What is GST in India?
GST is commonly referred to in the name of The GST stands for Goods and Services Tax. The tax is indirect that has replaced a variety of indirect taxes that are in India like the VAT, excise duty services tax, etc. This Goods and Service Tax Act was approved by the Parliament on the 29th of March 2017 and was implemented on July 1st, 2017.
In other words, Goods and Services Tax (GST) is charged on the sale of goods and services. Goods and Services Tax Law in India is a broad multi-stage, destination-based tax which is imposed on each value-added. GST is a single Indian indirect tax law applicable to all of India.
Prior to when the Goods and Services Tax could be implemented how indirect taxes were structured levies within India was as like:
Under the GST system, tax is charged at each location of sales. For interstate sales, Central GST and State GST are taxed. All sales made between states are subject to the GST Integrated.
Let’s know the meaning of the Goods and Services Tax that we have discussed earlier in more depth.
A product goes through many changes of hands in the supply chain from the moment of production until the final sale to the customer.
Let’s look at the following steps:
- The purchase of raw material
- Manufacturing or production
- Warehousing of the finished goods
- Selling wholesalers to
- Sales of the item to retailers
- Selling to end customers
The Goods and Services Tax is assessed on all of these stages, making it a tax with multiple stages.
A biscuit maker purchases sugar, flour, and other ingredients. The value of the ingredients grows when ingredients like flour and sugar are combined before baking into biscuits.
The company then sells the biscuits to a warehousing agency who then packs huge quantities of biscuits into cartons and then labels them. This adds worth to biscuits. Following this, the warehousing agency sells it to retailers.
The seller packages cookies in small amounts and invests in marketing the biscuits, which increases the value of the biscuits. GST is charged on these value-added items, i.e. the value of money that is added each time in order to sell to the final buyer.
Think about goods produced in Maharashtra and then sold to the end consumer in Karnataka. Because Maharashtra is the source of Goods and Service Tax is assessed at the point of consumption, all tax revenue goes to Karnataka instead of Maharashtra.
The Journey of GST in India
The GST journey started in the year 2000 when a commission was formed to draft legislation. In 17 years since the time the GST Law change. In 2017 it was the year that the GST Bill was passed in the Lok Sabha and Rajya Sabha. On the 1st of July, 2017 it was announced that the GST Law came into force.
Objectives Of GST
- To realize the idea of “One Nation One Tax’
GST has substituted multiple indirect taxes that were in place under the old tax system. The benefit of having a single tax is that each state has the same rate for a specific item or service. Tax administration becomes easier when being able to rely on the Central Government deciding the rates and the policies.
Common laws could be implemented for example, such as electronic waybills for transporting goods and electronic invoices for reporting transactions. Tax compliance is also improved since taxpayers don’t have to be overwhelmed by various tax returns and deadlines. It’s an overall system for indirect tax compliance.
- To include the majority of indirect taxation in India
India was the home of several indirect taxes, such as service tax as well as value Added Tax (VAT), Central Excise, etc. They were assessed at various levels of the supply chain. Certain taxes were managed by states, while others were governed were administered by the Centre. There was no unifying centralized tax system for products and services. This is why GST was created. With GST it was introduced, all of the major indirect taxes were combined into one. This has significantly reduced the burden of compliance for taxpayers and has made tax administration easier for the government.
- To reduce the cascading effect that taxes have on people
One of the main goals in the creation of GST was to stop the cascading effects of taxes. In the past, because of various indirect tax laws, taxpayers were not able to offset the tax credits for one tax against the tax of another. For instance, taxes paid on the manufacture were not able to be offset against the VAT due in the sale. This caused the tax burden to cascade. With GST the tax levy is based on the net value added at every stage within the supply chain. This has eliminated the tax cascading effect and has contributed to the smooth transfer of tax credits to inputs across goods and services.
- To curb tax evasion
Tax laws for GST in India are much more stringent in comparison to any of the earlier indirect tax laws. In the context of GST tax law, taxpayers are able to claim a tax credit for input only on invoices that are uploaded by their suppliers. In this way, the odds of claiming credits for input tax for fake invoices are very low. The introduction of electronic invoices has further strengthened this aim. Additionally, due to GST being a tax that is universally applicable with a centralized monitoring system, the crackdown on tax evaders is swifter and much more effective. Therefore, GST has curbed tax fraud and evasion in its spread to a great extent.
- To increase the base of taxpayers
GST has contributed to expanding its tax bases in India. In the past, all tax laws had their own threshold for registration that was based on the amount of revenue. Since GST is a tax that applies to both services and goods which has led to a rise in the number of tax-registered companies. In addition, the more stringent regulations governing tax credits for input have assisted in bringing certain unorganized industries into GST’s tax net. For instance building industry is one of the industries that are in India.
