GST is a tax charged on the sale, manufacture, and consumption of goods & services. Goods & Service Tax (GST) has replaced various indirect taxes in India like excise duty, sales tax, VAT, Service tax, etc. It was introduced to simplify the complex maze of indirect taxes applied by Centre and State governments under the old system.
What is GST?
Goods & Services Tax (GST) is charged on the supply of goods & services in India including the state of Jammu and Kashmir. It is charged at all stages from production to final consumption with the credit of taxes paid at all the previous stages available for set off.
GST is a tax that is charged on every value addition from the manufacturer to the final consumer. Apart from that Input Tax Credit ( ITC) is available at all the previous stages to avoid cascading effect that is double taxation.
Applicability of Goods and Services Tax in India
Goods & Services Tax (GST) is a destination-based tax on the consumption of goods & services. So the ultimate burden of tax is to be borne by the final consumer. Since GST is levied only on value addition, it prevents the cascading effect of tax i.e. tax on tax. GST does not differentiate between goods and services and thus, the two are taxed at a single rate.
Replacement Of All Existing Indirect Tax
The introduction of Goods and Services Tax (GST) brought the concept of One Nation One Tax. GST has replaced almost all the existing state and central indirect taxes such as central excise duty, Central sales Tax, Surcharges & Cess, VAT, luxury taxes, Entry taxes, Taxes on lotteries and betting, entertainment taxes, service taxes, etc.
Problems In Earlier Indirect Tax
The earlier tax system suffered from various issues. A producer or manufacturer of goods is charged both excise duty on goods manufactured and value-added tax (VAT) on the sale of goods. Further, service tax was payable on all 'services except services in the Negative list of exempted services.
For example, when the Goods are manufactured & sold, both the central level Excise Duty and state-level VAT are levied. Though both were indirect taxes, setting off one tax against the credit of another tax was not possible; as Excise Duty was a central tax and VAT was a state-level tax. Moreover, Excise Duty was applicable only at the manufacturing level but not at a stage of distribution levels.
Also Read: GST Bill: India's Biggest Tax Reform
Weaknesses in VAT that led to GST
- Multiple indirect taxes
- Tax cascading, that is, double taxation
- Complex system
- Multiple points of taxation
- Different laws, rules and rates
- Difficulty in determining nature of the transaction - Goods vs Services
- The inability of states to levy service taxes
The Goods and Service Tax (GST) systems solve these problems. Concepts of manufacture or sale of goods or rendering of services are no longer applicable since the tax is now levied on the supply of Goods and Services.
Dual GST Model
India has adopted a dual Goods & Service Tax (GST) model. GST imposed by both Centre and States government on inter-state supply of goods and services is called the Central Goods & Services Tax (CGST).
GST levied by the States / Union territory are called the State Goods & Services Tax (SGST)/ Union Territory Goods & Services Tax (UTGST). Similarly, Integrated Goods & Service Tax (IGST) is charged by the Centre on every inter-state supply of goods and services. IGST is a sum of CGST & SGST/UTGST.
The GST website - www. gst.gov.in - was set up by the government to establish a single website for the taxpayer. It also provides a common and shared IT infrastructure between the Centre and the State government. This website is managed by GSTN.
Classification of Goods & Services
The Goods are classified on the HSN (Harmonized System of Nomenclature) code under the Goods and Service Tax (GST) system. The Services are classified under the Services Accounting Codes (SAC).
Exempt from GST
GST shall be levied on all supplies of Goods and/or services except alcoholic liquor for human consumption. On the following Products, GST shall not be levied, till a government notification has been issued.
- Petroleum Crude
- Motor Spirit ( Petrol)
- Natural Gas
- Turbine fuel
The Central Government retains the power to levy duties of excise on the above products, tobacco and tobacco products manufactured or produced in India.
- Each supplier is required to obtain registration in the state/union territory from where the supply of goods takes place if the aggregate turnover exceeds Rs 20 lakh during a financial year.
