What is Dual GST Model in India?

Dual GST model or dual GST structure is a simple tax with two different taxation components. Central Goods and Service Tax (CGST) and the State Goods and Service Tax (SGST) are the tax components that can be levied on a single transaction in India within a state on account of its federal nature.

Moreover, both governments have been assigned distinct responsibilities, as prescribed under the division of powers statute of the Constitution. Overall, a dual GST structure is designed to align with the Constitutional requirements of fiscal federalism.

Features of the Dual GST Model

a) The GST or Goods and Service Tax has two components – one levied by the central government (referred to as Central GST or CGST), and the other collected by the State governments (referred to as State GST or SGST)
b) Both CGST and SGST apply to all transactions pertaining to goods and services
c) Both CGST and SGST are paid to the respective accounts of the Central and the States governments individually
d) CSGT and SGST are treated individually, implying that the taxes paid against the CGST are allowed to be considered as Input Tax Credit (or ITC)
e) Cross utilization of the Input Tax Credit between CGST and SGST is not permitted, except for the inter-state supply of goods and services
f) Credit accumulation based on the GST refund is to be avoided by both the Central and State governments except in the case of exports, input tax at a higher rate than output tax, and purchase of capital goods, among others
g) There is a uniform procedure for collection of both CGST and SGST, as prescribed in their respective legislation
h) The composition or compounding scheme for GST has an upper ceiling and a floor tax rate concerning the gross annual turnover
i) As a taxpayer, you must submit periodic returns, in a standard format, to both the CGST and SGST authorities
j) Each taxpayer is allotted a 14-15 digit PAN-linked taxpayer identification number

Benefits of Dual GST

The Dual GST structure is a transparent and straightforward tax model with a pre-defined set of CGST and SGST rates. The benefits of having a dual GST structure include –

a) Reduction in the total number of taxes levied by the Central and State governments
b) A decrease in the effective tax rate for different goods
c) Elimination of the existing cascading effect of taxes
d) Reduction of the taxpayer’s transaction costs through simplified tax compliance
e) Increased tax collections based on a broader tax base and improved compliance

Impact and Implications of Dual GST Model

The dual GST model has been a replacement for the overly complicated tax structure that existed before. So, the biggest beneficiaries of the new system have been the merchants and businesses who had to track, record, collect and file multitudes of taxes every month.

Another area of improvement, which was also a goal of the new GST Model, was the rate of final goods and services to the consumer. The Dual GST model aims to eliminate the cascading effect of indirect taxation on the final goods and services. Thus, if the benefits of lower taxes pass on to the consumers, they should experience lower prices.

Since dual GST means both State and Central Governments can impose and collect taxes, there is a possibility of dispute. The GST Council is expected to draw the guidelines for resolving such disputes.

Ultimately, the dual GST model should benefit the taxpayers and consumers the most. It is simpler to follow and provides easier tax filing methods, which small business owners can easily manage

FAQ

Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.

You can avail additional tax savings under the following sections other than section 80C:

a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan

You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:

a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)

Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.

You will need to pay taxes on the incomes and gains from your investments. For example, your salary income is Rs 10 lakhs in a year, out of which Rs 7.5 lakhs becomes taxable after deducting exempt perquisites. Out of your income of Rs 10 lakhs, you invest Rs 3 lakhs in various options.

Even if none of your investments is eligible for tax saving under section 80C, your taxable income will remain Rs 7.5 lakhs. However, returns from some of these investments will become taxable in the next financial year when you receive them.

Since AY 2020-21 you have two ways to lower your income tax outflow on higher income – tax-saving investments and a new tax regime. You can stick to the old tax regime and invest your savings into eligible tax saving options. Tax-saving investments can give you a deduction of up to Rs 2 lakhs under sections 80C and 80CCD(1B), and additional deductions of up to Rs 2 lakhs under section 24.

Your deductions will be higher with other sections like 80E and 80G. But these are specific outflows which are not investments.

The best way to reduce your tax outflow legally is to use tax-saving investments and plan your future taxes carefully. Tax-saving investments will help you reduce your taxable income in the present financial year. If you invest in options which enjoy tax exemptions on maturity values, you can also reduce your future tax outflow. For example, Invest 4G ULIP from Canara HSBC Life Insurance allows you to stay invested up to the age of 99. This means that you can start investing at 30, build a corpus by 60 and have a tax-free lifetime pension.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

a) Avail fuel or petrol expenses with number of kilometres
b) Credit card statement for computer items
c) Credit/debit card statement for stationery items
d) Membership documents to show running membership to claim the fees amount

You can claim HRA exemption with your employer and declare the amount in your ITR-1 form while filing your tax return. You will need to submit your house rent receipts with your employer to reduce your TDS. Use the online calculator to estimate your HRA exemption and claim the amount directly in your ITR.

If you are self-employed or do not receive HRA from your employer but have been paying rent for residence, you can claim a deduction of up to Rs 60,000 under section 80GG.

You can calculate your HRA exemption based on the following conditions. The amount of exempt HRA will be the lowest of the three:

a) HRA you have received
b) 50% of salary (basic + DA + Commission paid as % of turnover) if you are staying in a metro city otherwise 40%
c) Rent paid over 10% of your salary (as defined in step 2)

What are the provisions of advance tax in India

80CCC: What is Deduction under Section 80CCC?

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