- Procedures online to facilitate the ease of doing business
In the past, taxpayers had to face many difficulties when having to deal with various tax authorities in each tax law. Additionally, although tax return filing was done online, the majority of tax refund and assessment processes were conducted offline.
Nowadays, GST procedures are carried out mostly online. All it takes is one click from registration to tax return filing, to refunds and electronic bill generation. It has helped to improve the convenience of business operations in India and has made it easier for taxpayers to comply to a great extent. The government is also planning to launch an online portal that will be centralized soon for any indirect tax compliance, such as e-invoicing and e-way invoices along with GST tax return submission.
- A more efficient logistics and distribution system.
An indirect tax-based system that is single can reduce the requirement for multiple forms of documentation to supply products. GST cuts down on transportation time increases supply chain efficiency as well as turnaround time and results in the consolidation of warehouses as well as other benefits. Through the e-way bill system in GST and the elimination of interstate checkpoints will be advantageous to the industry in improving efficiency in transit and at the point of destination. In the end, it aids in reducing the cost of costs of logistics and warehousing.
- To encourage prices that are competitive and boost consumption
The introduction of GST has also resulted in increased consumption as well as indirect tax revenue. Because of the cascading effects of taxes in the prior regime, the cost of goods sold in India was more expensive than those on the global market. However, even between states, the low VAT rates in some states resulted in an imbalance in purchases within these states. The uniform GST rates have contributed to competitive pricing overall across India and also on the international front. This has led to an increased amount of consumption and resulted in greater revenues, which is a different goal that was achieved.
Advantages Of GST
GST has mostly removed the cascading effect that affects the sale of products and services. The elimination of the cascading effect has affected the price of items. As the GST regime removes the tax on tax, the price of goods is reduced.
Furthermore, GST is mainly technologically driven. Every step, including registration of return, filing returns, request for a refund, and responding to notice have to be performed online on GST’s GST site, which speeds up the process.
- What exactly are constituents in GST?
The three tax categories are applicable in the system: CGT IGT and SGST.
- The CGST The tax is imposed from the Central Government on an intra-state sale (e.g. an exchange that occurs in Maharashtra)
- The SGST The tax is imposed from the government of Maharashtra in connection with any intrastate sales (e.g. an exchange that occurs in Maharashtra)
- IGT: It is a tax that is collected from the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)
In the majority of instances the tax structure of the new system will be in the following manner:
Transaction New Regime Old Regime Revenue Distribution
Sales in the state CGST plus GST VAT + Central Excise/Service Tax Revenue will be divided equally between the State and the Center.
Sales to a different State IGST Central Sales Tax plus Excise/Service Tax There will be one tax type (central) in the case of interstate sales. The Centre will then split the IGST income based on the location of the goods.
Let’s say that a seller in Gujarat has sold items to a seller in Punjab in the amount of the sum of Rs. 50,000. It is taxed at 18% which consists of IGST.In this case, the dealer is required to be charged IGST at Rs.9,000. This money will be paid to Central Government.
The same dealer sells items to consumers in Gujarat in the amount of the sum of Rs. 50,000. The GST rate for products is 12percent. This rate is the CGST at 6%, and the SGST rate at 6. %. The seller must pay Rs.6,000 in goods and Service Tax, Rs.3,000 will be given towards the Central Government and Rs.3,000 will be paid towards the Gujarat government, since the sale falls within the state.
Tax Laws before GST
In the early indirect tax system, it was common to see indirect taxes imposed by the central and state. States mostly collected taxes through VAT or Value Added Tax (VAT). Every state has its own set of regulations and rules.
The interstate sale of goods was taxed by the central government. The CST (Central State Tax) was the tax applicable in cases of the interstate sale of items. The indirect taxes like the entertainment tax and octroi tax and local tax were collected by both the central and state.
This led to the overlapping of taxes imposed by the center and the state. For instance, when products were made and then sold, an excise tax was imposed by the central government. In addition to the tax on excise, VAT was also imposed by the government. This resulted in the tax on tax effect which is often referred to as the cascading effects of taxes.
Here is the complete list of indirect taxes that were in the prior regime before GST:
- Central Excise Duty
- Duties of Excise
- Additional Duties of Excise
- Additional Duties of Customs
- Special Additional Duty of Customs
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entertainment Tax
- Entry Tax
- Taxes on advertisements
- Taxes on lotteries, betting, and gambling
- CGST, IGST, and SGST, and have replaced all the above taxes.
- However, certain taxes such as the GST levied for the inter-state purchase at a concessional rate of 2% by the issue and utilization of ‘Form C’ is still prevalent.
- It applies to certain non-GST goods such as:
- Petroleum crude;
- High-speed diesel
- Motor spirit (commonly known as petrol);
- Natural gas;
- Aviation turbine fuel; and
- Alcoholic liquor for human consumption.
- It applies to the following transactions only:
- Use in manufacturing or processing