Genesis
The idea of moving towards the GST was first raised by the then Union Minister of Finance in his 2006-07 budget speech. The GST was originally proposed to be introduced from April 1, 2010. The Authorized Committee of State Finance Ministers (SC), which formulated the state VAT bill, was asked to provide a roadmap and framework for the GST. Joint employee working groups with State and Center representatives were established to study various aspects of the GST and produce reports specifically on exemptions and limits, service taxes, and interstate delivery taxes. Based on discussions both internally and between it and the central government, the EC published its first discussion paper (FDP) on the GST in November 2009. It defines the characteristics of the proposed GST and formed the basis for discussions between the Center and the States To date.
The introduction of Goods and Services Tax (GST) is a very important step in the field of indirect tax reforms in India. By merging a large number of central and state taxes into a single tax, the GST will significantly mitigate the adverse effects of cascading or double taxation and pave the way for a common national market. From the consumer's point of view, the main benefit would be the reduction of the general tax burden on goods, currently estimated at around 25% to 30%. It would also mean that the actual burden of excise duties on goods and services would be much more transparent to the consumer. The introduction of GST would also make Indian products competitive in domestic and international markets due to the complete neutralization of input taxes across the entire production and distribution value chain. Studies show that this would have a positive impact on economic growth. Last but not least, this tax would be easier to administer due to its transparent and self-regulating nature. It would also encourage a shift from the informal to the formal economy. The government proposes to introduce the GST from 1 July 2017.
GST and central government financial relations
Currently, fiscal powers between the center and the states are clearly delineated in the constitution, with almost no overlap between the respective areas. The center has the power to levy taxes on the manufacture of goods (excluding beverages for human consumption, opium, narcotics, etc.), while the states have the power to levy taxes on the sale of goods. On interstate sales, the center has the authority to collect a tax (the central sales tax), but the tax is collected and withheld in full by the home states. With regard to services, only the Center has the power to charge a fee for services. Since States do not have the authority to collect tax on the sale or purchase of goods in the course of their import or export from India, the Center collects and collects this tax in addition to the base rate of tax. These additional customs duties (commonly known as CVD and SAD) offset excise duty, sales tax, state sales tax, and other taxes levied on the same domestic product. The introduction of the GST required changes to the Constitution to simultaneously empower the Center and the States to levy and collect the GST.
Assigning the Center and the States concurrent responsibility for ICMS collection required a single institutional mechanism to ensure that decisions on the structure, design and operation of the ICMS were taken jointly by both. To address all these and other issues, the Constitutional Act (Amendment 122) was introduced on 19/12/2014 at the 16th Lok Sabha. The bill would charge GST on the supply of any good or service other than alcohol intended for human consumption. The tax is separated as double ICMS, but is collected simultaneously by the Union (CGST) and by the States (SGST). Parliament would have the exclusive power to levy GST (IGST) on interstate commerce or trade (including imports) of goods and services. The central government will have the power to impose an excise tax on tobacco and tobacco products in addition to the GST.
The Constitution Amendment Act was passed by the Lok Sabha in May 2015. The Act, with some amendments, was finally passed by the Rajya Sabha and then the Lok Sabha in August 2016. Furthermore, the Act has been ratified by the required number of states and has since received presidential approval on September 8, 2016 and has been signed into law as Constitutional Amendment Act 101 of 2016. The GST Council has also been w.e.f. September 12, 2016. The GST Council is supported by a Secretariat.
The Goods and Services Tax Council (hereinafter "GSTC") is composed of the Union Secretary of Finance, the Secretary of State (Revenue) and the Ministers of Finance of the States to make recommendations on the GST rate, exemptions and limits, taxes to be included and other matters. At GSTC meetings, half of the total number of GSTC members have a quorum. Decisions in the GSTC are taken by a majority of not less than three-quarters of the weighted votes cast. The center has a weight of one-third of the total votes cast and all states combined have a weight of two-thirds of the total votes cast.
All decisions taken by the GST Council were made by consensus. The voting option has not yet been used.
To ensure smooth implementation of the GST, several committees and sectoral groups were formed, including both center and state members.
GST Highlights
The most outstanding features of the GST are the following:
- (i) GST applies to the 'delivery' of goods or services as opposed to the present concept for the manufacture of goods or the sale of goods or the provision of services.
- (ii) The GST is based on the principle of excise duty at destination, as opposed to the current principle of excise duty at origin.
