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Monday 5 August 2019

What is Article 370?


Kashmir Turmoil: What is Article 370 that govt has proposed to revoke

Article 370 : As fear and panic mounted in the state of Jammu and Kashmir, Union Home Minister Amit Shah on Monday moved the proposal to remove Article 370 in the Rajya Sabha amid much uproar.

Before the introduction of the bill, the Kashmir turmoil rocked the Rajya Sabha as Congress leader Ghulam Nabi Azad raised the current situation in Kashmir.

The Union government on Monday moved a resolution in the Rajya Sabha to revoke Article 370 amid uproarious protests from opposition benches. The resolution was moved by Union home minister Amit Shah in the backdrop of growing turmoil in Jammu and Kashmir.

Article 370 of the Constitution is a ‘temporary provision’ which promises to grant autonomous status to Jammu and Kashmir and limits Parliament’s powers to make laws for the state. Under Part XXI of the Constitution titled “Temporary, transitional and special provisions”, Article 370 is categorized as a “temporary provision with respect to the State of Jammu & Kashmir.”


Jammu and Kashmir will also be “reorganised,” said the Home Minister as talk builds of the state being trifurcated into three distinct areas – Jammu, Kashmir and Ladakh.

The crucial Union Cabinet met at the official residence of Prime Minister in New Delhi on Monday morning. The meeting, chaired by Prime Minister Narendra Modi, was held at 7 Lok Kalyan Marg in New Delhi.

Since Article 370 (1) (d) of the Constitution was issued under Presidential Order, the President can make certain ‘exceptions and modifications’ to the Constitution for the benefit of ‘State subjects’ of Jammu and Kashmir.

Article 370: Things to know
  1. Article 370 is a ‘temporary provision’ granting Jammu and Kashmir special autonomous status. It allows the state to draft its own Constitution and restricts parliament’s legislative powers over the state.
  2. The article says that the provisions of Article 238, which was omitted from the Constitution in 1956 when Indian states were reorganized, shall not apply to the state of Jammu and Kashmir.
  3. It also confers powers such as the need of “concurrence of the state government” if the central government plans to make amendments to the concurrent list of subjects.
  4. Under this Article, the center can only declare an emergency in the state in case of war or external aggression; this rules out doing so for internal disturbances unless made specifically at the request of the state government.
  5. Article 370 was eventually drafted by Gopalaswami Ayyangar.
  6. Ayyangar was a minister without portfolio in the first Union Cabinet of India. He was also a former Diwan to Maharajah Hari Singh of Jammu and Kashmir.
  7. Article 370 is drafted in Amendment of the Constitution section, in Part XXI, under Temporary and Transitional Provisions.
  8. The government, therefore, needs approval from the state government for all laws, except those relating to defense, foreign affairs, finance, and communications. Also under Article 370 the parliament cannot increase or reduce the state’s borders
  9. As a result, Jammu and Kashmir residents live under a separate set of laws, including those related to citizenship, ownership of property, and fundamental rights, as compared to other Indians.

Courtesy : Trend Talky



                                                                         



Tuesday 11 July 2017

What is GST? Goods & Services Tax Law Explained for Beginners


What is GST? Goods & Services Tax Law Explained for Beginners
The Goods and Services Tax or GST is scheduled to be launched on the 1st of July, and it is set to revolutionize the way we do our taxes. But what is GST and how will it reform the current tax structure? And most importantly, why does the country need such a huge overhaul in its taxation policies? We answer these pressing questions in this in-depth article.

Contents :
1. What is GST?
2. Why is Goods and Services Tax so Important?
3. How does GST work?
4. How will GST help India and common man?
5. GST Law in India – A Detailed History
6. Summary

What is GST?
Goods & Services Tax is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.

To understand this, we need to understand the concepts under this definition. Let us start with the term ‘Multi-stage’. Now, there are multiple steps an item goes through from manufacture or production to the final sale. Buying of raw materials is the first stage. The second stage is production or manufacture. Then, there is the warehousing of materials. Next, comes the sale of the product to the retailer. And in the final stage, the retailer sells you – the end consumer – the product, completing its life cycle.

So, if we had to look at a pictorial description of the various stages, it would look like:



Goods and Services Tax will be levied on each of these stages, which makes it a multi-stage tax. How? We will see that shortly, but before that, let us talk about ‘Value Addition’.

Let us assume that a manufacturer wants to make a shirt. For this he must buy yarn. This gets turned into a shirt after manufacture. So, the value of the yarn is increased when it gets woven into a shirt. Then, the manufacturer sells it to the warehousing agent who attaches labels and tags to each shirt. That is another addition of value after which the warehouse sells it to the retailer who packages each shirt separately and invests in marketing of the shirt thus increasing its value.



GST will be levied on these value additions – the monetary worth added at each stage to achieve the final sale to the end customer.

