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What is GST in India?

What is GST?

GST is known as the Goods and Services Tax. It is levied by the government to replace many indirect taxes in India such as the excise duty, VAT, services tax, etc. GST was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.

GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It is applicable to the manufacture, sale, and consumption of all goods and services in India.

Objective of GST:

  • To curb tax evasion
  • To achieve the ideology of ‘One Nation, One Tax’
  • To subsume a majority of the indirect taxes in India
  • To eliminate the cascading effect of taxes
  • To increase the taxpayer base
  • Online procedures for ease of doing business

The Journey of GST in India:

  • The journey of GST was started in the year 2000 when a committee was formed to draft the GST law by our former Prime Minister, Atal Bihari Vajpayee.
  • It took 17 years for the government to evolve the law and then, the GST bill was passed by the Parliament in the year 2017.
  • The Act finally came into effect on the 1st of July 2017.

Tax Laws before GST:

In the earlier indirect tax regime, there were many indirect taxes levied by both the state and the centre. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations.

The following is the list of indirect taxes in the pre-GST regime:

  • Central Excise Duty
  • Duties of Excise
  • Additional Duties of Excise
  • Additional Duties of Customs
  • Special Additional Duty of Customs
  • State VAT
  • Central Sales Tax
  • Purchase Tax
  • Luxury Tax
  • Entertainment Tax
  • Entry Tax
  • Taxes on advertisements
  • Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST have replaced all the above taxes.

Features of GST

  • Applicable On ‘supply’ of goods or services
  • Destination based Taxation
  • Dual GST
  • GST rates to be mutually decided by the Centre and the States
  • Multiple Rates

Types of GST:

There are 4 different types of GST:

i) Integrated Goods and Services Tax (IGST)

The Integrated Goods and Services Tax or IGST is a tax under the GST regime that is applied on the interstate (between 2 states) supply of goods and/or services as well as on imports and exports.

The IGST is governed by the IGST Act. Under IGST, the body responsible for collecting the taxes is the Central Government. After the collection of taxes, it is further divided among the respective states by the Central Government.

ii) State Goods and Services Tax (SGST)

SGST is a tax applied on Intra State supplies of both the goods and services by the State Government and will be administered by the SGST Act. The revenue is collected by the state government. However, the mainstream work of the state government is governed by the central government only.

iii) Central Goods and Services Tax (CGST)

Just like State GST, the Central Goods and Services Tax of CGST is a tax under the GST regime that is applicable on intrastate (within the same state) transactions. The CGST is governed by the CGST Act. The revenue earned from CGST is collected by the Central Government.

iv) Union Territory Goods and Services Tax (UTGST)

The Union Territory Goods and Services Tax or UTGST is the counterpart of State Goods and Services Tax (SGST) which is levied on the supply of goods and/or services in the Union Territories (UTs) of India.

The UTGST is applicable on the supply of goods and/or services in Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra, and Nagar Haveli, and Lakshadweep. The UTGST is governed by the UTGST Act.

5 slabs of GST

The 5 slabs of GST are 0%, 5%, 12%, 18%, and 28% this is broadly divided under the four tiers. They are namely, Zero rate, lower rate, standard rate, and higher rate.

i) Zero rates

Zero rate includes the 0% tax rate which is equivalent to tax exemption. The government has exempted almost 50% of the items from the consumer price index (CPI) basket. This slab includes all the common commodities required by every common person like cereals, food grains, dairy items, and general train tickets, etc.

ii) Lower rate

Lower rate includes the 5% slab of GST. It includes the rest of the commodities of the CPI basket. It includes the sugar, kerosene, LPG, air conditioner railway tickets, etc. GST has put the transport services under this slab.

iii) Standard rate

This tier includes the two slabs that are 12% and 18%. Previously the goods which were placed under the slab of 9% to 15% are now considered under the 12% slab which limits the inflation. Processed food comes under 12 % slab. The rest of the goods like toiletries, toothpaste come under the slab of 18%.

iv) Higher rate

This tier includes the highest slab i.e. 28%. This tax is levied on white goods like electrical appliances such as washing machines, air conditioners, etc.

Registration of GST:

GST Registration is a process by which a taxpayer gets himself registered under GST. Once a business is successfully registered, a unique registration number is assigned to them known as the Goods and Services Tax Identification Number (GSTIN).

It is mandatory for all Service providers, buyers, and sellers to register. According to GST rules, it is mandatory for a business that has a turnover of above Rs.40 lakh to register as a normal taxable entity.

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Note: This Post was last updated on February 6, 2023

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