Basics of GST In India: What is GST? Who Needs to Pay GST? Purpose of introducing GST in India and More

This article will provide you with a brief overview of the Goods and Service Tax, including what it is, when it came into effect, and how it has impacted the Indian economy.

What is GST?

GST, which stands for Goods and Service Tax, is a type of indirect tax that was introduced in India on the 1st of July, 2017. It is a value-added tax that is imposed on the manufacturing, sale, and consumption of both goods and services. 

To put it simply, GST is a tax collected at the place where the final consumer uses the goods or services, regardless of the journey these products have taken to get there. 

At each stage of the supply chain, businesses are allowed to claim a credit for the taxes they've already paid on their purchases or inputs. The result is that the tax burden ultimately falls on the shoulders of the goods or service consumers.

One of the key changes that GST has brought to the old tax system is the elimination of the cascading effect, meaning taxes on taxes. 

Additionally, it has removed the distinction between goods and services, focusing only on the concept of supply. GST has also introduced concepts like E-way bills, TDS (Tax Deducted at Source), and TCS (Tax Collected at Source) to the world of indirect taxes.

It offers the benefit of a single-window clearance system, reducing the burden of multiple taxation on businesses. Furthermore, GST has led to increased transparency in the tax system, among other positive changes.

When Did GST Come into Effect in India?

After numerous constitutional amendments and years of deliberation, the Goods and Service Tax (GST) was officially implemented in India on the 1st of July, 2017. 

This monumental step had its roots in the year 2004 when it was initially proposed by the Kelkar Task Force. 

Over the years, this proposal went through extensive discussions, approvals, and debates, leading to the eventual rollout of GST in 2017. This marked one of the most significant tax reforms in the Indian economy since gaining independence.

Purpose of Introducing GST in India

The primary purpose of introducing Goods and Service Tax (GST) in India was to simplify and streamline the country's complex tax system. 

This comprehensive indirect tax reform aimed to bring various taxes, such as excise duty, service tax, and value-added tax (VAT), under a single umbrella. The key objectives of implementing GST were:

1. Eliminating Tax Cascading: GST replaced the cascading effect of taxes, where taxes were levied on top of other taxes. With the help of GST, taxes are applied only on the value added to each level of the supply chain.

2. One Nation, One Tax: It aimed to create a common national market by unifying the tax structure across all states and union territories. This helped in reducing economic disparities and simplifying inter-state trade.

3. Reducing Tax Evasion: The system promotes transparency and accountability through digital record-keeping and tax compliance. This, in turn, reduces tax evasion.

4. Ease of Doing Business: GST simplified compliance procedures and made it easier for businesses to register and file taxes online, thereby improving the ease of doing business in India.

5. Boosting Economic Growth: By creating a uniform tax structure and reducing the cost of doing business, GST was expected to boost economic growth and attract foreign investment.

6. Harmonization of Taxes: It sought to harmonize tax rates and regulations, making it easier for businesses to understand and comply with the tax system.

7. Simplifying Tax Structure: GST eliminated the distinction between goods and services, simplifying the overall tax structure.

8. Reduction in Corruption: With a simplified tax system and reduced human interface, the chances of corruption and bribery were expected to decrease.

Overall, GST aimed to transform India's taxation system, making it more efficient, transparent, and business-friendly, ultimately contributing to the country's economic development.

GST Structure in India

The Goods and Services Tax (GST) system in India is designed to follow a federal structure, mirroring the governance model with both central and state authorities. 

This structure is known as the dual or concurrent model. It involves the simultaneous levy of GST by both the central and state governments. The GST framework in India is categorized into four main components:

1. IGST - Integrated Goods and Service Tax: This component is applicable to interstate transactions, where goods and services move from one state to another. The total revenue obtained from IGST is equally divided between the central and state governments.

2. CGST - Central Goods and Service Tax: CGST is levied by the central government on intra-state transactions, meaning transactions that occur within the same state. The revenue collected under CGST remains with the central government.

3. SGST - State Goods and Service Tax: SGST is imposed by the state government on intra-state transactions, similar to CGST. The money collected as SGST goes to the state government where the transaction occurred.

