Goods and Service Tax (GST) in India explained

If you are a savvy shopper, you may discover that things are charged at a little higher rate than the real cost of the item. This price rise is due to the addition of the Goods and Service Tax (GST) to the product's advertised price. GST in India is a multi-stage, all-encompassing tax system that applies to the sale of goods and services. However, why are we paying more for the item? We shall learn what GST is and why it is important in this article.

 

What is Goods and Service Tax (GST)?

 

The Goods and Services Tax (GST) is a tax on goods and services. It is an indirect tax that has mostly substituted several other indirect taxes in India, such as excise duty, VAT, and services tax. In other words, the GST is a tax charged on the production of goods and services that replaces all the other indirect taxes that were charged before.

 

In India, the Goods and Services Tax (GST) is a multi-stage, destination-based tax that is charged on every value addition. GST is a single domestic indirect tax regime that applies to the entire country. It is the only tax that is applicable throughout the entire country.

 

Multi-stage:

 

From the point of manufacturing through the point of ultimate sale to the consumer, an object goes through several changes of hands.

 

Consider the steps that follow:

 

• the acquisition of raw commodities

• Manufacturing or production

• Finished products warehousing

• supplying wholesalers

• The product is sold to stores.

• Selling to the general public

 

Value Addition:

 

A biscuit producer purchases flour, sugar, and other ingredients. When sugar and flour are combined and baked into biscuits, the value of the inputs rises.

 

The biscuits are subsequently sold to a warehousing agent, who puts vast numbers of biscuits into cartons and labels them. This gives the biscuits still another layer of value. The warehouse agency then sells the item to the merchant.

 

The merchant packages the biscuits in lesser amounts and spends on their promotion, enhancing the worth of the biscuits. The value additions, or the monetary worth added at each stage to reach the ultimate sale to the end client, are subject to GST.

 

Destination-Based

 

Consider items made in Maharashtra and sold in Karnataka to the end consumer. The full tax money would go to Karnataka and not Maharashtra because the Goods and Service Tax is imposed at the place of consumption.

 

The origin of GST in India:

 

The Goods and Services Tax (GST) was introduced in India on July 1, 2017. However, the implementation of the new tax system began a long time ago. In 2000, India's then-Prime Minister, Atal Bihari Vajpayee, established a team to design the GST legislation. A task team decided in 2004 that a new tax structure should be implemented to improve the tax system at the time.

 

In 2006, the Finance Minister suggested that GST be implemented on April 1, 2010, and in 2011, the Constitution Amendment Bill was enacted to allow the GST legislation to be implemented. The Standing Committee began discussing GST in 2012, and a year later, it presented its report on GST. Arun Jaitley, the new Finance Minister at the time, reintroduced the GST bill in Parliament in 2014, and it was enacted in the Lok Sabha in 2015. Despite this, the law's implementation has been postponed since it was not enacted by the Rajya Sabha.

 

GST was implemented in 2016, and the updated model GST statute was approved by both houses of Congress. India's President has also given his approval. In 2017, the Lok Sabha passed four supplemental GST bills, which the Cabinet then approved. The Rajya Sabha then enacted four more GST Bills, and the new tax system went into effect on July 1, 2017.

 

Why was GST introduced in India?

 

The GST service tax's primary goals are as follows:

 

To realize the philosophy of 'One Nation, One Tax,'

 

Multiple indirect levies that existed under the former tax system have been replaced with GST. The benefit of having a single tax is that every state applies the same rate to a certain product or service. With the Central Government deciding on tax rates and policies, tax administration is simplified. Common legislation, such as e-way bills for goods movement and e-invoicing for transaction reporting, may be enacted. Tax compliance is also improved since individuals are not burdened with various return forms and deadlines. Overall, it is a uniform system of indirect tax compliance.

 

To include the bulk of India's indirect taxes

 

Previously, India had different indirect taxes, such as service tax, Value Added Tax (VAT), Central Excise, and so on, that were imposed at various supply chain stages. Some taxes were regulated by the states, while others were administered by the federal government. There was no uniform and centralized tax on both commodities and services. As a result, GST was enacted. GST merged all main indirect taxes into one. It has considerably lowered the compliance burden on taxpayers while also making tax administration easier for the government.

 

To avoid the tax cascade effect

 

One of the key goals of GST was to eliminate the cascading impact of taxes. Previously, owing to differing indirect tax regulations, taxpayers could not offset one tax's benefits against another. For example, excise charges paid during manufacturing could not be offset against VAT due wholesale. This resulted in a tax cascade. The tax levy under GST is solely on the net value added at each level of the supply chain. This has helped to avoid the cascading impact of taxes and has contributed to the smooth flow of input tax credits across both products and services.

 

To combat tax evasion

 

GST regulations in India are significantly stricter than any previous indirect tax legislation. Under GST, taxpayers may only claim an input tax credit on invoices filed by their respective suppliers. In this manner, the possibilities of obtaining input tax credits on forged invoices are reduced. The use of e-invoicing has strengthened this goal even further. Furthermore, since GST is a countrywide tax with a centralized monitoring system, the crackdown on defaulters is far faster and considerably more efficient. As a result, GST has significantly reduced tax evasion and tax fraud.

