Table of contents:

• An overview
• List of Central Taxes Subsumed Under GST
• State-Level Taxes Subsumed Under GST
• Which are the Taxes Not Subsumed Under GST?
• Pros
• Cons
• Impact
• Principles
• Conclusion

Taxes subsumed under GST marked a significant shift in India’s tax regime, aimed at reducing redundancies and improving transparency. The purpose of subsuming taxes under GST was to eliminate cascading effects and simplify indirect taxation.

This article explains the concept of tax subsumption under GST in-depth. It will also clarify its objectives, impact, and the principles behind it.

An Overview

Taxes subsumed under GST refer to indirect taxes that were merged into the GST structure. This change simplified India’s taxation system by replacing a multi-layered tax regime.

Before GST, India had a complex tax framework. Multiple central and state-level taxes were levied on goods and services, leading to confusion and inefficiencies. GST consolidated these taxes into a unified system.

The key objective of subsuming taxes was to ensure a seamless flow of input credits, reduce compliance burdens, and foster a unified market. For example, a manufacturer previously paying both VAT and excise duty now deals with a single GST payment.

The Goods and Services Tax (GST) subsumed a variety of central and state taxes in India. Below is a detailed breakdown of the taxes that were integrated into GST:

List of Central Taxes Subsumed Under GST

These are taxes that were previously levied by the central government:

1. Central Excise Duty
   • Applied on the manufacture of goods.
   • Now replaced by GST for most goods, except a few like petroleum products.
2. Service Tax
   • Levied on services such as hospitality, consultancy, and telecom.
   • Now integrated into GST.
3. Additional Excise Duties
   • Levied on special goods such as textiles or sugar.
   • Subsumed under GST.
4. Excise Duty on Medicinal and Toilet Preparations
   • Levied on medicinal and cosmetic products.
   • Merged into GST.
5. Additional Customs Duty (CVD)
   • Applied to imports to equalize local taxes.
   • Now included in the GST framework.
6. Special Additional Duty of Customs (SAD)
   • Another import duty aimed at countering domestic taxes.
   • Subsumed under GST.
7. Central Surcharges and Cesses Related to Supply of Goods and Services
   • Cesses like the Krishi Kalyan Cess and Swachh Bharat Cess were eliminated and subsumed.

State-Level Taxes Subsumed Under GST Explained

These are taxes that were previously levied by individual state governments:

1. State Value Added Tax (VAT)
   • Levied on the sale of goods within a state.
   • Now replaced by GST.
2. Central Sales Tax (CST)
   • Applied on inter-state sales of goods.
   • Subsumed under GST.
3. Entertainment Tax (Except Levied by Local Bodies)
   • Applied to movie tickets, concerts, and events.
   • Now part of GST.
4. Luxury Tax
   • Levied on luxury goods and services like high-end hotels.
   • Merged into GST.
5. Taxes on Lottery, Betting, and Gambling
   • Unified under GST to ensure uniform taxation across states.
6. Entry Tax (All Forms)
   • Levied on goods entering a state.
   • Subsumed under GST.
7. Purchase Tax
   • Applied on the purchase of certain goods like agricultural products.
   • Integrated into GST.
8. State Surcharges and Cesses Related to Supply of Goods and Services
   • Various state-specific cesses and surcharges were replaced by GST.

Which are the Taxes Not Subsumed Under GST?

Certain taxes remain outside the GST framework due to political and economic considerations.

1. Basic Customs Duty (BCD)
   • Levied on imports to protect domestic industries.
2. Taxes on Petroleum Products
   • Excise Duty and VAT on petrol, diesel, natural gas, etc., remain outside GST.
3. Taxes on Alcohol for Human Consumption
   • States retain the right to tax alcoholic beverages.
4. Stamp Duty and Property Tax
   • Levied on property transactions and remain outside GST.
5. Toll Tax and Road Taxes
   • Continued to be levied by states and local authorities.

Pros of Taxes Subsumed Under GST

The integration of multiple taxes under GST has introduced several advantages for businesses, governments, and consumers:

1. Simplified Tax Structure
   • GST replaced a complex web of central and state taxes, creating a unified tax regime.
   • Businesses now deal with a single tax system, reducing compliance burdens and administrative costs.

2. Elimination of Cascading Effect
   • Under the previous system, taxes were levied on top of other taxes, increasing costs at every stage.
   • GST introduced the Input Tax Credit (ITC) mechanism, allowing businesses to claim credit for taxes paid on inputs.

3. Uniform Tax Rates Across States
   • GST standardized tax rates, ensuring goods and services are taxed uniformly across India.
   • This removed interstate tax barriers, creating a “One Nation, One Tax” framework.