There is one more term we need to talk about in the definition – Destination-Based. Goods and Services Tax will be levied on all transactions happening during the entire manufacturing chain. Earlier, when a product was manufactured, the centre would levy an Excise Duty on the manufacture, and then the state will add a VAT tax when the item is sold to the next stage in the cycle. Then there would be a VAT at the next point of sale.

So, earlier the pattern of tax levy was like this:



Now, Goods and Services Tax will be levied at every point of sale. Assume that the entire manufacture process is happening in Rajasthan and the final point of sale is in Karnataka. Since Goods & Services Tax is levied at the point of consumption, so the state of Rajasthan will get revenue in the manufacturing and warehousing stages, but lose out on the revenue when the product moves out Rajasthan and reaches the end consumer in Karnataka. This means that Karnataka will earn that revenue on the final sale, because it is a destination-based tax and this revenue will be collected at the final point of sale/destination which is Karnataka.

Why is Goods and Services Tax so Important?
So, now that we have defined GST, let us talk about why it will play such a significant role in transforming the current tax structure, and therefore, the economy.

Currently, the Indian tax structure is divided into two – Direct and Indirect Taxes. Direct Taxes are levies where the liability cannot be passed on to someone else. An example of this is Income Tax where you earn the income and you alone are liable to pay the tax on it.

In the case of Indirect Taxes, the liability of the tax can be passed on to someone else. This means that when the shopkeeper must pay VAT on his sale, he can pass on the liability to the customer. So, in effect, the customer pays the price of the item as well as the VAT on it so the shopkeeper can deposit the VAT to the government. This means that the customer must pay not just the price of the product, but he also pays the tax liability, and therefore, he has a higher outlay when he buys an item.

This happens because the shopkeeper has paid a tax when he bought the item from the wholesaler. To recover that amount, as well as to make up for the VAT he must pay to the government, he passes the liability to the customer who has to pay the additional amount. There is currently no other way for the shopkeeper to recover whatever he pays from his own pocket during transactions and therefore, he has no choice but to pass on the liability to the customer.

Goods and Services Tax will address this issue after it is implemented. It has a system of Input Tax Credit which will allow sellers to claim the tax already paid, so that the final liability on the end consumer is decreased.

How does GST work?
A nationwide tax reform cannot function without strict guidelines and provisions. The GST Council has devised a fool proof method of implementing this new tax regime by dividing it into three categories. Wondering how they work? Let our experts explain this to you in detail.
When Goods and Services Tax is implemented, there will be 3 kinds of applicable Goods and Services Taxes:

CGST: where the revenue will be collected by the central government

SGST: where the revenue will be collected by the state governments for intra-state sales

IGST: where the revenue will be collected by the central government for inter-state sales

In most cases, the tax structure under the new regime will be as follows:

    Transaction           New Regime                     Old Regime                                                     Comments
Sale within the state       CGST + SGST    VAT + Central Excise/Service tax            Revenue will now be shared between the Centre and the State
Sale to another State      IGST                  Central Sales Tax + Excise/Service Tax   There will only be one type of tax (central) now in case of inter-state sales.

Example
A dealer in Maharashtra sold goods to a consumer in Maharashtra worth Rs. 10,000. The Goods and Services Tax rate is 18% comprising CGST rate of 9% and SGST rate of 9%. In such cases the dealer collects Rs. 1800 and of this amount, Rs. 900 will go to the central government and Rs. 900 will go to the Maharashtra government.

Now, let us assume the dealer in Maharashtra had sold goods to a dealer in Gujarat worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such case the dealer has to charge Rs. 1800 as IGST. This IGST will go to the Centre. There will no longer be any need to pay CGST and SGST.

How will GST help India and common man?
The basis of Goods and Services Tax is the seamless flow of Input Tax Credit (ITC) along the entire value addition chain. At every step of the manufacturing process, businesses will have the option to claim the tax already paid in the previous transaction. Understanding this process is crucial for businesses. A detailed explanation here.
To understand this, let us first understand what is Input Tax Credit. It is the credit an individual receives for the tax paid on the inputs used in manufacturing the product. So, if there is a 10% tax that the individual must submit to the government, he can subtract the amount he has paid in taxes at the time of purchase and submit the balance amount to the government.

Let us understand this with a hypothetical numerical example.

Say a shirt manufacturer pays Rs. 100 to buy raw materials. If the rate of taxes is set at 10%, and there is no profit or loss involved, then he has to pay Rs. 10 as tax. So, the final cost of the shirt now becomes Rs (100+10=) 110.

At the next stage, the wholesaler buys the shirt from the manufacturer at Rs. 110, and adds labels to it. When he is adding labels, he is adding value. Therefore, his cost increases by say Rs. 40. On top of this, he has to pay a 10% tax, and the final cost therefore becomes Rs. (110+40=) 150 + 10% tax = Rs. 165.

