The Union Cabinet on Wednesday approved Constitutional Amendment Bill for Goods & Services Tax (GST), paving the way for introduction of the Bill in the ongoing session of Parliament.

The Government intends to introduce GST from April 1, 2016, which will set the ball rolling for the legislative exercise for introduction of new indirect tax reforms.

The Bill needs to be approved by a two-third majority of the house. After this, it needs to be endorsed by at least half of the State Assemblies (15). Then the Centre will introduce separate legislation for GST. States, too, will be required to bring in legislations.

The Constitution does not provide for any concurrent taxation powers to the Centre as well as the States. This required the Constitution to be amended for conferring simultaneous power on Parliament as well as the State Legislatures, including every Union Territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both.

The new regime would replace a number of indirect taxes currently being levied by the Central and State Governments and is intended to remove cascading of taxes and provide a common national market for goods and services.

The proposed Central and State GST will be levied on all transactions involving supply of goods and services except those that are exempt or kept out of the purview of the goods and services tax.

Once the new tax system comes into place, there will be three indirect taxes apart from the customs duty (only on imported goods).

There will be a Central GST, which will subsume Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (commonly known as Countervailing Duty or CVD), Special Additional Duty of Customs (SAD) and Central Surcharges and cesses.

Then there will be State GST. This will subsume State VAT/Sales Tax, entertainment tax (unless it is levied by the local bodies), Luxury Tax, Taxes on lottery, betting and gambling, tax on advertisements, State Cesses and Surcharges. The third one will be Integrated GST (IGST) on inter-State transactions of goods and services. There is an agreement on subsuming entry tax in GST. At the same time, petroleum products will be part of GST with ‘nil’ rate.

However, after initial three years, a call will be taken to continue or exclude it.

While alcohol will be out of GST, tobacco will be within its purview

The new Bill will also have provision of compensation for initial years on account of revenue loss due to introduction of GST.

There is also agreement on subsuming entry tax into GST. Finance Minister Arun Jaitley has already promised to pay ₹11,000 crore as compensation due to phasing out of Central Sales Tax

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