Decoding The Goods And Service Tax (GST)

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Grip Invest
Grip Invest
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Jul 09, 2024
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    The government announced1 that India recorded a 10% year-on-year growth of gross GST revenue in May 2024, earning gross receipts of 1.73 lakh crore2. Moreover, the majority of Indian states are experiencing double-digit growth in May 2024 as compared to May 2023.

    Read more to know about the Goods and Service Tax (GST).

    Introduction

    Indirect taxes are directly associated with prices of goods & services. They add on to the prices of daily essentials, which indirectly affects common people. The different indirect taxes before 2017 were replaced by a single indirect tax - Goods and Service Tax (GST). 

    Do you ever wonder, what exactly is the Goods and Service Tax (GST)? 

    It is a type of indirect tax that is levied on the supply of goods/services in India. The GST is collected from the final consumer of the product. After the collection, the seller pays the same to the government. 

    The seller collecting this tax has to be GST registered. He/she will also have a unique GST Identification Number (GSTIN) which indicates a seller’s registration.

    Value addition is the base for GST calculation. At every stage of the manufacturing process, GST is charged only on the value added. 

    Almost all businesses are included in this tax regime, substituting multiple taxes as one single tax. The tax charges are the same in every part of the country. This uniformity and transparency are the key features of this dual-structured indirect tax.

    Moreover, all the GST-registered suppliers file the GST returns monthly or quarterly. Every business needs to be registered to file GST even if the transaction in a certain period is zero. 

    GST is levied on companies with a supply of goods/services more than or equal to INR 20 lakhs and a supply of goods (Intra-state in India) more than or equal to INR 40 lakhs. In the special category states, this limit reduces to INR 10 lakh aggregate turnover3. However, among the special category states Jammu & Kashmir, Himachal Pradesh and Assam have regular thresholds. Such limits save small businesses from tax burden,  as they are exempted from GST payment below these limits.

    Also read: A beginner's guide to understanding Taxes in India

    Origin of Good and Service Tax (GST)

    The Goods and Service Tax (GST) was born after various controversies, debates, and negotiations. It has reformed the indirect tax structure in India. The Act came into force on July 1, 2017, mandating the implementation of only one unified indirect tax. 

    However, its origin dates back to the year 2000 in the proposition by the Kelkar Task Force on indirect taxes. In 2016, the GST Council Secretariat was established to regulate GST rates and other functions.

    Objectives of Good and Service Tax (GST)

    • Restrict Tax Evasion

    The different taxes before the implementation of GST had cascading effects (tax on tax). GST is imposed only by the value addition in the product/service, which helps restrict any discrepancies.

    • Unified Tax Regime

    There were nearly 14 different indirect taxes levied by the centre and state before the Goods and Service Tax (GST). These taxes created confusion for new businesses and also had several loopholes. GST replaced all these taxes with one single tax and with the same rates all over the country.

    • Widen the Tax Base

    The GST aims to organise business in the country by providing GSTIN, lower thresholds, composition scheme, input tax credit, etc. Moreover, due to less tax, the hesitation is over, and taxpayers participate with awareness. GST has led to many informal businesses being brought into the formal sector, leading to greater access to finance, greater consumer trust etc.

    • Reduced Documentation

    The substitution of different taxes also lowers the number of different documents needed. The single GST registration helps pay timely returns, avail credit, and link GSTIN with other facilities for the business. 

    Moreover, the new GST registration process can be done easily at: https://services.gst.gov.in/services/quicklinks/registration

    • Transparency to Consumers

    Consumers are aware of the uniform rates and structure of the GST tax, which helps them assess the price they pay for any goods/services. Moreover, the GSTIN gives a valid identification of the seller.

    • Simple Tax Structure

    The dual structure of GST is simple to understand and has uniform rates. Due to this, trust and transparency is established.

    • Tax Based on Destination

    The tax is paid in states where goods/services are consumed finally by the customers. The intermediates are not liable to bear any tax burden.  

    • Promotes Exports

    Exports are not charged with GST as the goods/services are supplied outside India. Moreover, imports are charged with IGST. Exports promote the inflow of foreign receipts and thus favour the domestic industry.

    • ITC Benefit

    In Goods and Service Tax (GST), one making the final goods pays GST on procuring raw material, but that GST payment is settled under Input Tax Credit (ITC). 

    • Digital Compliance

    The online process for the GST number application, registration, return filing, tax payment, credit, etc, is feasible enough for all. The Electronic Cash Ledger settles all the GST transactions for a merchant. Moreover, digitalisation catalyses higher tax compliance, greater revenue collection, increased transparency and convenience for small businesses.

    Read more about tax evasion: Tax Evasion Tax Avoidance and Tax Planning 

    Key Components 

    The different components of the Goods and Service Tax (GST) are as follows:

    Component

    Levied by

    Revenue earned by

    Central Goods and Services Tax (CGST)

    Central Government on all transactions

    Central Government

    State Goods and Services Tax (SGST)

    State Government on transactions within the state

    State Government

    Union Territory Goods and Services Tax (UTGST)

    Union Territory Government on transactions within the Union Territory 

    Union Territory  Government

    Integrated Goods and Services Tax (IGST)

    Central Government on Intra-State transactions & Import

    Central Government, but distributed among different States

    GST Cess

    Central Government on all transactions

    Distributed among States as compensation for GST.

    What Did It Change?

    The complex structure of indirect tax before the Goods and Service Tax (GST) led to problems like tax evasion, cascading tax effects, and diverse product-wise tax structures. Before Goods and Service Tax (GST) different states had different Value Added Tax %, rules, and regulations.

    Moreover, several registrations needed for VAT, excise, CST, service tax, etc, made the whole process cumbersome. It was also the reason for the small taxpayer base.

    We Pay Less Tax Now!

    Before the GST Act, 2017, goods were charged by excise duty, VAT, service tax, entry tax, and CST. 

    The implementation of GST led to replacing all these multiple taxes with only one tax on the product. GST eliminated the cascading effect and thus reduced the price4.

    Conclusion

    The Goods and Service Tax (GST) regime paves the path for a robust transformation in the indirect tax system. As per the Economic Survey of 2017-18, there was a 50%5 rise in the total number of indirect taxpayers after the implementation of GST. 

    The tax offers several benefits of its structure, ease of payment, uniformity, and transparency. Moreover, there should be awareness regarding the unique features, benefits, and functionality of GST. To learn more about tax and investment opportunities sign up on Grip Invest now.

    Frequently Asked Questions On Goods And Service Tax

    1. Who administers indirect tax in India?

    The administration of indirect tax in India is done by the Central Board of Indirect Taxes and Customs (CBIC). It deals with the collection and administration of customs and central excise duties. It operates under the revenue department of the Ministry of Finance, Government of India.

    2. Who introduced GST in India?

    The Constitution Amendment Bill was introduced in parliament, then the Goods and  Service Tax (GST) Act, 2017, was imposed on July 1, 2017. It was presented by then Union Finance Minister Mr. Arun Jaitley.


    References:

    1. Press Information Bureau  <https://pib.gov.in/PressReleasePage.aspx?PRID=2016802#:~:text=Strong%20Consistent%20Performance%20in%20FY,compared%20to%20the%20previous%20year.>
    2. Press Information Bureau <https://pib.gov.in/PressReleasePage.aspx?PRID=2022459>
    3. Central Board of Indirect Taxes and Customs <https://cbic-gst.gov.in/hindi/faq.html>
    4. GST Council <https://gstcouncil.gov.in/sites/default/files/gst-knowledge/PPT-on-GST.pdf>
    5. Press Information Bureau <https://pib.gov.in/Pressreleaseshare.aspx?PRID=1518077>

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