- However, this limit will be reduced to Rs 10 lakh, if the person is carrying on business in the special category states except for the state of Jammu and Kashmir.
- The limits of Rs. 20 lakhs and Rs.10 lakhs have been increased to Rs. 40 lakhs and Rs. 20 lakhs for goods W.e.f. 01.04.2019. However, there is no change in the limit for services.
The Composition Tax is available to provide relief to small businesses. It is a simple and easy method of paying taxes. This scheme can be opted by any taxpayer if the aggregate turnover is less than Rs. 1.5 crore. The Goods and Service Tax (GST) can be charged at a fixed rate of turnover.
The composition dealer has to pay tax under Reverse Charge wherever applicable. Central and state governments also provide certain provisions for granting exemption from payment of taxes on certain goods or services
Documents Required for Registration under Goods and Service Tax (GST)
- PAN Card proof of Sole proprietorship/Registration deed or Certificate of incorporation of the business.
- ID proof of Sole proprietorship/Registration deed or Certificate of incorporation of the business.
- Copy of cancelled cheque or bank statement
- Registered office documents like :
- Copy of Electricity Bill / Landline Bill / Water bill
- No Objection Certificate of the Owner
- Rent Agreement ( in case premises are rented)
Input tax credit (ITC)
Input tax credit (ITC) of CGST & SGST / UTGST is available throughout the production process, but cross setting off of input credit is not possible, i.e. CGST credit cannot be used for payment of SGST. Also, SGST credit cannot be used for the payment of CGST.
But cross-utilization is allowed between CGST/SGST /IGST, i.e. credit of IGST can be used for the payment of CGST /SGST / UTGST and vice versa.
Relevance of GST
- Easy compliance:- All taxpayer services such as registration, returns, payment, etc are available to taxpayers online. It has made the whole system of GST payment and returns filing easy and transparent
- Uniformity of tax rates and structures -GST increases certainty and the ease of doing business. The rules and rates are the same across the country.
- Removal of cascading effect - A system of seamless tax credits throughout the value chain, and across boundaries of the states have ensured that there is minimal cascading of taxes. This has reduced the hidden cost of doing business.
- Beneficial to businesses - GST prevent unhealthy competition among states and it brings a single tax system which makes it easier to do interstate business.
- Easy Tax Filing & Documentation - In GST, compliance & documentation is very easy. Return filing, tax payment, and refund process has been made hassle-free from a single website www.gst.gov.in
- More Employment - As GST reduce the cost of the products manufactured. This in turn increases the demand for the product and to meet the demand, supply has to go up. The requirement of more supply only met by increasing employment.
- Increase in GDP - As demand grows, production will also grow. This in turn increases gross domestic product (GDP).
- Reduction in Tax Evasion - GST is a single tax reform that includes various taxes, making the system efficient and difficult to evade taxes.
- More Competitive Product - As GST decreases the cascading effect of tax. This brings more advantages to businesses and the final consumer.
As per the present agreement, GST will be applicable in 4 main slabs from 5% to 28%. GST shall cover every goods and service sold in India.
- 0% Tax Rate – All commodity items such as food grains, rice and wheat fall under this slab.
- GST 5% Tax - All item such as spices, tea, sugar, oil fall in this category
- GST 12% Tax – Processed food items such as bread, cheese, readymade meals, milk, butter will fall in this tax slab.
- GST 18% Tax – Under this tax slab items such as soaps, oil, toothpaste, refrigerator, and smartphone are included.
- GST 28% Tax – This tax slab includes luxury products, luxury cars, tobacco and tobacco products, pan masala, gutkha, etc. There will be additional cess and clean energy cess at the highest tax rate.
In conclusion, we can say that the introduction of GST is one of the best decisions taken by the Government. With the introduction of GST revenue is smoothly flowing towards the Government. Also, goods and services are supplied at a cheaper cost to the final consumer with credit of tax paid at all the previous stages.