GST or Goods and Services Tax is a new tax regime introduced in mid-2017. It aims to simplify the process of tax collection and overhaul the entire indirect tax system. The main benefit is that it is streamlined and not very easy to avoid.
After almost a decade of planning, the new tax has been very successfully implemented but queries about it abound.
We aim to reduce this confusion and present concise answers to the 15 most common questions you have about GST.
GST FAQ – Get your GST Questions Answered
1. What is GST?
It is a single tax that absorbs many different taxes into it. These include:
- Sales Tax
- Service Tax
- Central Excise
- Entry Tax
- Customs Duty
- Entertainment Tax
Goods and Services Tax is levied at every stage of value addition. In this respect, it is absolutely similar to the VAT. There is a system of Input Tax Credit that provides sellers with the ability to claim a refund of the tax already paid at an earlier stage.
2. What are the GST Slabs?
GST Council has identified 1300 types of goods and 500 varieties of services.
These have been allocated into 4 tax brackets – 5%, 12%, 18%, and 28%.
14% of the items are in the 5% GST slab. These include medicines and foodstuffs such as paneer, coffee, tea, spices.
Nearly half fall in the 18% slab including jams, soups, mayonnaise, frozen vegetables, ice cream.
About 20% of the goods are in the highest tax bracket, including washing machines, refrigerators, cars, and other luxury goods.
3. Which items are outside GST?
Petroleum products and electricity are outside the purview of GST. These continue to attract various central and state-level taxes as before.
In almost every country GST is uniform on all products. Alcohol and petroleum products are huge revenue earners. Hence the government has not brought these under GST because it would reduce tax collection.
Cigarettes, cigars, chewing tobacco are charged 28% GST and an additional cess making effective tax rate 40%.
4. What are the advantages of GST?
Once adopted, it is easy to comply with GST.
The backbone of GST is a very robust IT network. A massive database keeps track of who purchased goods/services from whom. It reduces the cascading effect of taxation. There is also very little chance of tax leakage. Anyone who avoids it will be facing a loss due to a lack of Input Tax Credit. Read full guide about advantages of GST here.
5. What are the disadvantages of GST?
GST depends on compliance. If the vendor did not pay GST then it is impossible for any trader to receive a refund.
GST compliance is one of the major stumbling blocks that the government is facing. Steps are being taken to reduce Missing Trader Fraud.
The other disadvantage of GST is that the government is not quick enough to issue refunds. This has resulted in a huge loss of working capital for MSMEs.
6. Who decides the GST Rates?
GST Rates are decided by the GST Council. The members of the GST council are the Finance Ministers of the center and all the state governments. There are 33 members currently, and it is headed by Union Finance Minister Nirmala Sitharaman.
7. What are SGST and CGST?
Any item that is produced and sold inside a state attracts dual GST. Let us say it is ice cream that is taxed at 18%.
9% belongs to the state and is collected as SGST. The other 9% belongs to the central government and collected as CGST.
8. What is IGST?
The full form of IGST is Integrated Goods and Services Tax. It is levied on the inter-state supply of goods and services as well as imports and exports.
The proceeds of IGST are shared between the state and the central government as per agreement.
9. Who will collect GST?
The central government will levy and collect CGST and IGST. The states and union territories will levy and collect SGST.
10. What are the various GST Returns?
There are 16 types of GST Returns at the time of writing of which 2 and 3 are currently suspended and being reviewed.
- GSTR 1
- GSTR 1A
- GSTR 2
- GSTR 2A
- GSTR 3
- GSTR 3B
- GSTR 4
- GSTR 4 A
- GSTR 5
- GSTR 5A
- GSTR 6
- GSTR 7
- GSTR 8
- GSTR 9
- GSTR 9C
- GSTR 11
GSTR 1 and 9 are the most important.
GSTR 1 provides monthly details of sales, and GSTR 9 is the comprehensive annual return.
GSTR 1 has to be filed by the 11th of every following month.
GSTR 9 has to be filed on 31st December for the previous financial year that has ended on the previous 31st March.
11. Are all businesses liable to pay GST?
Businesses that operate inside a state have turnover over INR 20 lakhs are liable to pay GST. Those businesses that trade across states have to pay Goods and Services Tax without any lower threshold of turnover. Service providers have to pay tax regardless of their turnover.
12. What is the composition scheme?
The Composition Scheme has simplified returns for small business owners. Instead of 37 returns required for regular GST, the composition scheme allows only 4 quarterly returns and one annual return.
The business should not have sales exceeding INR 50 lakhs in the previous year to be eligible for the Composition Scheme.
13. What is the disadvantage of the composition scheme?
Those who opt for it have to pay tax at a flat rate on turnover between 0.5 and 2.5%. There is no provision for an Input Tax Credit. Also, they cannot sell goods outside their state.
14. What is GSTN?
15. Is GST software available?
There are several GST software available that help to calculate purchase, sales, and allow for easy populating and filing of GST forms. Most of them are capable of managing multiple bank accounts, generate bank reconciliation statements, and generate payroll.
Goods and Services Tax is a far-reaching change. It has wiped away over 70 years of confusion and replaced it with a clear, transparent, easy to understand, methodical tax mechanism.
However, every change is accompanied by turmoil. Most of the problems have been overcome by ceaseless cooperation between various chambers of commerce and the government.
Within the next two years, GST will undoubtedly transition to being a smooth and flawless system of indirect taxes.