taxes types, methods & budgeting process section 6 MCQ Questions & Answers Detailed Explanation

Answer: (c)

Answer: (a)

Consider an example to understand GST in a better way (GST rate 18%):

Consumer 100 + 118 300 + 54 Tax = Rs.18 Tax

= Rs. 36 (Rs.54 - Rs.18) (CGST = 9, SGST = 9) (CGST = 18, SGST = 18) Govt. Govt.

In the above example, A is doing a value addition of Rs. 100 and selling the product to B in Rs. 118 and paying Rs. 18 GST to the government. B is doing a value addition of Rs. 200 and is paying Rs. 36 GST to the government. Since GST is a value-added tax, so every entity in the value chain shall pay the government tax only on their value addition.

Practically B shows the invoice of Rs. 354 to the government and pays a tax of Rs. 54 to the government but when it produces the tax receipt obtained from A to the government worth Rs. 18 then government credits/refunds Rs. 18 to B. This is called Input Tax Credit Mechanism as the taxes paid by B on the purchase of inputs from A i.e. Rs. 18 is credited by the government back to B.

Since there is only one tax i.e. GST and credits of input taxes paid at each stage is available in the subsequent stage of value addition across India (whereas in the case of VAT input credit was available only within the State), hence it will prevent the dreaded cascading effect of taxes. This is the basic feature and advantage of GST.

Important aspects regarding the implementation of GST:

If A belongs to one State (say UP) and B and the consumer belong to another State (say Bihar) then all the State GST i.e. Rs. 9 and Rs. 18 (=Rs. 27) will be passed on to the State where the product is being consumed by the consumer

i.e. Bihar and the State where A belongs i.e. UP will not get any SGST.

This is why GST is also called consumption-based and destination-based tax as all the SGST is passed on to the consuming State i.e. Bihar.

If A and B belong to different states then rather than GST, IGST will be levied by the Centre on the transaction between A and B which is again equal to the sum of CGST and SGST and ultimately distributed to the Centre and the consuming State equally. Practically everything remains the same, only the tax name changes to Integrated GST (IGST)

If B, rather than selling the product to the consumer in India, exports the products then IGST will be imposed as IGST is levied on inter-State supplies. The GST paid in the entire value chain and the IGST paid at the border is refunded/credited back to the suppliers. So effectively there is no tax on exports and hence we say that exports are "zero-rated" supplies. Supplies to SEZs are also zero-rated.

If a trader is importing a product into India then he will have to pay first customs duty and then IGST on the imported product as imports are also considered to be InterState supplies.

Answer: (c)

Answer: (b)