GST emerged on the horizon with a clear mission: to lighten the load of taxes and rein in inflation rates. It brought together a medley of taxes into a single, cohesive system. GST is a uniform, multi-stage, destination-based tax that casts its net wide, encompassing every value addition in its embrace.
The Goods and Services Tax Law is a multi-stage, destination-centered tax that extends its reach to capture each value-addition step. It’s important to note that GST isn’t fragmented; it’s a unified domestic indirect tax law that blankets the entire nation.
What is Goods and Service Tax?
In a crucial moment in India’s history, the Constitution got a makeover with the 2016 Constitution (one hundred and first amendment) Act. This makeover paved the way for the Goods and Services Tax or GST. Under a special article, Article 246A, the Central and State governments work together to ensure GST is imposed and collected properly.
This taxation system operates on a destination-based principle, meaning it takes shape as a tax on the consumption of goods and services. GST is unique because it’s akin to a “destination tax.” It means that the authority collecting the tax determines where the consumption, or “place of supply,” occurs.
To illustrate, picture yourself enjoying a meal at a restaurant, and the bill amounts to Rs 500. With a GST rate of 5% applied to the food served, an additional Rs 15 is tacked on, bringing the final bill to Rs. 515. That Rs 15, as part of the GST, goes to the relevant taxing authority in charge of where you enjoyed that meal – a truly destination-driven tax system.
GST registration is mandatory for the following
- Businesses whose annual aggregate turnover exceeds 40 lakhs.
- Vendors are selling products through e-commerce platforms.
- Businesses engaged in interstate sales.
- E-commerce aggregators.
- Entities are responsible for paying reverse charges.
- Individuals providing goods or services through e-commerce aggregators.
Central Taxes Incorporated into GST
- Central excise duty
- Additional excise duties
- Excise duties related to Medicinal and Toilet Preparations
- Service tax
- Additional customs duty or Countervailing duty
- Special additional duty of customs
- Central surcharges and cesses resembling taxes on goods/services
State taxes subsumed under GST
- State VAT
- Luxury tax
- Entertainment tax levied by local bodies
- Taxes on advertisements
- Taxes on lottery, betting, and gambling
- State charges and cesses
- Central sales tax
Goods and Services are categorized into five GST slabs
- 0%
- 5%
- 12%
- 18%
- 28%
The Framework of GST in India
The following components fulfill the framework of GST criteria in India:
Central Goods and Services Tax (CGST)
CGST ensures that the central government gets a portion of the tax revenue when you purchase in your state. It’s like a way for the central government to share the tax collected within each state.
State GST (SGST)
SGST is the tax levied by individual State governments on trade and services within their respective states. The revenue generated from SGST stays within the state where the transaction occurs.
Union Territory GST (UGST)
In Union territories like Chandigarh, where there’s no separate state government, GST is collected by the Central administration and referred to as UGST.
Integrated GST (IGST)
The central government collects IGST for transactions involving the movement of goods and services between different states. This system aims to strike a balance, ensuring that central and state authorities benefit while simplifying the nationwide taxation process for businesses and consumers.
Advantages of Implementing GST
Implementing GST offers several advantages:
- Comprehensive Taxation: Consolidates all existing indirect taxes into a unified system. This uniformity across the nation helps eliminate disparities in tax rates, promoting fairness and consistency in the tax structure.
- Multi-Stage Taxation: GST is applied at every stage of the supply chain where transactions occur. This ensures that taxes are levied proportionally as goods or services move from production to consumption, preventing tax evasion.
- Value Addition Focus: GST taxes the value added to a product or service at each stage of its production, excluding initial costs. This approach ensures tax is levied only on the incremental value created during production.
- Destination-Based Consumption: Unlike the previous indirect tax systems, GST is collected at the point of consumption. The tax authority in the location where goods or services are ultimately consumed is responsible for collecting the tax. This aligns taxation with where the end-user benefits from the product or service.
- Simplified Compliance: GST introduces a simplified and streamlined tax compliance process through technology. This reduces the paperwork burden and facilitates easier business tax filing and reporting.
Varieties of Exemptions
There are various types of exemptions under the GST Act, each serving specific purposes:
Absolute Exemption
This exemption applies universally, regardless of the supplier’s identity or the transaction’s interstate or intrastate nature. For instance, services like electricity transmission, Reserve Bank of India services, and veterinary clinics fall under this category.
Conditional Exemption
Conditional exemptions come with specific terms and conditions outlined in the GST Act. An example is the exemption for services provided by a hotel, inn, or guest house with a daily accommodation tariff below Rs. 1000.
Conditional or Partial Exemption
Intra-state supplies of goods or services provided by a registered entity to an unregistered party are free from tax under the reverse charge mechanism. Still, if the total value of goods or services received from suppliers does not exceed Rs. 5000 a day, this exemption is limited in scope but can provide relief in certain scenarios.
Conclusion
GST is now a permanent part of India’s taxation system, offering advantages and disadvantages. Requirements may differ based on your operation, but most businesses will have GST obligations.
It streamlines tax processes, making life easier for accountants and tax consultants. Engaging a professional GST consultant for efficient compliance is prudent, given the regular filing demands. GST is here to stay, shaping India’s tax landscape.