- (iii) It is a dual GST where the center and the states levy taxes simultaneously on a common basis. The ICMS to be collected at the Center will be called Central ICMS (CGST) and what is collected in the states will be called State ICMS (SGST).
- (iv) An Integrated GST (IGST) would be charged on an interstate supply (including transfers) of goods or services. This tax is levied and collected by the Government of India and this tax is divided between the Union and the States in the manner provided by Parliament by law on the recommendation of the GST Council.
- (v) Importation of goods or services would be treated as an interstate delivery and would be subject to IGST in addition to applicable taxes.
- (vi) CGST, SGST and IGST would be charged at rates mutually agreed between the Center and the States. Fees would be communicated on the recommendation of the GST Council. At a recent meeting the GST Council decided that the GST would be levied in four rates, viz. h 5%, 12%, 16% and 28%. A schedule or list of items that would fit on each of these plates was prepared. In addition to these fees, a fee would be imposed on "defective" goods to mobilize resources to compensate states as they might lose revenue due to the introduction of the GST.
- (vii) GST would replace the following taxes currently levied and collected by the Center:-
- a) central consumption tax
- b) Excise taxes (medicines and personal care products)
- c) Additional special taxes (goods of special importance)
- d) Additional excise duties (textiles and textile products)
- e) Additional Customs Duties (commonly known as CVD)
- f) Special additional tax (SAD)
- g) Tax on Services
- h) Charges and surcharges for deliveries and services.
(viii) State taxes that would be included in the GST are:-
- a) State Value Added Tax
- b) Tax of the Central States
- c) sales tax
- d) luxury tax
- e) Entrance fee (all forms)
- f) amusement and amusement fee (excluding those charged by local companies)
- g) Advertising Taxes
- h) Taxes on lotteries, betting and games of chance
- i) State taxes and surcharges related to deliveries and services.
- (ix) The GST would apply to all goods and services except alcohol for human consumption.
- (x) The GST on five specific petroleum products (crude oil, gasoline, diesel, ATF and natural gas) would apply from a date recommended by the GSTC.
- (xi) Tobacco and tobacco products would be subject to the GST. In addition, the center would have the power to impose a central excise tax on these products.
- (xii) A common threshold exemption would apply to both the CGST and the SGST. Taxpayers with an annual income of Rs.20 lakh or less (Rs.10 lakh for special category states) would be exempt from GST. A compounding scheme is available for small taxpayers with a total turnover in a tax year of up to 50 lakhs. Under the scheme, a taxpayer pays tax as a percentage of its sales in a state during the year without claiming the input tax credit. This scheme is optional.
- (xiii) The list of excluded goods and services would be kept to a minimum and harmonized as much as possible for the Center and States and between States.
- (xiv) Exports would be duty-free supplies. Therefore, no tax on inputs or finished products would be levied on exported goods or services.
- (xv) Balance of CGST paid on Tickets can only be used to pay CGST on Result and balance of SGST paid on Tickets can only be used to pay SGST. CGST Contribution Tax Credit (ITC) cannot be used to pay SGST and vice versa. That is, the two input tax credit (ITC) flows cannot be used reciprocally, except in certain circumstances in interstate deliveries for payment of IGST. Credit can be used in the following ways:
- a) ITC approved by CGST to pay CGST and IGST in that order;
- b) ITC approved by SGST to pay SGST and IGST in that order;
- c) The IGST ITC allows the payment of IGST, CGST and SGST in that order.
- (xvi) Accounts would be settled periodically between the Center and the States to ensure that the balance of the SGST used to pay the IGST was transferred from the exporting State to the Center. Likewise, the IGST used to pay the SGST would be remitted from the center to the importing state. In addition, the IGST part of the SGST applicable to B2C deliveries would also be transferred from the hub to the destination state. The transfer of resources would be made based on the information contained in the declarations presented by the taxpayers.
- (xvii) Laws, regulations and procedures for the collection and collection of CGST and SGST would be harmonized to the extent possible.
The entire GST system is supported by a strong IT system. In this context, the government created the Fiscal Network for Goods and Services (GSTN). It will provide front-end services and also develop back-end IT modules for states that choose to do so.
FAQs
What is GST audit in simple words? ›
Audit under GST involves an examination of records, returns, and other documents maintained by a GST registered person. It also ensures the correctness of turnover declared, taxes paid, refund claimed, input tax credit availed, and assesses other such compliances under GST Act to be checked by an authorized expert.
