GST | Goods and Services Tax (Complete Details)

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What is GST?

GST is the acronym of Goods and Services Tax. It is a consumption tax i.e. the tax levied only on consumption spending on goods and services.

There are mainly two types of taxes, one is Direct tax that is directly paid to the Government by the taxpayers. It includes Income Tax, Corporate Tax, Securities Transaction Tax, Perquisite Tax, etc. Another type of taxes is Indirect Tax that includes Service Tax, Sales Tax, Custom duty, Octroi, Excise Duty, Value Added Tax, etc. In the new taxation system, all the indirect taxes are combined into a single tax which is known as Goods and Services Tax.

The journey of GST was started in 2002. At last, it has come into effect on the midnight of July 1, 2017, by the president, Pranab Mukherjee and the Government of India (GOI). For its simplicity, it can also be named as Good and Simple Tax. However, some opposition parties allegedly named it as Gabbar Singh Tax after a fictional dacoit character Gabbar Singh of the 1975 Bollywood film “Sholey”. They blamed BJP for destroying small businessman and industries in India.

Types of GST

In the previous tax system, a part of the indirect tax is levied by the State Government and the rest part is levied by Central Government.  Under the GST regime, also Centre and State both have the power to levy GST. That’s why it is mainly divided into two components – CGST and SGST. The CGST(Central GST) is levied by Central government whereas SGST(State GST) is levied by State government. However, there is another type of GST. This is called IGST. The IGST(Integrated GST) is levied on inter-state transactions. In order to avoid difficulty in the taxation system, IGST is levied by Centre which will be apportioned later to relevant states.

However, there are other types of GST, the Union Territory Goods and Services Tax, commonly referred to as UTGST. It is applicable on the goods and services supply that takes place in any of the five Union Territories of India including Andaman and Nicobar Islands, Dadra and Nagar Haveli, Chandigarh, Lakshadweep and Daman and Diu. This UTGST is charged in addition to the CGST explained above.

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Goods and Services

We mostly use the term Goods and Services in the same breath. But there are huge differences between goods and services. The main difference between goods and services is that Goods are the tangible products that can be physically touched, felt or measured whereas Services are amenities, facilities or benefits which can not be touched or measured, only can be felt. Services are intangible products. The ownership cannot be transferred in case of services. For example, if you buy a car then the car is yours but if you buy a bus ticket, then obviously the bus is not yours. Goods can be returned but services cannot be returned back once provided.

GST Rates

There are five slabs of GST. These are 0%, 5%, 12%, 18% and 28%. Almost 1211 items are divided into these categories.

  • The GST rate of 0% is applicable for items like Fresh vegetables and fruits, Un-branded wheat and rice, Un-branded flour, Puja Items, Milk, Eggs, Curd, Butter, Natural Honey, Fresh Meat, Fresh Chicken, Salt, Sindoor, Stamps, Judicial Papers, Printed Books, Newspapers etc. daily necessary products. This means they are exempted under GST.
  • The GST rate of 5% is applicable for items like Frozen vegetables and fruits, Branded wheat and rice, Branded flour, Hand-made safety matches, Cotton, Cotton fabrics, Footwear below Rs.500 etc.
  • Butter, Cheese, Dry fruits, Mobile phones, Ayurvedic products etc. come under 12% GST.
  • Items like Biddi wrapper leaves, Biscuits, Footwear exceeding Rs. 500, Man-made fibre, Hair oil, Soap, Toothpaste etc. are applicable for 18% GST rate.
  • The GST rate of 28% is applicable for products like Biris, LED TV, AC, Cars, Tobacco products, Cement etc.

However, Alcoholic drinks, Petroleum products, Electricity etc. are not taxed under GST. Instead, they are taxed separately by individual state governments as per the previous tax regime. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. An additional cess of 22% is applicable on a few items like luxury cars, aerated drinks and tobacco products which are on top of 28% GST products.

For more information, You may also visit the official website.

Taxation System Before GST

In the previous tax regime, there were so many indirect taxes that are levied by both the state and central government. There was overlapping of taxes on some products. This leads to a tax on tax which is known as cascading of taxes. The state government mainly collected tax in the form of Value Added Tax(VAT) according to their own rules and regulation. Different states had different tax rates. Inter-state sales of goods were taxed by the central government in the form of Central Sales Tax(CST).  A list of indirect taxes is given below.

  • State VAT
  • Central sales tax
  • Purchase tax
  • Octroi
  • Excise duty
  • Special excise duty
  • Custom duty
  • Cess
  • Entertainment tax
  • Entry tax
  • Luxury tax
  • Taxes on advertisements
  • Taxes on lotteries, betting, and gambling

Advantages of GST

The pre-GST tax regime was several problems. All the indirect taxes are combined into a single tax – Goods and Services tax which bring simplicity in the new taxation system. GST removes this cascading effect ensuring that the entire nation is brought under a unified indirect taxation system. The advantages of it are summarized below.

  • GST ensures one India one nation taxation system.
  • It removes the cascading effect as this tax is only applicable to the product cost. At every stage, previous tax is removed and the tax is calculated on the remaining cost.
  • GST combines many types of indirect taxes into only 3 components CGST, SGST and IGST. It makes the taxation system simple.
  • It is a transparent, simple and consumption based tax. Consumers can distinguish between the cost of goods and tax.
  • It is technically driven, everything is computerized. That’s why it can reduce the flow of black money.
  • GST is imposed on imports. This will help to make in India campaign.
  • GST reduces manufacturing cost.
  • There is no GST applicable to exports. This will make India a greater competitor in exports.
  • It has defined treatment for e-commerce.
  • GST introduces increased efficiency in logistics.
  • It also regulates the unorganized sector.

For more details, visit the website of the Central Board of Indirect Taxes and Customs.

Who is Covered Under GST?

According to indirect tax law, any person involved in any business except agriculture and have an aggregated turnover above Rs. 20 lakh in a financial year is covered under GST. For businesses operating in North Eastern India and some other states need GST registration if their annual turnover exceeds Rs. 10 lakh. If an NRI(Non-Residing Indian) is doing business in India, then he/she also come under GST irrespective of the annual turnover of the business.

GST Number

Every taxable person registered under GST is assigned with a 15 digit unique identification number. This is known as GST Identification Number(GSTIN). It is a state-wise, PAN-based unique number. The first two digits of GSTIN represent the state code as per Indian Census 2011. Every state has a unique code. The next ten digits are the Permanent Account Number(PAN) of the person. The thirteenth digit is assigned based on the number of registration within a state of the same PAN holder. The next digit will be Z by default. The last digit is the check code. It may be an alphabet or a number.GSTIN

To check if your GSTIN is valid, visit online GST portal of the Government of India.

Conclusion

Some products get costlier but in general, the prices decrease as the manufacturing cost is reduced. Imported items become costlier. This may divert people towards domestic products and can help in Make in India campaign. GST will make India compete in exports as there is 0% GST applicable to exports. However, there are some confusions in this new taxation system. I personally think some products should be under lesser GST rates. But overall,  it has a positive impact on the Indian sector and industries.