A constitutional amendment is about to bring a system of GST – Goods And Service Tax in India. It is perhaps the most important economic reform of this time. This is one reform which is going to affect all of us. Again it is one of the complicated reform as most taxation matters usually are.
Present Tax Structure in India.
Currently taxation powers are divided between Union and States. Both levels of governments have their own set of areas where they can levy tax exclusively. The complex tax structure of India is further divided into Direct Taxes & Indirect Taxes.
Bucket of Direct Taxes is filled with Income Tax and Wealth Tax. Direct Tax means a tax which is levied directly on source of income or profit of a person or a company or on wealth of a person or a company. Power to levy and collect Income tax & Wealth Tax, which are referred to Direct Taxes lies exclusively with Union Government.
Bucket of Indirect taxes is filled up with Central Excise Duty i.e. taxes levied on manufacture of goods, Service Tax i.e. taxes on provision of services and VAT/CST i.e. taxes on resale/consumption of goods. Union Government has been empowered exclusively to levy and collect Central Excise Duty and Service Tax, Union Government has also been empowered to levy and collect CST where goods are resold across states of India. Whereas State Governments have been allowed to levy and collect VAT on resale/consumption of goods within the limits of their own state boundaries.