 

To broaden the tax base

 

The Goods and Services Tax (GST) has aided in broadening India's tax base. Previously, each tax statute had a distinct threshold limit for registration depending on turnover. Because GST is a combined tax applied on both commodities and services, it has expanded the number of tax-registered enterprises. Furthermore, stronger legislation governing input tax credits has aided in bringing some unorganized industries into the tax net. Consider India's building sector.

 

Online business practices

 

Previously, taxpayers faced several challenges while interacting with various tax agencies under each tax code. Furthermore, although return filing was done online, the majority of the evaluation and reimbursement processes were done on paper. GST processes are now nearly exclusively done online. Everything is done with the press of a button, from registration to return filing to refunds to e-way bill production. It has greatly improved the general convenience of doing business in India and greatly eased taxpayer compliance. The government also intends to launch a centralized site for all indirect tax compliance, including e-invoicing, e-way bills, and GST returns filing, shortly.

 

A better logistics and distribution system

 

A single indirect tax system eliminates the need for different forms of paperwork for the provision of products. GST reduces transportation cycle times, improves supply chain and turnaround times, and leads to warehouse consolidation, among other advantages. The abolition of interstate checkpoints under GST's e-way bill system is most favorable to the industry in terms of enhancing transit and destination efficiency. Finally, it aids in the reduction of high logistics and storage expenses.

 

To encourage competitive pricing and boost consumption

 

The implementation of GST has also resulted in increased consumption and indirect tax collections. Because of the previous regime's tax cascading impact, goods prices in India were higher than in worldwide markets. Even amongst states, lower VAT rates in certain states resulted in an imbalance in purchases in these jurisdictions. Having consistent GST rates has led to overall competitive pricing in India and throughout the world. As a result, consumption has grown and revenues have climbed, achieving yet another crucial goal.

 

The working of GST: 

 

Here is how the goods and service tax is added to the products:

 

• Manufacturer: The manufacturer must pay GST on the raw materials acquired as well as the value-added to the product.

 

• Service Provider: In this case, the service provider must pay GST on the amount paid for the product as well as the value-added to it. The manufacturer's tax, on the other hand, may be deducted from the total GST that must be paid.

 

• Retailer: The retailer must pay GST on the goods acquired from the distributor as well as the margin that was added. The retailer's tax, on the other hand, may be deducted from the total GST that must be paid.

 

• Consumer: GST must be paid by the consumer on the acquired goods.

 

Types of GST:

 

According to the newly established tax structure, there are four categories of GST:

 

1. Integrated Goods and Services Tax, abbreviated as IGST.

 

The Integrated Products and Services Tax (IGST) is a tax levied under the GST system on interstate (between two states) supplies of goods and/or services, as well as imports and exports. The IGST Act governs the IGST. The Central Government is in charge of collecting taxes under the IGST. After collecting taxes, the Central Government distributes them to several states. For example, if a dealer from West Bengal sells items for Rs.5,000 to a consumer in Karnataka, IGST would apply since the transaction is interstate. If the GST rate on the items is 18%, the dealer will charge Rs.5,900 for the goods. The IGST collected amounts to Rs.900, which would be paid to the Central Government.

 

 

2. State Goods and Services Tax, abbreviated as SGST.

 

The State Goods and Services Tax (SGST) is a tax levied under the GST system on intrastate (inside the same state) transactions. Both State GST and Central GST are charged on intrastate supplies of goods and/or services. The State GST or SGST, on the other hand, is charged by the state on products and/or services bought or sold inside the state. The SGST Act regulates it. The income generated by SGST is entirely claimed by the state government. For example, if a West Bengal merchant sells items for Rs.5,000 to a West Bengal consumer, the GST applicable on the transaction would be a combination of CGST and SGST. If the GST rate is 18 percent, it will be split evenly into 9 percent CGST and 9 percent SGST. In this situation, the total sum charged by the merchant would be Rs.5,900. The money generated by GST under the heading of SGST, i.e. Rs.450, would be sent to the West Bengal state government in the form of SGST.

 

 

3. Central Goods and Services Tax, abbreviated as CGST.

 

The Central Goods and Services Tax (CGST), like State GST, is a tax levied under the GST system that is levied on intrastate (inside the same state) transactions. The CGST Act governs the CGST. The Central Government is in charge of collecting the CGST income. As previously stated, if a merchant from West Bengal sells items worth Rs.5,000 to a consumer in West Bengal, the GST applicable on the transaction would be a combination of CGST and SGST. If the GST rate is 18 percent, it will be split evenly into 9 percent CGST and 9 percent SGST. In this situation, the total sum charged by the merchant would be Rs.5,900. The Central Government would get Rs.450 from the money generated by GST under the heading of CGST.

 

 

4. Union Territory Goods and Services Tax, abbreviated as UTGST.

 

The Union Territory Products and Services Tax (UTGST), which is collected on the delivery of goods and/or services in India's Union Territories (UTs), is the equivalent to the State Goods and Services Tax (SGST). The UTGST is levied on products and/or services supplied in the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra and Nagar Haveli, and Lakshadweep. The UTGST Act governs the UTGST. The Union Territory government collects the money generated by UTGST. In Union Territories, the UTGST replaces the SGST. As a result, in Union Territories, the UTGST will be imposed in addition to the CGST.