4. Boost to Ease of Doing Business
   • With fewer taxes and transparent compliance requirements, GST reduced operational inefficiencies.
   • Businesses, especially SMEs, benefit from automated GST filings and centralized tax processing.

5. Enhanced Revenue Collection
   • GST reduced tax evasion through stricter compliance and digital records.
   • With a wider tax base, the government has experienced increased revenue generation.

6. Consumer Benefits
   • Transparent taxation has led to reduced costs of many goods and services.
   • Consumers now clearly understand the tax components in their purchases.

Cons of Taxes Subsumed Under GST

While GST brought many advantages, challenges remain:

1. Implementation Challenges
   • The transition to GST was initially disruptive for businesses, especially smaller ones.
   • Many businesses struggled with adopting digital tax systems and understanding GST compliance.
2. Exclusion of Certain Goods
   • Key commodities like petroleum products and alcohol remain outside GST.
   • This fragmentation creates inefficiencies and limits the uniform application of GST.
3. Revenue Loss for States
   • States had to forego certain tax revenues like VAT and Entry Tax.
   • Although the central government compensates states for revenue loss, delays in disbursement have led to disputes.
4. Multiple Tax Slabs
   • GST’s multiple tax slabs (0%, 5%, 12%, 18%, 28%) create confusion.
   • A simplified tax structure with fewer slabs could reduce complexity.
5. Increased Compliance for Some Businesses
   • Small businesses initially struggled with the volume of filings, especially monthly GST returns.
   • Businesses operating in multiple states faced higher compliance requirements.

Impact of Subsumed Taxes across stakeholders

The GST reform has had profound impacts across various sectors of the Indian economy:

1. On Businesses
   • Positive: Simplified processes, cost reductions, and increased operational efficiency.
   • Negative: Initial compliance burden and system adoption challenges for small businesses.

2. On Consumers
   • Consumers benefit from transparent pricing and lower tax burdens on many goods.
   • However, higher GST rates on luxury items and services increased costs in some segments.

3. On Government
   • GST boosted indirect tax revenue and improved tax compliance through digitization.
   • Disputes between states and the center overcompensation have occasionally strained federal relationships.

4. On Trade and Commerce
   • Interstate trade became more seamless due to the removal of Entry Tax and CST.
   • Businesses now face fewer barriers to expanding operations across India.

5. On Inflation
   • GST initially caused short-term inflationary pressures as businesses adjusted.
   • Over time, streamlined taxation has stabilized prices.

Principles of Taxes Subsumed Under GST

The subsumption of taxes into GST was guided by key principles aimed at creating a robust and efficient tax framework:

1. Elimination of Cascading Effect
   • GST ensures that taxes are levied only on the value addition at each stage of production or distribution.
   • The availability of Input Tax Credit across the supply chain reduces the overall tax burden.

2. Creation of a Unified Market
   • GST eliminates barriers to interstate trade, fostering a single national market.
   • This promotes competition, reduces logistics costs, and boosts economic growth.

3. Transparency and Simplicity
   • GST is designed to simplify compliance with its digitized return filing and uniform tax rates.
   • Consumers and businesses alike benefit from greater visibility into tax components.

4. Revenue Neutrality
   • The tax structure was developed to ensure that neither the central nor state governments lose revenue.
   • Compensation mechanisms were put in place to address revenue imbalances.

5. Global Best Practices
   • GST in India draws from successful implementation models in countries like Canada and Australia.
   • It adopts principles such as dual taxation (central and state) to balance federal and state responsibilities.

6. Equity in Taxation
   • GST follows a progressive taxation approach where luxury goods attract higher rates, while essential goods are taxed minimally or exempted.

Conclusion

The taxes subsumed under GST marked a historic shift in India’s tax framework. The reform simplified taxation, improved compliance, and made India a unified market. While there are still challenges, such as excluded taxes and implementation complexities, GST has laid a solid foundation for economic growth.

Future refinements, like the inclusion of petroleum products and rate rationalization, could further enhance the GST framework. The principles of tax subsumption – transparency, simplicity, and efficiency – continue to guide India’s journey toward a more robust and equitable tax system.

Author: Anirban Sinha

A product manager with a writer’s heart, Anirban leverages his 6 years of experience to empower MSMEs in the business and technology sectors. His time at Tata nexarc honed his skills in crafting informative content tailored to MSME needs. Whether wielding words for business or developing innovative products for both Tata Nexarc and MSMEs, his passion for clear communication and a deep understanding of their challenges shine through.