Goods and Services Tax (GST) in India: Super Guide

Goods and Services Tax (GST) in India: Super Guide

Everything You Need to Know About GST Implementation, Objectives, Advantages, Components, and Compliances

Goods and Services Tax (GST) is one of the biggest tax reforms that has happened in India’s indirect taxation system. Implemented on July 1, 2017, it has replaced a plethora of indirect taxes levied by the central and state governments.

GST aims to unify the country under a single, comprehensive tax system for goods and services. It has been in the works for over 17 years before final implementation. With its far-reaching impact on businesses and consumers alike, GST is truly a historic transformation of India’s taxation landscape.

This guide is from the experts of filingwala.com will provide a deep dive into all aspects of GST in India. We’ll explore what GST is, the journey to its implementation, its objectives and advantages, the tax components, and the major compliances under the GST regime.

By the end of this guide, you’ll have a 360-degree understanding of this landmark tax reform that has transformed the way trade and commerce operate in India.

Let’s get started!

Table of Contents

  • What is GST?
  • The Journey of GST Implementation in India
  • Objectives of GST
  • Advantages of GST
  • GST Tax Components: CGST, SGST, and IGST
  • Tax Structure Before GST
  • How GST Has Helped Reduce Prices
  • New Compliances Under GST
    • e-Way Bills
    • e-Invoicing
  • Frequently Asked Questions

What is GST?

Goods and Services Tax or GST is an indirect, consumption-based tax levied on the supply of goods and services in India. It is a comprehensive destination-based tax on the value-added at each stage of the supply chain.

In straightforward terms, GST is a singular tax that has assimilated nearly all indirect taxes applicable to goods and services. It applies to the final consumer but collects at each stage of the supply chain, providing credit for taxes paid in the preceding stages.

Some key characteristics of GST:

  • Multi-stage tax – It is levied across the entire supply chain i.e. from manufacture to sale, whenever there is a supply of goods or services.
  • Value added – At each stage, GST levies tax exclusively on the value added. For instance, during the manufacturing stage, businesses pay tax on the value added by converting raw materials into finished products.
  • Destination based – GST is applicable in the destination state, which is where the consumer finally consumes the product.
  • Comprehensive – GST has subsumed around 17 indirect taxes under a single umbrella.
  • Digital – The entire GST framework functions online via portals and provides for electronic compliance procedures.

So in summary, GST is a comprehensive, multi-stage, value-added tax on goods and services that is applicable on the final point of consumption.

The Journey of GST Implementation in India

Developing over a span of 17 years, the implementation of the Goods and Services Tax in India originated from the proposal in the year 2000. It navigated through various twists and turns before finally reaching full implementation in 2017.

2000 – The Vajpayee government sets up a committee to draft GST laws.

2004 – The Kelkar Task Force suggests a comprehensive GST model based on VAT.

2006 – The government presents a proposal to implement GST by April 1, 2010.

2011 -The Parliament introduces the Constitution Amendment Bill, but it lapses with the dissolution of the 15th Lok Sabha.

2014 -The Parliament passed the Constitution (122nd Amendment) Bill after incorporating changes recommended by the Select Committee of Rajya Sabha.

The Parliament passed the Constitution (122nd Amendment) Bill after incorporating changes recommended by the Select Committee of Rajya Sabha.

2016-In September 2016, the Parliament finally passed the Constitution (122nd Amendment) Bill, formally becoming the Constitution Amendment Bill.

2017 – The GST Council finalizes all rules and rates for GST implementation.

1st July 2017 – The Goods and Services Tax Finally Comes Into Effect in India.

As you can see, GST implementation has been a long, arduous journey spanning over 17 years. But the results have been worth it, as GST transforms India into a unified market under a single tax umbrella.