Now, the retailer pays Rs. 165 to buy the shirt from the wholesaler because the tax liability had passed on to him. He has to package the shirt, and when he does that, he is adding value again. This time, let’s say his value add is Rs. 30. Now when he sells the shirt, he adds this value (plus the VAT he has to pay the government) to the final cost. So, the cost of the shirt becomes Rs. 214.5 Let us see a breakup for this:

Cost = Rs. 165 + Value add = Rs. 30 + 10% tax = Rs. 195 + Rs. 19.5 = Rs. 214.5

So, the customer pays Rs. 214.5 for a shirt the cost price of which was basically only Rs. 170 (Rs 110 + Rs. 40 + Rs. 30). Along the way the tax liability was passed on at every stage of transaction and the final liability comes to rest with the customer. This is called the Cascading Effect of Taxes where a tax is paid on tax and the value of the item keeps increasing every time this happens.

Action                                        Cost 10%               Tax                              Total
Buys Raw Material @ 100         100                        10                                  110
Manufactures @ 40                    150                        15                                  165
Adds value @ 30                        195                        19.5                                214.5
Total                                            170                        44.5                               214.5

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in acquiring input. What happens in this case is, the individual who has paid a tax already can claim credit for this tax when he submits his taxes.

In our example, when the wholesaler buys from the manufacturer, he pays a 10% tax on his cost price because the liability has been passed on to him. Then he adds value of Rs. 40 on his cost price of Rs. 100 and this brings up his cost to Rs. 140. Now he has to pay 10% of this price to the government as tax. But he has already paid one tax to the manufacturer. So, this time what he does is, instead of paying Rs (10% of 140=) 14 to the government as tax, he subtracts the amount he has paid already. So, he deducts the Rs. 10 he paid on his purchase from his new liability of Rs. 14, and pays only Rs. 4 to the government. So, the Rs. 10 becomes his input credit.

When he pays Rs. 4 to the government, he can pass on its liability to the retailer. So, the retailer pays Rs. (140+14=) 154 to him to buy the shirt. At the next stage, the retailer adds value of Rs. 30 to his cost price and has to pay a 10% tax on it to the government. When he adds value, his price becomes Rs. 170. Now, if he had to pay 10% tax on it, he would pass on the liability to the customer. But he already has input credit because he has paid Rs.14 to the wholesaler as the latter’s tax. So, now he reduces Rs. 14 from his tax liability of Rs. (10% of 170=) 17 and has to pay only Rs. 3 to the government. And therefore, he can now sell the shirt for Rs. (140+30+17) 187 to the customer.

Action                           Cost 10%          Tax            Actual Liability                  Total
Buys Raw Material           100 10 10                                110
Manufactures @ 40           140 14 4                                 154
Adds Value @ 30 170 17                       3                                 187
Total 170 17                                 187

In the end, every time an individual was able to claim input tax credit, the sale price for him reduced and the cost price for the person buying his product reduced because of a lower tax liability. The final value of the shirt also therefore reduced from Rs. 214.5 to Rs. 187, thus reducing the tax burden on the final customer.

So essentially, Goods & Services Tax is going to have a two-pronged benefit. One, it will reduce the cascading effect of taxes, and second, by allowing input tax credit, it will reduce the burden of taxes and, hopefully, prices.

GST Law in India – A Detailed History
GST is not a new phenomenon. It was first implemented in France in 1954, and since then many countries have implemented this unified taxation system to become part of a global whole. Now that India is adopting this new tax regime, let us look back at the how and when of the Goods and Services Tax and its history in the nation.
France was the world’s first country to implement GST Law in the year 1954. Since then, 159 other countries have adopted the GST Law in some form or other. In many countries, VAT is the substitute for GST, but unlike the Indian VAT system, these countries have a single VAT tax which fulfills the same purpose as GST.

In India, the discussion on GST Law was flagged off in the year 2000, when the then Prime Minister Atal Bihari Vajpayee brought the issue to the table.

History of GST in India – Year by Year Events



Summary
The idea behind having one consolidated indirect tax to subsume multiple currently existing indirect taxes is to benefit the Indian economy in a number of ways:

It will help the country’s businesses gain a level playing field
It will put us on par with foreign nations who have a more structured tax system
It will also translate into gains for the end consumer who not have to pay cascading taxes any more
There will now be a single tax on goods and services
In addition to the above,

The Goods and Services Tax Law aims at streamlining the indirect taxation regime. As mentioned above, GST will subsume all indirect taxes levied on goods and service, including State and Central level taxes. The GST mechanism is an advancement on the VAT system, the idea being that a unified GST Law will create a seamless nationwide market.
It is also expected that Goods and Services Tax will improve the collection of taxes as well as boost the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.

Courtesy : discountwalas