What is GST? Important points to know about the taxes on goods and services

Updated on: 31 August 2023

Published on: 29 August 2023

Before GST, there were numerous taxes on goods and services. This included VAT, excise, service tax and more. The multitude of taxes made the taxation process increasingly challenging to comply with. To resolve this, GST was proposed in the year 2000. However, it wasn’t until 2017 that GST implementation in India truly began.

Read on to know more about what is GST and other details about GST.

Introduction of GST in India

GST implementation in India did not happen until around 17 years after it was first proposed. To help the country adapt to this new tax system, the introduction of GST in India happened after CST was phased out. Since its implementation, compliance with indirect taxation norms has become simpler and easier.

Purpose of GST in India

Prior to GST, numerous taxes were levied on goods and services, such as CST, excise, VAT and more. As such, one of the significant purposes of introducing GST in India was to subsume or replace these various taxes on goods and services. 

It actually helped in simplifying the taxation process and reducing the burden on the taxpayers. It also made compliance easier and helped curb tax evasion. GST also helped eliminate the cascading effect of taxes, as you can now easily set off your input and output tax.

GST is also helping improve the logistics and distribution system because of a single system of taxation. This has resulted in improved turnaround time, minimised cycles, easy consolidation and other benefits.

Also Read: Is personal loan interest tax deductible

How Does GST Work?

GST in India is a multi-stage and destination-based tax. This means that GST is applicable at every stage of the sale and paid by the consumer/buyer of the product. 

Here is an example to help you understand GST working in India. 

A manufacturer pays GST on the raw materials purchased and subsequently levies GST for the product sold, which was created using the raw materials. This cycle continues till the product reaches the end consumer.

The payment of GST happens through the GST return filing system. During this process, the taxpayer sets off the tax received against the tax paid and the difference will be the liability. If the tax paid is more than the tax received, they will have a positive input balance. However, if the case is the opposite, they will have to pay the difference as GST tax.

The GST rate depends on the type of product and the type of GST applicable. Currently, the tax slabs for GST are 5%, 12%, 18% and 24%. 

Types of GST in India

There are four types of goods and service tax in India and their applicability depends on the place of supply, transaction and sale. The four types of taxes are:

SGST (State)

This is applicable when the supply takes place within a state and the portion goes to the State government.

CGST (Central)

This is applicable when there is an intra-state supply of goods and services. This portion goes to the Central government.

IGST (Integrated)

This tax applies when the supply is interstate, i.e., between two states and this tax component goes to the states involved in the transaction. 

UTGST (Union Territory)

This tax is applicable when the supply takes place within the Union Territories of India. The tax component is in addition to the CGST and SGST levied on the product.

Armed with this information on what is GST in India, ensure that you pay the right taxes on goods and services and file your returns as per the regulations. Delayed returns can result in penalties, putting your finances and business at risk. In times of a cash crunch, you can rely on financing solutions like personal loans. 

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FAQs on GST in India

What are the 4 types of GST?

The four types of taxes on goods and services are CGST (Central), SGST (State), IGST (Integrated) and UTGST (Union Territory). 

What is the main purpose of GST?

The main purpose of GST implementation is to centralise and unify the indirect taxation system. After its implementation, many taxes were subsumed, such as VAT, excise, service tax and others. Apart from this, the purpose of GST implementation was to curb tax evasion and reduce costs. 

Who pays GST?

The buyer or consumer is liable to pay taxes on goods and services to the seller, who in turn remits the same to the government by filing a GST return.

When was GST launched?

The GST implementation date was July 1st, 2017. It took over a decade, 17 years, for the law to evolve and come into force across the nation.

What is the limit of GST?

The GST registration limit is ₹40 Lakhs for businesses across India. However, it is ₹20 Lakhs for businesses operating in certain states.

What are the benefits of GST?

One of the main benefits of GST is that it replaced numerous indirect taxes and helped simplify the taxation system. It has also helped reduce the tax burden and make compliance easier.

What is a GST return?

A GST return is a document used in the process of paying the appropriate tax to the government. On it, you will see the amount of tax you have paid and received; the net figure will be your GST liability. 

Is GST good or bad?

Since its implementation, GST has resulted in a significant positive impact on the Indian tax structure and economy. With a simplified structure, compliance has become easier and the tax burden has been reduced for the consumer. This has ultimately helped boost the nation’s economy.

What is GST supply?

Supply, under GST, refers to the taxable event wherein a supply of goods and services takes place. There are several conditions that a transaction has to meet for it to be considered as a supply.

What is the fee for GST?

There is no fee for GST registration. However, if there is a delay in filing the GST return, you are liable to pay a fine of ₹10,000 or 10% of the outstanding amount. Keep in mind that the fine amount may change as per the amendments to the law.

What is the meaning of GST?

The full form of GST is Goods and Services Tax. As such, it refers to the tax levied on goods and services sold within the country.