Understanding And Everything About GST (Goods And Services Tax) : A Comprehensive Overview
GST stands for Goods and Services Tax. It is an indirect tax that has taken the place of other indirect taxes in India, including services tax, VAT, and excise duty. The Goods and Services Tax Act was passed by Parliament on March 29, 2017, and it went into effect on July 1ST. Stated differently, the provision of goods and services is subject to the Goods and Service Tax (GST). Each value addition is governed by India's extensive, multi-phase, destination-based Goods and Services Tax Law. GST is a single domestic indirect tax law that applies to the entire nation after absorbing the majority of indirect taxes.
Objectives of GST
• One nation One Tax
Under the former tax system, a number of indirect levies were replaced by the GST. Because there is only one tax, each state charges the same amount for a given good or service. With the Central Government setting the rates and regulations, tax administration is made simpler. Common laws, such as e-way bills for the transportation of products and e-invoicing for the reporting of transactions, can be introduced. Due to the absence of several return forms and deadlines, tax compliance is also improved. All things considered, the indirect tax compliance system is uniform.
• Replacement of other Indirect Tax
In the past, India imposed a number of indirect taxes at various points throughout the supply chain, including service tax, value-added tax (VAT), central excise, etc. The central government controlled some taxes while the states controlled others. A single, centralized tax on products and services did not exist. As a result, GST was implemented. All of the main indirect taxes were combined into one under the GST. It has made it much easier for the government to administer taxes and significantly lessened the burden of compliance for taxpayers.
• To eliminate the tax cascading effect
Eliminating the cascading effect of taxes was one of the main goals of the GST. In the past, taxpayers were unable to offset the tax credits from one tax against the other because of different indirect tax regulations. For instance, the VAT due at the time of sale could not be offset by the excise taxes paid during manufacturing. A cascade of taxes resulted from this. Only the net value contributed at each stage of the supply chain is subject to the GST tax levy. This has facilitated the smooth transfer of input tax credits across goods and services and helped to eliminate the cascading effect of taxes.
• To prevent tax evasion
India’s GST regulations are far stricter than any of the previous indirect tax regimes. Taxpayers are only eligible to receive an input tax credit under GST on invoices that their suppliers have uploaded. In this manner, there is little likelihood of obtaining input tax credits on fake invoices. E-invoicing’s introduction has strengthened this goal even more. Additionally, the GST’s countrywide nature and centralized surveillance system make it much easier and faster to crack down on defaulters. Because of this, the GST has significantly reduced tax fraud and tax evasion.
• To expand the base of taxpayers
The GST has contributed to the expansion of India’s tax base. There used to be a variable threshold limit for registration depending on turnover under each tax code. Since GST is a combined tax that is applied to both goods and services, the number of businesses that are registered has expanded. Additionally, the more strict rules relating to input tax credits have contributed to the inclusion of some informal sectors in the tax system. Take India’s building sector, for instance.
• Online processes to facilitate business interactions
In the past, taxpayers had to deal with numerous tax agencies under various tax laws, which was very difficult. Additionally, the majority of the assessment and reimbursement processes were conducted offline, even if the return filing process was done online. Nowadays, practically all GST procedures are completed online. From registration to return filing, refunds, and e-way bill production, everything is completed with a single click. It has greatly streamlined taxpayer compliance and made conducting business in India much easier overall. Additionally, the government intends to launch a centralized platform shortly for all indirect tax compliance, including filing GST returns and electronic method bills and invoices.
• A better approach for distribution and logistics
For the provision of products, a unified indirect tax system eliminates the need for numerous documents. Among other advantages, GST reduces transportation cycle times, enhances supply chain efficiency, and promotes warehouse consolidation. The elimination of interstate checkpoints is particularly advantageous to the industry in terms of increasing transit and destination efficiency under the GST’s e-way bill system. In the end, it reduces the high costs of warehousing and logistics.
• In order to encourage competitive pricing and boost consumption
Indirect tax collections and consumption have both increased since the introduction of the GST. India’s prices were higher than those of international markets because of the previous regime’s cascading taxation. Even between states, there was an imbalance in purchases because of some states’ lower VAT rates. Having consistent GST rates has helped to make prices more competitive both domestically and internationally. As a result, consumption has increased and revenues have increased, achieving another significant goal.
Indirect taxes before GST
Both the state and the federal government imposed numerous indirect taxes under the previous indirect tax system. Value Added Tax (VAT) was the primary tax collection method used by states. Rules and regulations varied from state to state.
