GST is commonly known as the tax imposed on the supply of goods and services. Previously, the Central Government levied taxes on manufacturing (Central Excise duty), provision of services (Service Tax), and interstate sales of goods (Central Sales Tax, or CST, levied by the Centre but collected and appropriated by the States). Additionally, State Governments imposed taxes on retail sales (VAT), entry of goods into the State (Entry Tax), luxury tax, purchase tax, etc. This created multiple layers of taxation on the same supply chain. There was a cascading effect of taxes because taxes levied by the Central Government were not available as a set-off against taxes levied by State Governments, and certain State taxes were not allowed as a set-off for other taxes levied by the same States. Furthermore, the variety of VAT laws across the country with disparate tax rates and practices created separate economic spheres.
All the aforementioned taxes are proposed to be subsumed under a single tax called the Goods and Services Tax (GST), which will be levied on the supply of goods or services, or both, at each stage of the supply chain, from manufacture or import to the final retail level. Essentially, any tax previously levied by the Central or State Governments on the supply of goods or services will be converged into GST. GST is proposed to be a dual levy where the Central Government will levy and collect Central GST (CGST) and the State will levy and collect State GST (SGST) on intra-state supplies of goods or services. The Centre will also levy and collect Integrated GST (IGST) on inter-state supplies of goods or services.
Goods Exempt from GST:
- Alcohol for human consumption (i.e., not for commercial use)
- Petrol and petroleum products (GST will apply at a later date), including petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel
Advantages to Trade and Industry:
- Simpler tax regime with fewer exemptions
- Increased ease of doing business
- Reduction in the multiplicity of taxes, leading to simplification and uniformity
- Elimination of double taxation in sectors like works contracts, software, and hospitality
- Mitigation of tax cascading as Input Tax Credit is available across goods and services at every stage of supply
- More efficient neutralization of taxes, especially for exports, making Indian products more competitive internationally and boosting Indian exports
- Simplified and automated procedures for registration, returns, refunds, tax payments
- Expected reduction in the average tax burden, leading to increased consumption and production, thereby aiding the growth of industries in India
Advantages to Consumers:
- Transparent final prices of goods due to the seamless flow of input tax credit between manufacturers, retailers, and service suppliers
- Long-term reduction in prices of commodities and goods due to the reduction in the cascading impact of taxation
- Small retailers will be either exempt from tax or will face very low tax rates under a compounding scheme, leading to lower costs for consumers
Aspects of GST:
- CGST: Collected by the Central Government on intra-state sales (e.g., transactions within Tamil Nadu)
- SGST: Collected by the State Government on intra-state sales (e.g., transactions within Tamil Nadu)
- IGST: Collected by the Central Government for inter-state sales (e.g., Andhra Pradesh to Tamil Nadu)
- HSN Code: A 4 to 8-digit code used to identify the applicable GST rate on different products as per CGST rules of the Government of India
- E-Way Bill: An electronic permit for shipping goods, similar to a waybill. It was made compulsory for inter-state transport of goods from June 1, 2018. It must be generated for every inter-state movement of goods beyond 10 km and for transactions exceeding ₹50,000
- Reverse Charge Mechanism (RCM): A system where the receiver pays the tax on behalf of unregistered or smaller material and service suppliers. The receiver is eligible for Input Tax Credit, while the unregistered dealer is not.
- GSTIN: A unique number allotted to every registered user, known as the GST Identification Number (GSTIN)
- GST Slab Rates: Goods and services are divided into five different tax slabs for collection: 0%, 5%, 12%, 18%, and 28%
Compliances with Rules: The following final GST rules and formats have been approved by the GST Council and are available in the public domain:
- Registration Rules and Formats
- Return Rules and GSTP Formats, Mismatch Formats, Return Formats
- Invoice Rules for Debit and Credit Notes
- Payment Rules and Formats
- Refund Rules and Formats
- Input Tax Credit Rules
- Valuation Rules
- Transitional Rules and Formats
- Composition Rules and Formats
- Accounts and Record Rules
Input Credit Usage Terms: Cross-utilization of CGST credit between goods and services is allowed. Similarly, the facility of cross-utilization of SGST credit is available. However, cross-utilization of CGST and SGST is not permitted, except for inter-state supplies of goods and services under the IGST model.
IGST Mechanism: For inter-state transactions, the Centre levies and collects the Integrated Goods and Services Tax (IGST) on all inter-state supplies of goods and services. The IGST is roughly equal to CGST plus SGST. The IGST mechanism ensures a seamless flow of input tax credit from one state to another.
Taxation of Imports under GST: The Additional Duty of Excise or CVD and the Special Additional Duty or SAD previously levied on imports are subsumed under GST. IGST will be levied on all imports into India. Unlike the previous regime, states where imported goods are consumed will now receive their share from the IGST paid on imported goods.
GST Registration Compliance: Every supplier making a taxable supply of goods or services or both must register in every State/Union Territory from where they make taxable supplies if their aggregate turnover exceeds ₹40 lakhs (₹10 lakhs for northeastern states) in a financial year. Aggregate turnover includes the value of all taxable supplies (excluding inward supplies liable to tax on a reverse charge basis), exempt supplies, exports, and inter-state supplies for persons with the same Permanent Account Number (PAN) computed on an all-India basis.
Mandatory GST Registration Criteria: The following individuals are required to register under GST irrespective of turnover:
- Persons making interstate supplies
- Casual taxable persons
- Persons required to pay tax under RCM
- Persons required to pay tax under sub-section (5) of section 9
- Non-resident taxable persons making taxable supplies
- Persons required to deduct tax under section 51
- Persons making taxable supplies of goods or services on behalf of other taxable persons, whether as an agent or otherwise
- Input Service Distributors
- Persons supplying goods or services through electronic commerce operators required to collect tax at source under section 52
- Every e-commerce operator
- Every person supplying Online Information and Database Access or Retrieval (OIDAR) services from a place outside India to a person in India, other than a registered person