4. UGST - Union Territory Goods and Service Tax: This component applies to the union territories of India. Similar to SGST and CGST, UGST is levied on transactions that occur within a union territory, and the revenue remains within that territory.

One of the significant changes brought by GST is its extension to all of India, including the state of Jammu and Kashmir. This was different from the earlier Service Tax Act of 1994. 

The introduction of GST in the entire country standardized the tax system and made it consistent across regions, reducing complexities associated with state-specific tax laws.

Understanding Different Types of GST

1. SGST (State Goods and Services Tax): SGST stands for State Goods and Services Tax. It is a tax imposed by the State Government on transactions involving goods and services that occur within the same state, known as intrastate transactions. Under SGST, the tax amount collected is primarily used by the respective State Government. The SGST rate matches the rate of CGST for a particular product or service.

2. CGST (Central Goods and Services Tax): CGST stands for Central Goods and Services Tax. This tax is levied by the Central Government on transactions involving both goods and services that take place within the same state, making them intrastate transactions. The revenue obtained under CGST goes to the Central Government. The CGST rate corresponds to the rate of SGST for a specific product or service.

3. UTGST (Union Territory Goods and Services Tax): UTGST stands for Union Territory Goods and Services Tax. It is a tax imposed by the Union Territory Government on the supplies of goods and services within union territories, which are also intrastate transactions. The tax liability under UTGST is first set off against UTGST and then against IGST input tax credit. UTGST serves the same purpose as SGST but is applicable within the union territories. The UTGST rate aligns with the rate of CGST for a particular product or service.

4. IGST (Integrated Goods and Services Tax): IGST stands for Integrated Goods and Services Tax. It is a tax imposed by the Central Government on transactions involving both goods and services between states (interstate) and on imported goods and services.

Under IGST, the tax liability is first set off against IGST and then against CGST, SGST, or UTGST input tax credit. The revenue collected through IGST is managed by the Central Government and is later distributed to various states as necessary.

Understanding GST Tax Rates in India

GST (Goods and Services Tax) was introduced in India to achieve a unified tax system. However, due to various reasons such as economic disparities, resistance to change, and the complexity of merging diverse tax rates, India implemented GST with different tax rates. Here are the key GST tax rates in India:

GST Tax Rates for Composition Taxpayers:

- 1%: Applicable to traders and manufacturers

- 5%: Applied to suppliers of food and beverage services, including restaurants

GST Tax Rates for Goods:

- 0.25%

- 3%

- 5%: This rate covers items like coal, household necessities, cashew nuts, ice, atta chakki (flour mill), hearing aids, medicines, and more.

- 12%: Includes books, notebooks, intraocular lenses, processed food, ketchup, playing cards, computers, and more.

- 18%: Encompasses products such as aluminum foil, CCTV cameras, set-top boxes, swimming pools, kajal sticks, printers (without multifunction capabilities), toothpaste, soap, hair oil, industrial goods, and more.

- 28%: The highest tax rate is applicable to luxury goods like bikes, cars, cigarettes, aerated drinks, air conditioners, refrigerators, and more.

In addition to these rates, certain categories are subject to cess as well. 

GST Tax Rates for Services:

- 5%: Applicable to services such as rented cabs, railways, goods transport services, advertisements in print media, and specified job work.

- 12%: Covers services like business class air travel, accommodation with tariffs ranging between Rs 1,000 to Rs 2,500, and non-air-conditioned restaurants.

- 18%: This rate is widely applied to services, including outdoor catering, specified construction services, and all others for which a specific rate has not been prescribed. It serves as a general rate for the taxation of services under GST.

- 28%: The highest tax rate applies to luxury services such as luxurious hotels, go-karting, race clubs, entertainment entries like amusement parks, gambling, and more.

It's important to note that GST rates have evolved since their introduction and may continue to change over time. While the aim of a single tax rate is yet to be realized, there may be more harmonization in rates in the future. To check the tax rate for specific goods or services, you can refer to official sources for the most up-to-date information.

Also Read: How To Pay TDS Online in 2023: A step-by-step Guide

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