Objectives of GST

The Goods and Services Tax in India was introduced with some key objectives in mind:

  • One Nation, One Tax – To create a unified national market by replacing a web of local taxes. GST establishes a common national tax across the country.
  • Subsume multiple taxes – To merge the plethora of indirect taxes like VAT, excise duty, service tax etc. into a single tax structure. This greatly reduces compliance burden for businesses.
  • Eliminate cascading effect – Remove the cascading effect of taxes i.e. tax on tax. Under GST, there is a seamless flow of credit across the supply chain.
  • Improve tax compliance – A unified tax system results in higher tax compliance and transparency. All activities fall under a common portal.
  • Boost “Make in India” – The reduction in tax burden promotes manufacturing activity and investments in India.
  • Higher revenue – Widening the tax base and including more taxpayers leads to higher tax revenue.
  • Simplified tax system – Having a centralized tax structure makes compliance much simpler for businesses.

Keeping these key objectives in mind, the designers have structured the GST tax system, and the results so far show encouragement on all these fronts.

Advantages of GST

The implementation of GST has bestowed several benefits to various stakeholders of India’s economy:

For businesses

  • Elimination of cascading effect – No double taxation
  • Seamless flow of credit – Set off available across supply chain
  • Unified tax structure – One tax for goods and services
  • Simpler compliance – Single point interface on GSTN portal
  • Improved logistics and faster delivery of goods
  • Warehouse consolidation

2. For consumers

  • Reduced prices – No cascading effect so lower prices
  • Uniform prices – One unified national market
  • Simple tax structure – Easier to understand
  • More transparency – Details available on portal

3. For government

  • Wider taxpayer base – Better tracking of transactions
  • Increased tax collection – Higher revenues
  • One unified market – Easier to regulate
  • Less tax evasion – Improved compliance and tracking
  • Ease of doing business – Simplified and online procedures

4. For economy

  • Boost to ‘Make in India’ – Encourages manufacturing and exports
  • Higher investment – Due to easier tax compliance
  • Jobs creation – Increase in economic activity
  • GDP growth – Expanded tax base contributes to growth

GST has also made India more competitive globally by removing the disadvantages of the previous indirect tax structure. Overall, it has led to economic growth, higher revenues, and a simplified tax system.

GST Tax Components: CGST, SGST, and IGST

There are 3 taxes applicable under the GST regime:

CGST – Collected by Centre on an intra-state sale

SGST – Collected by State on an intra-state sale

IGST – Collected by Centre on inter-state sale

Here is an overview of the GST tax components:

  • Intra-state supply – When goods or services are sold within the same state, CGST + SGST will apply. Revenue is shared equally between Centre and State.
  • Inter-state supply – IGST (Integrated GST) applies on sales to another state. IGST is levied by Centre and revenue is later apportioned between destination state and Centre.
  • Imports – Imports are deemed as inter-state supply and subject to IGST plus customs duties.
  • Exports – Exports are zero-rated under GST i.e. no tax is charged but credit is available for taxes paid on inputs.

This comprehensive dual GST model has integrated the country into a single market. CGST and SGST have given both Center and States the power to levy GST simultaneously. IGST has resolved the problem of taxing inter-state transactions.

Tax Structure Before GST

India had a complex indirect tax structure before GST implementation. There were a multitude of taxes levied by the state and central governments:

State Taxes

  • VAT
  • Central Sales Tax
  • Purchase Tax
  • Entertainment Tax
  • Luxury Tax
  • Entry Tax
  • Taxes on Lottery, Betting etc.

Central Taxes

  • Excise Duty
  • Additional Excise Duty
  • Service Tax
  • Countervailing Duty (CVD)
  • Special Additional Duty (SAD)
  • Cesses and Surcharges

This led to significant complications for businesses. Some taxes were levied concurrently by Centre and State. Taxes paid on inputs were not available as credit against output GST. This resulted in cascading of taxes and higher overall tax burden. There were also additional compliance obligations for taxpayers who had to deal with multiple authorities.

GST has integrated all these taxes into a simple, unified GST structure leading to lower compliance burden and reduced prices for consumers.

How GST Has Helped Reduce Prices

One of the major benefits of GST is that it has reduced the final price of goods and services for consumers. Let’s see how it achieved this.

Under the earlier tax regime, there was a cascading effect of taxes i.e. tax on tax. Consumers bore this cumulative burden of taxes that got added at every stage of the supply chain.

For example, VAT was charged on the finished product. But embedded in the cost were already excise duties paid on raw materials inputs etc. This cascading effect led to artificially inflated prices for consumers.

GST removes this cascading effect by providing seamless flow of credit across the entire supply chain. Taxes paid at earlier stages can be claimed as credit against GST charged at later stages.

This helps reduce the price as the tax is calculated only on the value addition at each stage. The final price paid by consumer is lower compared to earlier regimes.

To illustrate, let’s take the example of chocolate manufacturing:

Earlier Regime

StageCost10% TaxTotal
Manufacturer$100$10$110
Warehouse$40$14$154
Retailer$50$20$224
Total Tax$44

GST Regime

StageCost10% GSTGST PaidTotal
Manufacturer$100$10$10$110
Warehouse$40$4$4$114
Retailer$50$5$5$169
Total Tax$19

As you can see, the price paid by consumer is lower under GST due to input tax credits and elimination of cascading effect. This is a win-win for both consumers and businesses.

New Compliances Under GST

The GST regime has introduced some new compliances that taxpayers need to adhere to:

e-Way Bills

E-way bills are electronic documents that must be generated for transporting goods valued over Rs. 50,000 within or between states. They contain details of the shipment, goods, recipient, etc.

E-way bills bring in a digital and unified system for tracking movement of goods. It helps boost tax compliance and makes cross-border trade easier by reducing delays and bottlenecks.

e-Invoicing

E-invoicing is mandatory for businesses with turnover over Rs.100 crore. They need to generate all B2B invoices by uploading details on the Invoice Registration Portal.

It obtains an IRN (Invoice Reference Number) that acts as a unique identity for the invoice. This improves accuracy and eliminates duplicate invoices. It also saves time and cost of data entry for filing returns. The tax department also gains better visibility into transactions.

Both e-way bills and e-invoicing improve transparency and compliance under GST. They represent the increasing focus on technology adoption and digitization.

Frequently Asked Questions

Q: What is the GST tax rate in India?

A: India has a four-tiered GST rate structure of 5%, 12%, 18% and 28%. There is also a 0% tax on essential daily-use items. The applicable rate depends on the goods or services.

Q: How is IGST split between Centre and State?

A: IGST is split based on the destination state where goods/services are consumed. The Centre transfers the state’s share of IGST to the destination state.

Q: Is GST charged on imports in India?

A: Imports are chargeable to IGST plus customs duties. The IGST rate on imports is equal to the total of CGST and SGST applicable in case of domestic goods.

Q: Is petrol and diesel covered under GST?

A: No, petrol and diesel along with alcohol, real estate etc. are not included under GST currently. They continue to be taxed separately by states and Centre.

Conclusion

The implementation of Goods and Services Tax is truly historic in transforming India’s indirect taxation ecosystem. It has replaced the complex multi-layered tax system with a simple, tech-driven GST system.

GST has benefited businesses, consumers, government, and the Indian economy alike. It has eased compliance burden, reduced prices, boosted tax collections and enhanced market competitiveness.

Despite some initial hiccups, the implementation of GST has taken firm root in the country and its long-term benefits have begun to materialize. This reform is poised to boost productivity, investments, and growth, propelling India’s economic narrative to the next level.

Filingwala.com

With the complexities of GST compliance and running a business in India, it becomes essential to have expert help by your side. This is where filingwala.com comes in. As a leading provider of legal, tax and accounting services for businesses, they offer end-to-end solutions for income tax return filing, company registration, trademark services, GST compliance, auditing and more. Their team of experienced Chartered Accountants, Company Secretaries and lawyers leverage technology and process excellence to deliver high quality services on-time. Businesses can rely on their expertise to stay legally compliant, manage finances better and focus on their core operations. So partner with the professionals at filingwala.com and stay worry-free about your business legalities.

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