What is GST?

The Goods and Services Tax (GST) is one of the most significant tax reforms in the country. Designed to simplify India’s indirect tax system, it was implemented on July 1, 2017. Since then, It has streamlined the complex process for consumers and businesses by replacing outdated taxes imposed by central and state governments.

In this expansive post, we will explain the features, types, advantages, and how GST has significantly transformed the Indian tax system.

Understanding Goods and Services

The Goods and Services Tax is a single, destination-based tax on delivering goods and services. It aims to establish a unified public demand and consolidate all indirect taxes into one system.

Similar to the previous tax structure, the GST ensures that taxes are levied only on goods and services at the point of ultimate consumption, effectively preventing the cascading tax effect.

Understand the Tax Concepts

How Does GST Work?

It operates under a binary structure, meaning neither central nor state governments implement it separately.

Tax Assessment Process

The tax is assessed at each point in the budget chain, from the producer to the consumer. However, because businesses can claim input tax credits for the taxes they’ve already paid, the final burden of the tax ultimately falls on the end user.

Types of GST

It is divided into four main types to accommodate India’s diverse structure. The Central Goods and Services Tax, or CGST, is a duty that the federal government collects on purchases that take place inside a state.

The state government collects the State Goods and Services Tax( SGST) on intrastate deals. When products or services are changed over state lines, an interstate deal is subject to the Integrated Products and Services Tax, or IGST. The federal government and state governments resolve the IGST money.

1. Central Goods and Services Tax (CGST): Collected by the central government on intra-state purchases.
2. State Goods and Services Tax (SGST): Collected by state governments on intra-state transactions.
3. Integrated Goods and Services Tax (IGST): Applied to inter-state transactions when goods or services cross state lines, with revenue shared between central and state governments.
4. Union Territory Goods and Services Tax (UTGST): Assessed when products or services are supplied in Union Territories such as Chandigarh and Delhi.

GST Slab Rates

One of the most significant features of GST is its slab structure, which assigns different tax rates based on the type of goods and services. The four main GST slabs are as follows:

• 5%: Applicable to essential items such as food, grains, and household supplies.
• 12%: Includes toothpaste, processed foods, and specific clothing.
• 18%: Imposed on furniture, laptops, and cosmetic treatments.
• 28%: The highest slab, covering luxury items like air conditioners, vehicles, and tobacco.

These slabs provide revenue to the government, ensuring that luxury and non-essential goods are taxed more heavily while necessities are taxed at lower rates.

Indirect Tax Structure under GST

Federal Level

• Central excise duty
• Additional excise duties (goods of special importance)
• Service tax
• Additional customs duty / countervailing duty
• Special additional duty of customs

State Level

• State value-added tax/sales tax
• Entertainment tax (other than those levied by local bodies)
• Central sales tax (levied by the Centre and collected by the States)

Indirect Taxes Not Subsumed Under GST

• Property tax & stamp duty
• Electricity duty
• Excise duty on alcohol
• Basic customs duty on petroleum crude, diesel, petrol, ATF & natural gas

How GST Works

It operates under a dual taxation model based on the destination of goods or services. Let’s explore how this system functions:

1. Input Tax Credit: It is assessed on the raw materials manufacturers use. They can claim an input tax credit for the goods and services tax paid on these inputs.
2. Wholesaler Transactions: When a wholesaler sells a product to a retailer, they apply GST at the applicable rate, having already paid GST to the manufacturer. The wholesaler can claim a credit for the GST previously paid.
3. Retailer Sales: When a retailer sells a product to the final consumer, they include GST in the selling price. The retailer can also claim an input tax credit on the GST paid to the wholesaler. Ultimately, the final consumer pays GST without the benefit of an input tax credit.

Benefits of GST

There are many benefits of it as follows:-

1. Cascading Tax Elimination: Before GST, a “tax on tax” scenario existed, where taxes were levied at each step of the manufacturing and distribution process. It eliminates this cascading effect by allowing businesses to claim input tax credits, thereby reducing the overall tax burden.
2. Uniform Tax Structure: It has unified and made India’s tax structure more transparent, reducing disparities and facilitating smoother cross-border business operations between states.
3. Ease of Doing Business: Consolidating multiple taxes under a single framework simplifies the compliance process, particularly benefiting small and medium-sized enterprises (SMEs). As a result, compliance costs have significantly dropped, and tax filing has been streamlined.
4. Increased Tax Compliance: Compliance has increased significantly since the implementation of a simplified tax system. The robust IT framework known as the GST Network (GSTN) ensures efficient input credit verification, tax filing, and payment processing.
5. Boost to Exports: Removing certain levies that previously raised production costs has enhanced the competitiveness of Indian goods in the global market. Additionally, exporters can claim refunds for the GST paid on exported products, further encouraging international trade.

Also Read:- what is Vat

GST Registration and Filing

Businesses must register for GST if their monthly turnover exceeds ₹20 lakhs (₹10 lakhs for states in the northeast). Filing GST returns involves submitting details about a company’s income, purchases, and sales periodically—yearly, daily, or monthly.

Tasks Businesses Can Perform on the GST Portal

• GST Registration
• Filing of Returns
• Tax Payment
• Claiming Input Tax Credits

Conclusion

In conclusion, the Goods and Services Tax has significantly transformed the tax structure in India. It has addressed many shortcomings of the previous tax system while offering numerous benefits.

Despite its challenges, GST represents a step toward a more efficient, transparent, and business-friendly tax environment. Undoubtedly, It will play a crucial role in fostering future growth and development as the Indian economy continues to evolve.