Goods and Service Tax (GST)
GST is commonly known as tax imposed on the supply of goods and services. Earlier the Central Government used to levy tax on manufacture (Central Excise duty), provision of services (Service Tax), interstate sale of goods (CST levied by the Centre but collected and appropriated by the States) and the State Governments levy tax on retail sales (VAT), entry of goods in the State (Entry Tax), Luxury Tax, Purchase Tax, etc. It is clearly visible that there were multiplicities of taxes which were being levied on the same supply chain.
There was cascading of taxes, as taxes levied by the Central Government were not available as setoff against the taxes being levied by the State governments. Even certain taxes levied by State Governments were not allowed as set off for payment of other taxes being levied by them. Further, a variety of VAT laws in the country with disparate tax rates and dissimilar tax practices divides the country into separate economic spheres.
All the taxes mentioned above are proposed to be subsumed in 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 supply chain starting from manufacture or import and till the last retail level. So basically any tax that is previously levied by the Central or State Government on the supply of goods or services is 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 supply of goods or services. The Centre will also levy and collect Integrated GST (IGST) on inter-state supply of goods or services.
Goods kept outside the GST:
- Alcohol for human consumption (i.e., not for commercial use).
- Petrol and petroleum products (GST will apply at a later date), i.e., petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel
Advantages to Trade and Industry:
- Simpler tax regime with fewer exemptions;
- Increased ease of doing business;
- Reduction in multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity;
- Elimination of double taxation on certain sectors like works contract, software, hospitality sector;
- Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
- More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports;
- Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, Average tax burden on the supply of goods or services is expected to come down which would lead to more consumption, which in turn means more production thereby helping in the growth of the industries manufacturing in India.
Advantages to Consumers:
- Final price of goods is expected to be transparent due to the seamless flow of input tax credit between the manufacturer, retailer, and service supplier;
- Reduction in prices of commodities and goods in the long run due to a reduction in the cascading impact of taxation;
- A relatively large segment of small retailers will be either exempted from tax or will suffer very low tax rates under a compounding scheme – purchases from such entities will cost less for the consumers.
Aspects of GST:
CGST: Collected by the Central Government on an intra-state sale (Eg: transaction happening within Tamil Nadu)
SGST: Collected by the State Government on an intra-state sale (Eg: transaction happening within Tamil Nadu)
IGST: Collected by the Central Government for inter-state sale (Eg: Andhra Pradesh to Tamil Nadu)
HSN code: HSN is a 4 to 8-digit code for identifying the applicable rate of GST on different products as per CGST rules of government of India.
E-Way Bill: An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It was made compulsory for inter-state transport of goods from 1 June 2018. It is required to be generated for every inter-state movement of goods beyond 10 KM and the threshold limit of ₹50,000
Reverse Charge Mechanism: Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on behalf of unregistered, smaller material and service suppliers. The receiver of the goods is eligible for Input Tax Credit, while the unregistered dealer is not.
GSTIN: A unique number will be allotted to every registered user to identify such a user which is known as GST Identification Number(GSTIN).
GST Slab Rates:
Goods and services are divided into five different tax slabs for collection of tax – 0%, 5%, 12%, 18% and 28%.
Compliances with rules:
The following Final GST Rules and Formats have been approved by the GST Council and have been placed in the public domain:
- Registration Rules and Formats
- Return- Rules and GSTP Formats, Mismatch Formats, Return Formats
- Invoice- Debit and Credit Notes Rules
- 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 credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model.
In the case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure 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 is subsumed under GST. IGST will be levied on all imports into the territory of India. Unlike in the previous regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.
GST Registration compliance:
Every supplier who is making a taxable supply of goods or services or both shall register in every State/Union Territory from where he makes taxable supply if his aggregate turnover exceeds 40 lakhs (10 lakhs for northeastern states) in a financial year.
Aggregate turnover means the value of all taxable supplies (excluding the value of inward supplies liable to tax on reverse charge basis), exempt supplies, exports of goods and services or both and inter-state supplies of persons having the same Permanent Account Number [PAN] to be computed on all India basis.
Mandatory GST Registration Criteria:
The following person is required to take registration under GST irrespective of turnover:
- Person making interstate supplies
- casual taxable persons
- Persons who are required to pay tax under RCM
- Person who are required to pay tax under sub-section (5) of section 9
- Non-resident taxable persons making taxable supply
- Persons who are required to deduct tax under section 51
- Persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise
- Input Service Distributor
- Persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52
- Every E-commerce operator
- Every person supplying OIDR services from a place outside India to a person in India, other than a registered person.