GST or Goods and Services Tax is a single indirect tax that is imposed by the Government of India. This is perhaps one of the biggest tax reforms in the country. The tax aims to bring all indirect taxes such as VAT, Central Excise Tax, Luxury Tax, Service Tax Law, Entertainment Tax and Entry Tax together.
To put it simply, under GST, meaning Goods and Services Tax, all goods and services produced in the country along with the imported goods will have a single indirect tax. On 29th March 2017, the Goods and Services Tax Act was passed in the Parliament. The tax came into effect on the 1st of July 2017.
This was implemented to enhance the economic growth of the nation and to deal with taxes more efficiently.
What is GST?
To understand what GST is, you have to understand its basic application. The tax is levied on the sale and manufacture of different goods in the country. It is applicable for both the manufacturer and the end-user.
Three vital concepts have to be discussed to understand the GST meaning:
GST is called a multi-stage tax as the tax is collected at all the stages of manufacturing a certain product or service. So tax is imposed starting from the initial stage of buying raw materials to selling the final product to the customer.
Destination based tax
This means that the Goods and Services Tax is imposed at the point of sale or consumption. For example, a product is manufactured in Kashmir and is sold to the final customers in Bhopal. So the tax is levied at Bhopal that is the final destination of sale.
GST is charged at each stage of the manufacturing process where value is added. For example, a manufacturer buys raw materials to make a gadget. After the gadget such as a phone is developed, value is added. The goods are then sold to a warehouse where it is packaged and labelled.
The product’s value is enhanced even more. After selling these gadgets to a retailer, they are prepared for selling to the customers. Hence, the value of the product is added even further.
GST is imposed at all of these stages.
There are several types of GST:
CGST (Central Goods and Services Tax)
Central Goods and Services Tax is the tax collected on the intrastate supply of products and services. Under these taxes such as Services Tax, Central Excise Duty, Additional Excise Duties Countervailing Duty (CVD) and the excise duty on the Medical & Toiletries Preparation Act.
CGST is applicable for the supply of services and goods that can be amended by a government body under the central government. Therefore, the tax that is collected belongs to the central government.
SGST (State Goods and Services Tax)
State Goods and Services Tax is the tax collected on the supply of products and services within the boundaries of a particular state. This act brings together different state taxes under one umbrella such as State Sales Tax, Luxury Tax, Entry Tax, Entertainment Tax and Octroi.
The tax that is collected belongs to the state government. However, the central government will oversee the processes. For collecting the SGST, every state will have their individual governing body.
IGST (Integrated Goods and Services Tax)
Integrated Goods and Services Tax refers to the taxes that are charged for the inter-state supply of products and services. For example, the goods are exchanged between two states such as Karnataka and West Bengal, IGST will be applicable.
Moreover, IGST is levied for both import and export of goods and services from India.
The taxes were split into the three types mentioned above with the primary aim of increasing tax revenue.
However, certain commodities are exempted from GST. They are as follows:
• Fish and fillets
• Live animals
• Live plants and trees
• Animal products that are non-edible such as hooves and claws
• Dry fruits
• Edible grains
• Tea and coffee
• Drugs and pharmaceuticals
• Musical instruments
• Industrial machinery
What are the advantages of GST?
The different advantages of GST are as follows:
Removal of the cascading effect from taxes
With GST, there is a structure for analysing the input tax credit. This ensures that the cascading effect of paying taxes like earlier methods is removed. This is because the final tax is paid by the customer who avails the goods and services.
Moreover, the different layers of taxes are also avoided. Taxes such as VAT, Central Excise Tax, Luxury Tax and entertainment tax are brought under a single tax.
Easing of taxation processes
GST has helped ease out the different financial processes in smaller and larger businesses. Due to the consolidated tax, businesses are now relieved from the difficulties such as VAT registration, handling tax authorities and dealing with excise customs.
Support for small businesses
Small business can now register under the Composition Scheme under GST. Through this, they have to pay a fixed tax amount based on their annual turnover. The amount is nominal and tax complications can be avoided.
1 % GST is charged for businesses having a turnover of 1.50 crore. For those who have a turnover of 50 lakh have to pay 6 % as GST.
Tackling tax frauds and corruption
By using the GST online portal, anyone can register file returns and pay their taxes without any difficulty. The mechanism helps to match the invoices of the customer and the supplier. There is no requirement of dealing with the tax authorities.
This transparent system helps in evading tax frauds.
The implementation of GST has helped the government in improving the administration and reducing corruption when it comes to taxes. The citizens, small and large businesses and other stakeholders have been benefited by the consolidated tax reform.
The small scale enterprises are improving their wealth as they can focus more on their business. This is due to the reduction of taxation issues. Furthermore, to enhance the taxation process, the government has introduced a mobile GST application. This will help them solve all of their queries regarding GST.