Goods & Services Taxes in India

Taxes can be overwhelming, we all are aware of it and hence the Indian Government brought the one-stop solution for it - GST. GST, the goods and services tax, is the actual implementation of one nation, one tax, and has made it easier to calculate tax compared to previous years.

Scroll through the article to learn more about GST in India, ranging from history to registrations to percentages. By the end of the article, you’ll know about GST knowledge and have a clearer opinion about the scheme.

What is it?

Goods and Services Tax is referred to as GST. The supply of products and services is subject to a wide range of indirect taxes in various nations throughout the world, including India, Canada, Australia, and others.

The Goods and Services Tax (GST) is a destination-based tax, which means it is imposed at the point of consumption rather than the point of origin or manufacture. It is intended to function as a value-added tax where companies can claim input tax credits for the GST they have paid on inputs or purchases, decreasing the cascading effect of taxes.

A tax body typically oversees GST administration, and registered enterprises are expected to collect and return GST to the government. It contributes to lowering tax evasion, enhancing transparency, and raising tax compliance.

Objective

By replacing several indirect taxes imposed by the central and state governments in India, the Goods and Services Tax (GST) aims to simplify and streamline the country's taxation structure.

The objectives of GST are to unify the national market, stop tax cascading, increase transparency, and encourage economic progress. The seamless flow of goods and services across the nation is intended to enable more effective tax administration, lower tax evasion, and benefit both businesses and consumers.

The ULTIMATE objective of GST is to provide a unified and integrated tax system that promotes economic growth and ease of doing business.

History

A timeline of GST's history is a good way to understand it. 

1954: To simplify its tax structure, France becomes the first nation to implement GST, also called "Taxe sur la Valeur Ajoutée" (TVA), in 1954.

1973: European nations, such as Germany and the United Kingdom, enact Value Added Tax (VAT), a kind of consumption tax like GST.

1991: India organizes a group in 1991 to research and offer suggestions for tax reforms. The committee is chaired by economist Raja J. Chelliah. The group suggests creating a GST to take the place of current indirect taxes.

2000: The task group to create an Indian GST model is announced by Prime Minister Atal Bihari Vajpayee.

2004: The task force turns in its report, which calls for a dual GST system with distinct taxing authority for the federal and state governments.

2006: To create the GST model and handle the concerns of various states, the Empowered Committee of State Finance Ministers is established.

2011: To grant the GST constitutional validity, the Constitution (115th Amendment) Bill, 2011, is introduced in the Indian Parliament.

2014: To integrate modifications based on suggestions by the Empowered Committee, the Constitution (122nd Amendment) Bill, 2014 is submitted to Parliament.

2016: The Constitution (122nd Amendment) Act, 2016, which establishes the legislative foundation for GST implementation in India, is enacted following protracted talks and negotiations.

2017: On July 1, 2017, the GST regime takes effect, replacing several indirect taxes imposed by the federal and state governments. It is applied across the entire nation as a comprehensive, destination-based tax on the supply of goods and services.

2020: As a result of the COVID-19 pandemic's effects on the Indian economy, the GST rates and compliance standards have undergone several adjustments to help businesses and individuals.

Currently: GST continues to be an important tax reform in India with the goals of streamlining the tax system, fostering business accessibility, and establishing a unified national market for goods and services.

Working

As a value-added tax system, the Goods and Services Tax (GST) functions along a supply chain between the manufacturer, service provider, retailer, and consumer. GST is assessed on the value added by the relevant company at each level of the supply chain.

1. GST is paid by the manufacturer or producer on the inputs and raw materials used in the production process.
2. The service provider or retailer will charge GST on the selling price, which includes the GST paid on inputs when the finished goods are sold to them.
3. The service provider or retailer will then add their value and add GST to the consumer's final purchase price.
4. The final GST is added to the purchase price and paid by the customer.

With GST being collected in this manner at every link in the supply chain, taxes may be transferred smoothly from the manufacturer to the service provider, retailer, and eventually the customer.

Types

Depending on the supply's nature, these various forms of GST make sure that the tax burden is fairly distributed between the federal and state governments. It supports ease of doing business and lessens tax cascading by preserving a harmonized and uniform tax system across the nation.

In India, there are various GST forms, including the following:

CGST: The Central Government imposes the Central Goods and Services Tax (CGST), a portion of the GST, on intrastate supplies of goods and services. The central government receives the money collected under the CGST.

SCGT: The State Goods and Services Tax (SGST) is the portion of GST that is imposed by the State Government on supplies of goods and services that take place within the state. The appropriate state government receives the SGST money.

IGST: The Integrated Goods and Services Tax (IGST) is a portion of GST that the Central Government imposes on imports as well as on interstate trade in goods and services. When products or services are exported from one state to another or imported into the nation, it applies. The national and state governments divide the IGST revenue according to pre-established formulas.

UTGST: The Union Territory Goods and Services Tax, is comparable to SGST but is only applicable to India's Union Territories. In the Union Territories, it is imposed on intrastate deliveries of goods and services. The individual Union Territory administrations receive the money collected under UTGST.

Registration 

Businesses and individuals engaged in the supply of goods or services in India are required to register for the Goods and Services Tax (GST) if their annual revenue exceeds specific levels. Who should register and how to do it are briefly explained here:

• Mandatory Registration: Businesses must register for GST if their yearly revenue is INR 40 lakhs or more (INR 10 lakhs for northeastern states and some special category states).
• Voluntary Registration: Businesses with lower turnover levels can elect to register voluntarily to take advantage of perks like input tax credits and expand their operations.

