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Service Tax and Income Tax.
GST subsumed service tax into it. The reasoning was that service tax is really a part of all manufacturing activity. If you give a close look at the evolution of Sales Tax, we will notice that sales tax became Value Added Tax. All Value Additions happen through service of mankind.
Going back to Marxian theory, all value additions are only through the 'labour' of man. But for human value addition, everything in this world is only sand / earth. Sand becomes buildings. It is sand that becomes cars, jewellery and this whole man-made world. In other words, value addition happens because of services provided by man.
Whenever someone says, a product is manufactured, it means that service has been provided and therefore, manufacturing process has happened.
Now this was the logic, broadly accepted when services were subsumed under GST. There was so much of confusion to isolate what is service and what is manufacturing since manufacturing itself was a service! Now, GST set to rest this confusion by merging them both.
Well, now on to the next confusion.
For the sake of service separation, let me ask this question. When someone goes in to a company and provides a service, he pays GST and utilises his other GST credits to offset the same. Now, when the same person becomes a 'permanent' service provider or as people call, an employee, he is not liable for GST but instead is liable to pay only the income tax on the entire amount without offsetting any of his purchases.
There are numerous products every person would require in order to provide his or her service.
For instance, if a machine fails in my factory where I provide a service, I can offset the expenses incurred for correcting it with my earnings. If one of my employees fall sick, I can still offset the expenses incurred by me to set him back on his feet.
But for a person, who is drawing a salary, who is an employee who provides this service, the expenses incurred is not fully off set in the income drawn by him. Second, though it is service that he is providing all his expenses are not off set on the income he generates though they are part of his needs. If he buys a house for his stay and sleep which is essential for his working the next day, the interest is not fully off set on the income. He has an interest ceiling.
Whereas, a person providing service as an independent entity can off set his interest in full on the income he generates, as a part of his business expense.
My point is, service of an employee is also a service and should be treated so and should be under GST and not under income tax. Round one. Round two, income tax should be subsumed under GST since you cannot have two taxes for the same service.
I serve. I earn. But I pay two taxes now. GST and IT. Tell me why?