President Pranab Mukherjee on September 8 gave assent to the Constitution Amendment Bill on Goods and Services Tax (GST), a major step towards rolling out the new indirect tax regime which the Narendra Modi government wants to bring into effect from April 1, 2017.

The passage of the bill will pave the way for setting up of a GST council that will decide the tax rate, cess and surcharges.

       The GST is a single indirect tax which will subsume most of the central and state taxes such as Value Added Tax (VAT), excise duty, service tax, central sales tax, additional customs duty and special additional duty of customs.

Parliament had on August 8 passed the bill which was then circulated to state governments seeking its ratification.

A constitutional amendment bill needs to be ratified by the legislative assemblies of at least 50% of the states.

      The bill was sent to the president's secretariat after as many as 17 states, BJP ruled Asom being the first, ratified the bill. The other states which have passed the legislation include Bihar, Jharkhand, Chhatisgarh, Himachal Pradesh, Gujarat, Madhya Pradesh, Delhi, Nagaland, Maharashtra, Haryana, Sikkim, Mizoram, Telangana, Goa, Odisha, and Rajasthan.

   Now that the bill has got presidential assent, the government will notify the GST Council, which will decide on the tax rate. Headed by Union finance minister Arun Jaitley, the council will compromise state finance ministers.

The states and the Centre are working overtime and talking to stakeholders to draft the central GST, state GST and integrated GST laws, which are to be passed in the winter session of parliament.


The central GST and integrated GST will be drafted on the basis of the model GST law. The states will draft their respective state GST laws with minor variations incorporating state-based exemptions. The integrated GST law will deal with the inter-state movement of goods and services.

Currently, we have Value-Added Tax (VAT)  systems both at the central and state levels. But the central VAT or CENVAT mechanism extends tax set-offs only against central excise duty and service tax paid up to the level of production. CENVAT does not extend to value addition by the distributive trade below the stage of manufacturing; even manufacturers cannot claim set-off against other central taxes such as additional excise duty and surcharges.

Likewise, state VATs cover only sales. Sellers can claim the credit only against VAT paid on previous purchases. The VAT also does not subsume a host of other taxes imposed by the states such as luxury and entertainment tax, octroi, etc.

   Once GST comes into effect, all central and state level taxes and levies on all goods and services will be subsumed within an integrated tax having two components: a central GST and a state GST.

This will ensure a complete, comprehensive and continuous mechanism of tax credits. Under it, there will be a tax only on value addition at each stage, with the producer/seller at every stage able to set off his taxes against the central/state GST paid on his purchases. The end consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.