To register for GST, you can visit the official online portal www.gst.gov.in and register your business there.

GSTIN

Every registered taxpayer under the Goods and Services Tax (GST) system in India is given a unique 15-digit identification number known as a GSTIN, or Goods and Services Tax Identification Number.

It is an essential instrument for tracking and keeping tabs on the movement of products and services across the nation. The GSTIN consists of a state code, an entity code, and a tick digit and is based on the taxpayer's PAN (Permanent Account Number).

The government can use it to simplify tax administration, stop tax evasion, and make the GST regime's implementation easier. All invoices, refunds, and other pertinent documents relating to a business transaction must include the company's GSTIN.

GST Rates/Exemptions

India's GST (Goods and Services Tax) is a comprehensive indirect tax imposed on the provision of goods and services. The five tax slabs for GST rates are 0%, 5%, 12%, 18%, and 28%. Some products and services are also exempt. The GST rates and exemptions are summarized in the following list:

0%: Essential goods like fresh fruits, vegetables, milk, eggs, bread, salt, unprocessed cereals, unbranded atta (flour), and medical services are subject to a 0% GST rate.

5%: Items including processed food, coffee, tea, kerosene, coal, solar panels, cashew nuts, agarbatti, and transport services are subject to a 5% GST rate.

12%: Items with a 12% GST rate include frozen meat products, butter, cheese, ghee, packaged dry fruits, animal fat, sewing machines, and business-class airline tickets.

18%: Items including cornflakes, pasta, flavored sugar, soups, ice cream, mineral water, cameras, speakers, monitors, printers, fertilizers, and air-conditioned restaurants are subject to the 18% GST rate.

28%: Aerated beverages, tobacco, chewing gum, molasses, high-end vehicles, motorcycles, yachts, personal aircraft, luxury, and depreciable products, and services at 5-star hotels are all subject to the 28% GST rate.

Important Note: It is important to note that since the time of implementation in July 2017. Here are a few examples of that: Mobile Phone @ 18%, Sanitizer @ 18%, Gold Jewellery @ 3%, etc.

Exemptions: Several items and services, including unprocessed agricultural produce, healthcare services, services offered by the Reserve Bank of India, non-air-conditioned restaurants that serve food, and transportation services, are exempt from the GST.

How to Calculate?

In India, the Goods and Services Tax (GST) is calculated using a straightforward formula:

1. Find out the GST rate that applies to the products or services you are thinking about first.
2. Once the GST rate has been determined, multiply it by 100 and divide the result by 100 to obtain the multiplier.
3. To determine the final sum including GST, multiply the initial sum (excluding GST) by the multiplier.
4. Lastly, calculate the GST amount by deducting the original sum from the total.

Here’s an example for better guidance,

Consider the scenario where you need to figure out the GST on a product with an original price of INR 1,000 and an 18% GST rate. The multiplier would be equal to 1.18  that is by calculating (18 + 100) / 100. 1,000 times 1.18 equals 1,180, which is the total cost with GST included. 1,180 minus 1,000 would equal 180 for the GST amount. Consequently, the GST in the preceding example is 180.

Advantages vs. Disadvantages

Here are the advantages and disadvantages of GST:

ADVANTAGES:

• Simplification: The GST replaced several indirect taxes, simplifying the tax system and lowering business complexity. It did away with cascading effects and established a uniform tax structure nationwide.
• Economic Integration: By facilitating a frictionless flow of products and services between states, the GST fosters economic integration. It facilitates a common market by removing entry barriers and lowering interstate tax disputes.
• Efficiency and Transparency: The introduction of the GST resulted in a more reliable online platform for tax filing, which decreased paperwork and increased efficiency. By offering a transparent audit trail and reducing tax avoidance, it encourages transparency.
• Gain in Manufacturing and Exports: The GST lowers the tax burden on firms, increasing their competitiveness. It also includes provisions for input tax credits. Removing numerous export tariffs, also makes exporting easier.

DISADVANTAGES:

• Initial Deployment Challenges: There were teething issues with the initial deployment, including technological issues with the online system, ambiguity on tax rates, and a greater burden of compliance for small enterprises.
• Administrative Burden: Regular tax filings, which GST demands, can be onerous for small enterprises and drive up compliance expenses. Compliance and administrative load. It can be difficult for firms to comprehend and put the complicated rules and different GST rates into practice.
• Tax Rate Structure: The variety of tax rates complicates classification and raises compliance requirements. Additionally, it causes uncertainty and disagreements on the proper tax rate for certain commodities and services.
• Impact on Inflation: The introduction of the GST resulted in some inflationary pressure because certain commodities and services were subject to higher tax rates. Although short-lived, it had an impact on consumers' spending power and enterprises' capacity.

GST Council

In India, a constitutional body called the GST Council is in charge of making decisions and suggestions on the Goods and Services Tax (GST). It is presided over by the Union Finance Minister and is made up of delegates or finance ministers from each of India's states and union territories.

The council is in charge of several duties, including determining tax rates, approving rules and regulations, choosing exemptions, and resolving any GST-related concerns or disputes. It is a significant decision-making body for indirect taxation in India since it plays a crucial role in establishing consistency and agreement among the states over the implementation of the GST.