Why was the audit committee formed? ›The primary purpose of a company's audit committee is to provide oversight of the financial reporting process, the audit process, the company's system of internal controls and compliance with laws and regulations.
What are the objectives of GST audit? ›The objective of the audit under GST is to ensure that the declared turnover, claimed refunds, input tax credit, and paid taxes are correct. The verification is done in compliance with the GST Act. Additionally, GST Audit ensures that the intents comply with GST Rules.
When did audit committees start? ›1939: The New York Stock Exchange (NYSE) first endorsed the audit committee concept. 1972: The U.S. Securities and Exchange Commission (SEC) first recommends that publicly held companies establish audit committees composed of outside (non-management) directors.
What is GST explain it in brief? ›GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage.
What are the 4 types of GST? ›There are Four GST types namely Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax (UTGST). The taxation rate under each of them is different.
Who formed the audit committee? ›An audit committee is made of members of a company's board of directors and oversees its financial statements and reporting. Per regulation, the audit committee must include outside board members as well as those well-versed in finance or accounting in order to produce honest and accurate reports.
What does the SOX audit committee do? ›Audit Committee Role and Duties
Ensuring the organization establishes a thorough risk management process and effective internal controls. Reviewing the organization's policies, particularly in areas such as ethics, conflict of interest and fraud. Reviewing the organization's litigation and regulatory proceedings.
The role of the audit committee is to support council in fulfilling its governance and oversight responsibilities in relation to financial reporting, internal control structure, risk management systems, internal and external audit functions and ethical accountability.
What are the two main objectives of GST? ›The main objectives of GST are as follows: It helps create a common market in India with a uniform taxation system and curb tax evasion in the country. The laws for GST are far more stringent compared to the erstwhile indirect tax laws.
Why was GST introduced? ›
Thus GST is a unifier that is going to integrate various taxes being levied by the Centre and the State at present and provide a platform for forging an economic union of the country. This tax reform will lead to creation of a single national market, common tax base and common tax laws for the Centre and States.
What is the conclusion of GST? ›From all over study, I concluded that GST has certain positive impacts like; GST will also help to build a transparent and corruption free tax administration. GST also has an optional scheme of lower taxes for small businesses with turnover between INR 20 to 50 lakhs. It is called the composition scheme.
When was the first audit conducted? ›As early as the 5th and 4th centuries bc, both the Romans and Greeks devised careful systems of checks and counterchecks to ensure the accuracy of their reports. In English-speaking countries, records from the Exchequers of England and Scotland (1130) have provided the earliest written references to auditing.
When did audits become required? ›Although these issues prompted an expansion in the use of accounting and auditing mechanisms, it was after the stock market crash of 1929 that auditing became an obligatory process in the United States. In particular, the Securities and Exchange Act of 1934 created the Securities and Exchange Commission (SEC).
How is an audit committee formed? ›In India, the audit committee should consist of at least three directors and other directors as decided by the board of directors from time to time. At least two-thirds of the total members of the audit committee should be other than the whole-time director or managing director.
What are the 3 types of GST? ›- State Goods and Services Tax or SGST.
- Central Goods and Services Tax or CGST.
- Integrated Goods and Services Tax or IGST.
Goods and Services Tax or GST is one of the important topics in Accountancy. It gives an insight about tax that is implemented to the price of goods and services.
What are the basic elements of GST? ›There are 4 components of GST such as CGST, SGST, IGST, and UTGST. So, the kind of tax to be paid under GST depends on whether the nature of supply is inter-state and intra-state. When the supply of goods or services happens within a state or intra-state transactions, both the CGST and SGST will be claimed.
What are the types of GST audit? ›- Mandatory GST Audit (Section 35(5) Audit by professionals)
- Departmental GST Audit (Section 65 Audit by Tax Authorities)
- Special Audit (Section 66 Audit by Tax Authorities)
There are 9 important sub-classifications of GST rules that include registration, return, refund, composition, transition, invoice, payment, input tax credit and valuation.
Who is the Chairman of audit committee? ›
The Chairman of the Audit Committee shall be an independent director. The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries.
How many members are there in audit committee? ›The audit committee can consist of as many members as the company wishes to appoint (but at least three), but each member must meet the criteria and must be a director of the company. The audit committee may utilise advisors and obtain assistance from other persons inside and outside of the company.
What are the 4 SOX controls? ›These include control environment, risk assessment, control activities, information and communication, and monitoring. SOX is a complex law with 11 sections, each delineating mandates including oversight, auditor independence, and corporate responsibility.
