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ARN. No. KLI/23-24/E-BB/1201
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Ref. No. KLI/22-23/E-BB/999
The Dual GST model is a comprehensive tax framework that simplifies the taxation system by dividing tax collection responsibilities between central and state governments.
The Dual GST model in India is a taxation system where the central and state governments levy taxes on the supply of goods and services. It is designed to work within India’s federal structure. Having a thorough understanding of what is dual GST model, dual GST definition, the structure of GST dual model, and its impact on the economy can help you avail of its benefits.
The dual GST (Goods and Services Tax) model is a comprehensive tax framework adopted by countries like India to simplify the taxation system on goods and services. This model divides the tax collection responsibility between the central and state governments. It was introduced to create a unified national market and eliminate the cascading effect of multiple taxes on goods and services.
Under the dual GST model, the Central GST (CGST) and State GST (SGST) are levied simultaneously on every transaction of goods and services, except those exempted or under a particular category. The central and state governments have distinct responsibilities, ensuring that both levels of government have a significant share in tax revenue.
The dual GST model comes with several features designed to make the tax system more efficient and transparent:
The most defining feature is the dual tax structure, where central and state governments levy taxes on goods and services. This structure helps distribute tax revenue between the two levels of government.
The model ensures uniform tax rates across the country. This uniformity simplifies the tax structure and reduces the complexity faced by businesses operating in multiple states.
The dual GST model allows businesses to claim an input tax credit for the taxes paid on inputs, which can be set off against the tax liability on outputs. This mechanism reduces the tax burden and prevents the cascading effect of taxes.
The GST system is backed by a robust IT infrastructure that facilitates electronic filing of returns, tax payments, and compliance. It reduces the scope for tax evasion and ensures transparency.
The implementation of the dual GST model offers several advantages to the economy, businesses, and consumers:
The model simplifies the tax structure by subsuming various indirect taxes into a single GST, making it easier for businesses to comply with tax regulations.
The input tax credit mechanism ensures that the tax is levied only on the value addition at each stage of production and distribution, thus eliminating the cascading effect of taxes.
The broad tax base and uniform rates help increase the revenue collection for both central and state governments, providing them with more resources for development activities.
The electronic compliance system and integration of multiple taxes into GST reduce the scope for tax evasion and improve overall compliance.
Within the dual GST model, different types can be implemented based on the specific needs and structure of a country’s economy:
In this type, both central and state governments levy and collect GST concurrently. India has adopted this model, where CGST and SGST are levied simultaneously on the same transaction.
In this type, either the central or state government has exclusive rights to levy GST on specific goods and services. This model is less common and can lead to complications in tax administration.
Although part of the Dual GST framework, IGST is levied on inter-state transactions. It ensures that the tax is appropriately shared between the central and state governments for goods and services moving across state borders.
Despite its numerous benefits, the dual GST model also has some limitations and challenges:
Implementing a dual structure requires significant coordination between central and state governments, which can be challenging and time-consuming.
Although the GST aims to simplify taxes, businesses still face compliance burdens due to frequent regulation changes, multiple tax returns, and varying state procedures.
Due to limited resources and expertise, small businesses may find it challenging to adapt to the new tax regime, which can lead to compliance issues.
Transitioning from the old tax system to the new GST regime involves significant adjustments for businesses, which can be costly and disruptive in the short term.
The introduction of the dual GST model has had a profound impact on the Indian economy and its stakeholders:
GST has created a unified national market, which has boosted trade and commerce. The reduction in logistics and transaction costs has positively impacted economic growth.
The robust IT infrastructure and electronic compliance systems have increased transparency in the tax system, reducing tax evasion and corruption.
With the elimination of cascading taxes, the overall tax burden on goods and services has decreased, leading to lower consumer prices.
The dual structure requires effective coordination and cooperation between central and state tax authorities, which can sometimes be challenging and lead to administrative issues.
The dual GST model represents a significant reform in the taxation system, aiming to create a simplified, transparent, and efficient tax regime. While it offers numerous benefits, such as eliminating cascading taxes, increasing revenue collection, and promoting economic growth, it also presents challenges in implementation and compliance. As countries continue to refine and adapt the GST framework, addressing these challenges will be crucial for realizing the full potential of this tax system.
1
The dual GST model consists of Central GST (CGST) and State GST (SGST) levied simultaneously on a single transaction, with the central government and state governments collecting their respective taxes.
2
The dual GST model involves both central and state governments imposing taxes on goods and services, whereas a single GST model involves only one level of government imposing the tax.
3
Input tax credits can be claimed under CGST and SGST, allowing businesses to offset the tax paid on inputs against the tax on their outputs, thereby avoiding double taxation.
4
The dual GST model ensures tax compliance through a robust IT infrastructure, mandatory registration for eligible businesses, regular tax filings, and stringent audit and penalty mechanisms.
5
Businesses with turnover above a specified threshold must register for GST, while certain sectors and small businesses may have simplified registration or exemption options.
6
Exports are zero-rated under the dual GST model, meaning they are not subject to GST, and exporters can claim refunds for the GST paid on inputs used in the production of export goods or services.
7
Imports are treated as inter-state supplies, attracting both IGST (Integrated GST) and applicable customs duties, with the IGST paid eligible for the input tax credit.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