The central levied taxes on the sale of products between states. Central State Tax, or CST, was imposed when products were sold between states. Together, the state and the central government imposed indirect taxes like the entertainment tax, the octroi, and local taxes. As a result, the taxes imposed by the state and the central government frequently overlapped.
The taxes under the pre-GST regime are listed below:
Taxes which are subsumed in GST
- Central excise duty
- Duties of excise
- Additional duties of excise
- Additional duties of customs
- Cess
- State VAT
- Central state tax
- Purchase tax
- Luxury tax
- Entrainment tax
- Entry tax
- Taxes on advertisement
- Taxes on lotteries , betting and gambling
Taxes which are not subsumed in GST
- Basic custom duty
- Tax on petrol and diesel
- Tax on tobacco and alcohol
- Stamp duty on property
- Electricity duty
- Vehicle tax
- Property tax
How the Indian Economy Has Gained from GST?
An important change to India’s tax system was the switch to the GST. A single, clear framework was put in place across the country, giving businesses and consumers never before seen insight into their tax responsibilities. The Indian economy benefited from this revolutionary shift in a number of important ways:
• Simplified Tax Structure:
Compliance processes have been made simpler by the move from several systems to a single framework. Companies no longer have to deal with several tax regimes, which greatly eases their compliance and lessens the administrative load.
• Increased Tax Compliance:
The digitalization of GST, which includes electronic paperwork and online submissions, has greatly decreased tax evasion. Increased government income collection as a result of rising compliance rates has strengthened the economy.
• Ease of Doing Business:
Smooth interstate operations have been made possible by the removal of various state tax laws. This development has increased India’s attractiveness to both foreign and indigenous businesses, creating a more competitive economic climate.
• Economic formalization:
The system promotes small business registration, enhancing the collecting of economic data and enhancing the production of tax income. This formalization trend has made the business environment more open and responsible.
• Decreased Cascading Effect:
Over time, businesses and consumers have benefited from the reduction of prices for many products brought about by the removal of several taxes layers.
Drawback of GST
• Cost increases as a result of purchasing software
Companies must routinely monitor GST developments. For GST law and portal upgrades, they need to make sure that their accounting or ERP software is updated in real time. If not, they can choose a GST compliance solution to guarantee on-going adherence. However, in order to ensure effective use of the new GST software, both choices require financial investment and time commitment for employee training.
• Failure to comply with GST may result in fines.
Every month, more and more small businesses in India are adjusting to the GST reforms. When the law was originally enacted, they had to learn how to file returns on time, issue invoices that were GST-complaint, and comply with digital record-keeping. This implies that required information such the GSTIN, the place of supply, the HSN codes, and others should have been included in the GST-complaint invoice that was issued.
• Operating costs increased as a result of GST.
The GST altered the process for filing returns and paying taxes. In order to remain GST-compliant, businesses have to hire tax experts. Small businesses had to pay more to hire experts, which led to a gradual increase in costs. Additionally, companies had to provide GST compliance training to their staff, which raised overhead costs even more.
• Making the switch to a fully online taxing system
Businesses now have to use online return filing and payment processing instead of pen and paper invoicing and filing. Some smaller enterprises found it difficult to adjust to this.
• The tax burden is higher for SMEs.
The GST has presented challenges for smaller companies, particularly those in the industrial sector. Previously, companies were only required to pay excise duty if their annual turnover exceeded Rs. 1.5 crore. However, any company that makes more than Rs. 20 lakh now has to pay GST.
However, SMEs with a turnover of up to Rs. 75 lakh are eligible to use the composition plan, which reduces compliance and requires only 1% of turnover tax in place of GST. The hitch is that these companies won’t be eligible for any input tax credits after that. For many SMEs, the choice between higher taxes and the composition scheme (and hence no ITC) remains difficult.
Terminologies in GST
1. The CGST, SGST/UTGST, and IGST
- These are the three taxes that are applicable under this system.
- CGST: The tax collected by the Central Government on an intra-state sale, such as one that takes place within State, is known as the CGST.
- SGST / UTGST: The tax collected by the state government or Union Territories on an intra-state sale, such as one that takes place within State, is known as the SGST/UTGST.
- IGST: The Central Government collects the IGST tax on interstate sales, such as those between one states to other.
2. Input Tax Credit
The GST paid or due on purchases of goods and services is known as input tax. It comprises GST paid to the State Government (SGST), CGST paid to the Central Government , and IGST (Integrated GST), which is levied on imports and interstate sales. The reversal of GST paid on goods and services purchases is known as an input tax credit. It can be deducted from the output tax that must be paid on sales.
This is done in an effort to lessen the tax-on-tax effect, or cascading effect. However, taxpayers who choose the composition levy are not eligible for the input tax credit.
3. Taxable Individual
Anybody who operates a business in India and is registered or needs to be registered under the GST Act is considered a taxable person. Anyone involved in economic activity, such as trading or business, is considered a taxable person. Any person, HUF, company, firm, LLP, AOP/BOI, corporation, government company, body corporate incorporated under foreign law, cooperative society, local government, trust, and artificial juridical person are all considered persons. Who is required to register?
- Every individual registered under an earlier law (such as excise, VAT, service tax, etc.) will also register under GST.
- If a registered business is transferred to someone or demerged, the transferee must register under GST with effect from the date of transfer.
- Anyone whose turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs for the special category state ) is exempt from this clause if their turnover is the supply of only those goods/services that are exempt under GST.
- Anyone who supplies goods across states
- A Casual taxable Person
- Taxable non-resident individual
- Supplier agents that use the reverse charge method to pay taxes
- Distributor of input services
- Operator or aggregator of e-commerce
- An individual who supplies through an e-commerce aggregator
Someone who provides online information and database access or retrieval services to an Indian individual who isn’t a registered taxable person from a location outside of India
4. Casual Taxable Person
A person who does not have a fixed place of business but occasionally provides goods and/or services in a territory where GST is applicable will be considered a casual taxable person under the GST.
5. Non Resident Taxable Person
When a non-resident individual who does not have a fixed place of business in India periodically provides goods or services in an area where GST is applicable. He will be regarded as a non-resident taxable person under the GST.
6. Reverse Charge
When a “reverse charge” occurs, the recipient of the goods or services bears the tax liability rather than the supplier. The Centre or State Government will notify the categories of supplies that are eligible for reverse charge.
Similar options about reverse charges are currently available in service tax for services such as goods transport agencies, mutual fund agents, labour suppliers, and work contracts. Both goods and services may be subject to reversal charges under the GST scheme.
- Details on inward supplies must be provided by everyone who is responsible for paying service tax under reverse charge.
- Individuals who must pay taxes under reverse charge must register, regardless of the threshold amount.
There are distinct clauses pertaining to when taxes are due on a reverse charge basis for the supply of goods and services.
7. GSTIN
GSTIN refers to the unique GST identification number that every business will be granted. Every taxpayer will be assigned a state-wise, PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). Additionally, keep in mind that registering for GST requires a PAN.
8. GSTN
The Goods and Services Tax Network is known by its acronym, GSTN. For the purpose of implementing the Goods and Services Tax (GST), this non-profit, non-government private limited business will supply IT infrastructure and services to the Central and state governments, taxpayers, and other stakeholders.
9. Composite Supply
A composite supply is one that is made up of two or more products or services that are packaged and delivered together. These elements cannot be supplied separately, but only one of them may be of major supply. For instance, the supply of commodities, packing materials, transportation, and insurance is a composite supply when the goods are packed and shipped with insurance. If there are no commodities to supply, insurance and transportation cannot be done independently. Therefore, the primary supply is the supply of products.
10. Mixed Supply
When two or more separate supplies of goods or services are produced jointly by a taxable person for a single price, this is known as a mixed supply. Each of these things is independent of the others and can be given independently. A mixed supply might be, for instance, a package of canned goods, candies, chocolates, cakes, dry fruits, aerated beverages, and fruit juices that is offered for a single price. They can all be sold separately. Aerated drinks would be considered a major supply since they have the highest GST rate (28%).
11. Continuous Supply
A continuous supply occurs when goods and services are provided on a regular basis (e.g., every two weeks, every month, etc.) and payments are made on a regular basis. For instance, a newspaper supplier and internet provider will continue to supply as it has been in operation for a long time and payments are made on a monthly or quarterly basis.
12. Zero Rated Supply
A zero-rated supply is any of the following:
- Deliveries of goods or services, or both, to a Special Economic Zone developer or Special Economic Zone unit;
- Exports of goods or services, or both.
Both the output supplies and the inputs or input services utilized to supply the supplies would be GST-free under zero-rated supply. The key points under zero-rated supply are as follows:
- The taxes spent on the zero-rated supplies are reimbursed;
- Inputs and input services can be credited;
The taxes paid on the inputs and/or input services will be reimbursed in cases when the supplies are exempt or made without paying taxes (i.e., unutilized input tax credit will be refunded).
13. Nil Rated Supply
NIL-rated goods and services are those for which the GST rate of 0% is applicable. Schedule 1 of the GST rate schedule lists the items and services that are eligible for the 0% GST rate. Cereals, salt, jaggery, and other items are examples of nil-rated supplies. There is no input tax credit available for inputs and/or input services used to provide supplies with a zero rate; that is, there is no input tax credit available for supplies with a zero rating.
14. Exempted Supply
Exempted supply encompasses non-taxable supply and refers to any supply of goods or services, or both, that is subject to a zero tax rate or that may be completely free from tax under section 11 of the CGST Act or section 6 of the IGST Act. Regarding the exempted supply, the following points should be noted:
GST is not imposed on externally exempted supplies;
There is no input tax credit on exempted suppliers, meaning that neither inputs nor input services utilized to provide them are eligible for the credit.
In lieu of a tax invoice, a registered person who provides exempted items, services, or both must submit a “bill of supply.”
15. E Commerce Operator
Businesses that provide an online marketplace where other vendors can sell goods to clients are referred to by this term under the GST. For instance, Amazon,Flipkart, etc.
16. Input Service Distributor
Input Service Distributors are referred to as ISDs. An middleman or office that oversees the operations of a manufacturer, producer, or output service provider is known as an input service distributor. In order to disburse the Input Tax Credits, ISDs issue invoices to the manufacturer and branches after receiving vendor bills on behalf of their branches.
17. HSN Code
An internationally recognized system for naming, classifying, and identifying products is the Harmonized System of Nomenclature (HSN); each product is identified by a 2–8 digit code (which varies based on your total turnover of 1.5 crores (2 digits), 5 crores (4 digits) or more, and your sourcing method (local, 2-4 digits, or imports, 8 digits). These codes are arranged in a logical and legal structure and are subject to certain regulations.
18. POS
In a sales transaction under GST, the buyer’s location is referred to as the “place of supply,” or “POS.”
GST Registration
Businesses that generate more than Rs. 40 lakh, Rs. 20 lakh, or Rs. 10 lakh, as applicable, are required to register as regular taxable persons under the Goods and Services Tax (GST). According to CGST Section 10 of the Composition plan, the threshold turnover limit for a select group of professionals and small enterprises is Rs. 50 lakh and Rs. 1.5 crore, respectively. Regardless of their turnover, some firms must register their operations under the GST statute. The GST portal is where one can register for GST. To register for GST, one must use Form REG-01 on the GST portal.
Documents required for GST Registration
- The applicant’s Aadhaar card , PAN
- Evidence of company registration or incorporation certificate proving the promoters’ or director’s identity, address, and photos
- Proof of business address, bank account statement, or cancelled cheque
- Letter of Authorization/Board Resolution for Authorized Signatory with Digital Signature
The production, distribution, and use of products and services are all subject to the Goods and Services Tax (GST), a comprehensive indirect tax. In India, it took the place of other taxes, including service tax, VAT, and excise duty.
Three categories comprise GST:
- CGST: The central government imposes the Central Goods and Services Tax (CGST) on intra-state transactions.
- SGST / UTGST: State governments or Central Government impose the State Goods and Services Tax (SGST) / Union territory Goods and Services Tax on transactions that take place inside their borders.
- IGST: Imports and interstate transactions are subject to the Integrated Goods and Services Tax, or IGST.
Under GST, each taxpayer is given a unique identification number known as their GSTIN (Goods and Services Tax Identification Number). Businesses that are GST-registered use it.
When a transaction involving the provision of goods or services that are subject to GST takes place, it is referred to as a taxable event.
Businesses can claim the Input Tax Credit (ITC) for GST paid on purchases or expenses. By balancing the tax they have previously paid on inputs, this enables businesses to lower their overall tax liability.
The primary taxable event under GST is supply. It describes any supply of products or services for payment, including sales, transfers, bartering, and exchanges. Both products and services are included, even if they are given for free (for example gifts,).
- Taxable Supply: A taxable supply is one that includes products or services that are subject to GST.
- Exempt Supply: An exemption from GST is granted to a supply of goods or services.
- Zero-Rated Supply: A supply, like exports, on which there is no tax.
The proportion at which goods and services are subject to GST taxation is known as the GST Rate. These rates, which range from 0% to 28%, depend on the kind of goods or services.
When the recipient of goods or services—rather than the supplier—is responsible for paying the tax, this is known as the Reverse Charge Mechanism (RCM).
For small taxpayers, the Composition Scheme is a streamlined tax plan that eliminates the need for careful paperwork and requires a fixed proportion of turnover to be paid as tax. Depending on the state, the eligibility turnover cap is often set at ₹1.5 crores.