What are the SOX rules of audit committee? ›SOX stipulates that all listed companies must have an audit committee, and that the members of that committee must be independent of management, contain at least one financial expert, and be directly responsible for appointing auditors and ensuring their company's financial reporting is correct.
What is difference between SOX and SOC? ›SOX is a government-issued record keeping and financial information disclosure standards law. SOC is an audit of internal controls to ensure data security, minimal waste and shareholder confidence.
Which three of the following are likely roles of the audit committee? ›Roles of the audit committee. The key roles of the audit committee are 'oversight', 'assessment' and 'review' of other functions and systems in the company.
What is the structure of audit committee? ›An audit committee is exclusively composed of non-executive members , with at least one of them being independent. This independent member of the audit committee must have the necessary expertise in the field of accounting and auditing and has to fulfill the new independence criteria set out by the law.
What is the background of GST? ›2000: In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee Government in 2000. The state finance ministers formed an Empowered Committee (EC) to create a structure for GST, based on their experience in designing State VAT.
Was GST a success? ›In line with industry expectations, GST has had a positive impact on the manufacturing sector by removing the cascading effect of taxes resulting in the reduction of manufacturing costs. Before GST implementation, certain taxes paid by manufacturers on procurements were non-creditable.
What is the historical background of audit? ›Historically, auditing was concerned with accounting for government activities and reviewing the work done by tax collectors. In the early years of auditing, the keeping and maintaining of accounting records was done primarily to detect fraudulent activity.
What is the history and origin of auditing? ›
The origin of auditing can be traced to Italy. Around the year 1494, Luca Paciolo introduced the double entry system of bookkeeping and described the duties and responsibilities of an Auditor.
What is the historical development of audit? ›The auditing origin can be traced back to the 18th century, when the practice of large scale production developed as a result of the Industrial Revolution. Systems of checks and counter checks were implemented to maintain public accounts as early as the days of ancient Egyptians, Greeks and Romans.
What are the 3 types of audits? ›There are three main types of audits: external audits, internal audits, and Internal Revenue Service (IRS) audits. External audits are commonly performed by Certified Public Accounting (CPA) firms and result in an auditor's opinion which is included in the audit report.
Who is father of auditing? ›While some of the audit technique underlying internal auditing is derived from management consulting and public accounting professions, the theory of internal auditing was conceived primarily by Lawrence Sawyer (1911–2002), often referred to as "the father of modern internal auditing"; and the current philosophy, ...
What are the characteristics of audit committee? ›- Intellectual curiosity and professional scepticism.
- Courageous in making tough decisions.
- Balanced, ethical approach to whistleblowing.
- Oversight of key risks (not just financial)
- Excellent relationship builders.
- Ability to build and develop a strong team.
As per the Companies Act, 2013: —
It shall consist of a minimum of 3 directors with independent directors forming a majority. The majority of the Audit Committee members shall be persons with the ability to read and understand the financial statements. It shall include its Chairman.
An audit committee is a subcommittee of the board of directors that is responsible for the financial reporting and disclosure process.
Why key audit matters was created? ›Key audit matters (KAM) were developed by the International Auditing and Assurance Standards Board (IAASB) to respond to the challenge from stakeholders to improve the transparency and clarity of audit reports.
Which of the following is an objective of the audit committee? ›The primary objective of the audit committee is to accept responsibility for the annual external audit and liaise with the local government's auditor so that Council can be satisfied with the performance of the local government in managing its financial affairs.
What are the benefits of having audit committees? ›An effective audit committee enhances the accountant's independence by, among other things, providing a forum apart from management where the accountants may discuss their concerns. [22] It facilitates communications among the board of directors, management, internal auditors and independent auditors.
What are the types of audit committee? ›
- internal controls and risk management systems.
- the internal audit process including appointment and resourcing.
- financial statements including governance statements.
- the external audit process.
- compliance reports.
- regulatory inspection reports.
- key performance data.
- whistleblowing.
An audit is important as it provides credibility to a set of financial statements and gives the shareholders confidence that the accounts are true and fair. It can also help to improve a company's internal controls and systems.
What are 2 important things to be included in the key audit matters? ›It requires a description of the most significant assessed risks of material misstatement as well as a summary of the auditor's response to those risks and, where relevant, key observations arising from those risks and reference to the disclosure in the financial statements.
What are key audit matters summary? ›Key audit matters— Those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance.