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GST

 

WHAT IS GST?


GST or Goods and Service Tax is a comprehensive, destination-based tax on the supply of certain goods and services. It was implemented in order to replace the variety of indirect taxes (like VAT, excise, import and export duty, etc.) that existed before it; so as to make the taxing process easier and less convoluted. The rates are still more or less the same, however, having one tax makes it a lot easier to track the calculation and to curb evasion.

If the previous taxes focused on the point of origin of a product or service, GST is calculated from the perspective of the point of consumption. Pre-GST, the statutory tax rate for most goods was about 26.5%; post-GST, most goods are expected to be in the 18% tax range.


HISTORY OF GST

The tax system was implemented from July 1, 2017 through the 101st Amendment of the Constitution. However, the idea of it was conceived much earlier.

In 2000, the then Prime Minister Shri Atal Bihari Vajpayee established a committee tasked with drafting a new comprehensive law and setting up the background technology and logistics for it.

A task force set up in 2002, called the Kelkar committee, was responsible for recommending tax reforms.


In February 2006, the then finance minister proposed a GST rollout by April 1, 2010. It wasn’t successful and the new government after the 2014 elections, the new Finance Minister introduced the GST Bill in the Lok Sabha.

In May 2016, the Lok Sabha passed the Constitution Amendment Bill, which was sent back for review and was finally passed by the Select Committee of Rajya Sabha in August 2016. A 21-member selected committee, called the GST Council was formed to look into the proposed GST laws which were passed by the Lok Sabha and Rajya Sabha and enacted as Acts in April 2017.

Following that, state legislatures in several states passed the corresponding state goods and services tax bills. After several GST laws were passed, the Goods and Services Tax was implemented across all of India as of July 1, 2017.


TYPES OF GST



There are 4 types of GST in function today:


  1. Central Goods and Services Tax: CGST is charged on the intra state supply of products and services.
  2. State Goods and Services Tax: SGST is charged on the sale of products or services within the boundaries of a state.
  3. Integrated Goods and Services Tax: IGST is charged on transactions of products and services across state boundaries.
  4. Union Territory Goods and Services Tax: UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is imposed along with CGST.

ADVANTAGES OF GST


1. GST got rid of the cascading effect that was experienced earlier, which was basically when tax was calculated on an amount that included another tax.

2. It created a level and higher threshold for eligibility as before, the limits for imposing different indirect taxes differed from tax to tax and from state to state. Implementation of GST set the overall threshold for taxing to Rs. 20 lakhs countrywide.

3. GST introduced a composition scheme which has brought down the tax and compliance burden on a number for small businesses and start-ups.

4. The entire GST process, from registration to filing returns, is online and far easier to follow than running from one place to another for different tax registrations.

5. Before GST, every tax seemed to have different compliance conditions. Under GST, however, there is only one return to be filed.

6. GST defined the laws and provisions for e-commerce businesses which were variable under the previous tax regime.

DESTINATION BASED LEVY


The concept of GST was introduced as a comprehensive, destination based tax. Let’s take a look at what exactly that means with an example

Let's say that there is a manufacturer in Bangalore who produces shoes. The manufacturer purchases raw materials, such as leather and rubber, from suppliers located in different parts of the country. Once the shoes are manufactured, they are then sold to distributors who are located in various states. Finally, the shoes are sold to retailers and consumers across India.

Under the GST system, the tax is calculated at every stage of production, including the purchase of raw materials, the manufacturing of the shoes, and the sale of the shoes to distributors, retailers, and consumers. However, the GST paid at each stage of production is added to the cost of the product, and ultimately, it is the final consumer who bears the cost of the tax.

Since GST is a destination-based tax, the tax revenue collected on the sale of the shoes will be given to the state where the shoes are ultimately consumed by the end consumer. So, if a customer in Mumbai purchases the shoes, the GST revenue collected on the sale will go to the state of Maharashtra where the shoes were consumed.

In this way, the concept of GST as a destination-based tax ensures that the tax revenue is collected in the state where the product is ultimately consumed, making the tax system more efficient and equitable.


GST COUNCIL


The GST Council, which oversees GST, is composed of 33 members, including 2 from the union government and 31 from 28 states and 3 union territories with legislatures. The council is made up of:

(a) the Union Finance Minister, who also serves as its chair
(b) the Union Minister of States responsible for Revenue or Finance, who also serves as one of the council's members; and,
(c) the Ministers of States responsible for Finance or Taxation, or other Ministers as designated by each State Government (as member).


GSTN and GSTIN




The GSTN or the GST Network is a non-profit organisation which was established with the goal of developing a sophisticated network that stakeholders, the government, and taxpayers may use to get information from a single source (portal). Tax authorities may utilise the portal to track every transaction, while taxpayers can connect to file their tax reports.

The GST Identification Number is a distinctive 15 digit code that is provided to every taxpayer based on the state they live in and their PAN. It is most actively used for:

1. Availing loans
2. Claiming refunds
3. Simplifying verification process
4. Making corrections


GST CERTIFICATE


A GST certificate is the legal document issued by the relevant authorities which is mandatory to prove registration under the GST Law. It is mandatory for any businesses with an annual revenue of over Rs. 20 lakhs and some special enterprises to register under the law. The certificate can be downloaded from the official GST portal for any registered taxpayer.

This certificate is a digital document that contains GSTIN, Legal Name, Trade Name, Business Constitution, Address, Date of Liability, Validity Period, Types of Registration, Particulars of Approving Authority, Signature, Specifications of the Approving GST Officer, and Date.


GST RETURNS


A GST - registered taxpayer (each GSTIN) is obliged to submit a document to the tax administration authorities called a GST RETURN, which contains information about all of their income, sales, and/or expenses, along with their purchases. Tax authorities use this to determine net tax liability.

There are 13 returns under GST. They are the GSTR-1, GSTR-3B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6, GSTR-7, GSTR-8, GSTR-9, GSTR-10, GSTR-11, CMP-08, and ITC-04. However, all returns do not apply to all taxpayers.


GST RATES



The GST council is responsible for deciding and revising the GST slab rates periodically. Essential goods bear a lower rate whereas luxury goods usually attract a higher rate of GST.

GST rates in India for various goods and services are divided into four slabs: they are at present 0% (nil-rated), 5%, 12%, 18%, & 28% GST. The council has revised some rates on some products several times since its foundation.

Also, businesses subject to the composition tax scheme are taxed at lesser or nominal rates such as 1.5%, 5%, or 6% on their revenue. But an additional cess is imposed on sale of goods like cigarettes, tobacco, aerated water, gasoline, and motor vehicles.

Rate Of GST

Product/Service

0.25%

Jewellery stones cut and semi-polished

5%

Products generally accepted as household necessities like spices, sugar, oil, tea, coffee, etc.; lifesaving drugs, sweets (mithai), coal. Services under this slab include newspaper printing, vessel transport from overseas, contract transport services, tour operation services, etc.

12%

Products in this slab mostly include processed food (like jams, ready-to-make food, etc.), computers and accessories. Services include rail transport of goods, air transport (other than economy class), restaurant service (with A/C and liquor licence), renting accommodation between Rs. 1,000 and Rs. 2,500 per day, etc.

18%

Items like industrial and capital goods, household products that aren’t considered necessities, like hair oil, toothpaste, etc. Services like restaurants with A/C and liquor licence, outdoor decoration and catering services, renting accommodation between Rs. 2,500 and Rs. 5,000 per day, entertainment like circus, etc.

28%

Items considered to be luxury items like luxury cars, high-end motorcycles, luxury consumer durables, aerated drinks, cigarettes, etc.


Certain products and services are considered exempt from the GST regime, such as:


  • FAO supplies for specified projects in the country.
  • FIFA-specified supplies for the Under-17 Football World Cup in India for women.
  • Import of specified goods for defence not made indigenously up to the year 2024.
  • Platinum/silver supply made by Diamond India Ltd. for export.
  • Platinum/silver import by Diamond India Ltd.

GST AND THE PREVIOUS TAX ROUTINE:

Along with being destination based, the idea behind GST as a concept was for it to be a comprehensive tax. The main motto of implementation of GST was ‘One Nation, One Tax’. What this means is that GST was introduced to replace the number of various taxes levied by different governments (central, as well as state) at different stages of the product.