant entities. Although top tax consulting firms in India including top accounting firms in India were always there to provide their valuable services for the improvement of indirect tax management systems of their clients. But this widely spread indirect tax structure was creating stress at some stages of tax management systems of the entities.

Everyone knows that the ultimate burden of indirect taxes lies on the consumer of goods or services, every dealer and manufacturer take input tax credit of the tax paid on its input goods, services or capital goods and hence they transfer the ultimate liability of taxes to the end consumers. When these suppliers fail to avail input tax credit of the tax paid by them, they add the value of unutilized input credit in the value of their goods or services results increasing its cost and hence, at the time of sale the consumers had to pay tax on such inflated price which resulted into cascading tax burden because they were also paying tax on such amount of tax which was adjusted by the supplier for non-utilization of input tax credit. This was a major loophole in India Indirect tax system.

After considering these loopholes and the stress associated in the former system the government has decided to introduce a new indirect tax system which tries to eliminate all of the discrepancies in former system. And the solution was introduction of Goods and Service Tax which will replace all of the tax existed in former system.

GST was proposed many years ago which had to undergo from many discussions and debates, finally GST was applied to all over India on 1st July, 2017. GST has simplified many major discrepancies of former system. As it is only one tax for the supply of goods or services and the rates was not uniform as in case of some laws existed before. Rates of GST are different for every class of goods or services. In GST the major issue free flow of input tax credit, which means every dealer would get the input tax credit on the tax paid by him on input goods or services. GST further came up with some improvement in terms of technological advancement for collection of taxes and movement of goods. Returns under GST are also many simple to fill and the other documentary compliance is also made very easy by GST Portal.

It has not just affected the industries but also have a major effect on earnings and qualities of top accounting firms in India and top tax consulting firms in India. As the GST is completely new for India so it is not possible to implement all provisions of GST suddenly hence the improvement process going on and making the GST structure more effective and simpler.


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