What is GST (Goods and Service Tax)? Important points you need to know

The Government of India brought Goods and Services Tax to simplify indirect taxation. Before its implementation, there were numerous taxes on the supply of goods and services, including: 

• Value-Added Tax (VAT) 
• Excise Duty
• Service Tax and more 

The multitude of taxes made the process increasingly challenging to comply with. However, the new multi-stage and destination-based tax has resolved this issue. Read on to learn more about what GST is and other details about GST.

History of GST in India

In 2000, the Kelkar Task Force on Indirect Taxes proposed replacing the contemporary fragmented indirect tax structure with a unified GST regime. However, it was not until 2011 that a Constitution Amendment Bill was introduced in the Parliament for discussion. It could not be implemented then because of certain challenges flagged by states regarding compensation and other issues. 

Introduction of GST in India

After further deliberations between the States and the Central Government, the latter presented a re-drafted bill in the Parliament in 2014. Here’s how the Constitution (122nd Amendment) Bill of 2014 was passed in the following years:

• The Lok Sabha passed this bill in May 2015 and the Rajya Sabha passed it in August 2016 with certain amendments
• The President of India gave assent in September 2016 after the required number of states ratified it
• The government formed a Council, consisting of the Union Finance Minister and representatives from all states and UTs, to shape the framework
• On July 1, 2017, the government implemented the new taxation across the nation in a joint sitting of both houses.  

Purpose of GST in India

The Central Government introduced the new system with the following objectives:

• To subsume or replace various taxes such as CST, excise, VAT and more
• It helped in simplifying the taxation process and reducing the burden on the taxpayers 
• It 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
• It also assists in improving the logistics and distribution system because of a single system of taxation
• It has resulted in improved turnaround time, minimised cycles, easy consolidation and other benefits

Also Read: Impact of GST on Personal Loans

How Does GST Work

It is a multi-stage and destination-based tax. This means that it 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 working of GST 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 rate depends on the type of product and the type of GST applicable
• Currently, the tax slabs are 5%, 12%, 18% and 28% 

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.

Registration Under GST

The following tax-paying entities should register for GST:

• Taxpayers registered under the pre-GST laws
• Businesses with a turnover of more than ₹10 lakhs or the specified threshold
• Casual and Non-Resident taxable persons
• Agents of suppliers
• Input service distributors
• An individual supplying through an e-commerce aggregator
• E-commerce aggregators
• Individuals supplying online information, database access or retrieval services from outside India to a person within India  

Armed with this information, ensure that you pay the right taxes and file your returns as per the regulations to avoid penalties that can put your finances and business at risk. 

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FAQs on GST in India

What are the 4 types of GST?

The following are the four types of taxes on goods and services: 

• CGST (Central) 
• SGST (State)
• IGST (Integrated) 
• UTGST (Union Territory) 

What is the main purpose of GST?

The main purpose of this tax includes the following: 

• To centralise and unify the indirect taxation system
• Many taxes were subsumed after its implementation, such as VAT, excise, service tax and others 
• The purpose of GST implementation also involves curbing tax evasion and reducing costs

Who pays GST?

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

When was GST launched?

The implementation of this taxation happened on July 1, 2017. It took nearly two decades for the law to evolve and come into force across the nation.

What is the limit of GST?

Check the registration limit for goods and services tax below:

• The turnover limit for companies supplying goods is ₹40 lakhs
• However, it is ₹20 lakhs for businesses supplying services

What are the benefits of GST?

Some of the main benefits include the following: 

• 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?

It is a document used in the process of paying the appropriate tax to the government. You will find the following information on it: 

• The amount of tax you have paid and received 
• The net figure of your GST liability 

Is GST good or bad?

Since its implementation, it 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?

It refers to the 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 registration. However, if there is a delay in filing the return, you are liable to pay a fine of up to ₹10,000. The 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.

References:
https://gstcouncil.gov.in