As you know that GST is the biggest indirect tax reform of India. The full form of GST is Goods and Services Tax. Different types of taxes were levied on goods and services such as excise duty, VAT, CST, service tax, etc. before the introduction of the Goods and Services Tax (GST), but most of the indirect taxes were removed after the implementation of GST. Now GST is being imposed in their place i.e. One Nation, One Tax.
So in today’s article, we will learn about some aspects of Goods and Services Tax or GST.
GST – Understanding Goods and Services Tax in India
In 2005, the Kelkar Committee first recommended introducing GST in India. After this, Finance Minister P Chidambaram had told about GST in the budget speech given on 28th of February, 2006 and proposed to implement it in India. But it could not be implemented at that time due to political reasons.
Finally, Goods and Services Tax has been introduced in India from 1st of July 2017. GST applies to the whole of India (includes Jammu and Kashmir).
Today even after so many days of implementation of GST, people have not yet fully understood about GST.
Let’s know-
What is GST?
GST is a destination based tax (or consumption tax) imposed by the Central and State Governments on the supply of goods and services. With destination based tax we can understand that GST will be taken by the state where the goods are being used.
Goods and Service Tax is levied on the supply of goods, that is, it is not necessary to impose GST that the goods are sold. GST will also be levied if the goods are being transferred from one state to another or are also being sent from one branch to another. But credit of GST paid in this way can be taken.
Goods and service tax and earlier indirect taxes also differ in the timing of taxation. Like before the implementation of GST, excise duty was levied at the time of manufacture of goods, sales tax on the sale of goods, and service tax on providing services. But in the GST system, GST is levied on the supply of goods and services.
What was wrong with the earlier system?
In the old system, the net of taxes spread very deep. For example, as soon as the goods came out of the factory, it was first charged excise duty. Many times additional excise duty was also levied on many goods. If these goods are going from one state to another, then Entry Tax was to be imposed as soon as it entered the state.
When it came to selling goods, then sales tax means VAT. In many cases Purchase Tax was also levied. If taxonomy is associated with luxury then luxury tax also levied separately. Service tax was imposed separately in hotels or restaurants etc. This means that before reaching the hands of the consumer, some goods or services passed through several duties or taxes at many stages.
In this way, several goods of different rates were levied at different stages until goods or services reached the hands of the consumer.
Reasons to Introducing GST
The reason behind the implementation of GST is that different types of indirect taxes were imposed in India. In which the rates were also different in different states and due to which the price of goods was also different in different places.
But after the introduction of GST, the price of goods and services has now become one across India. If you buy goods from anywhere in India, you will get at the same price.
Apart from this, tax on tax was also a problem (it is called Cascading Effect of Taxes), which also increased the price of goods. In GST system this problem has been fixed and GST will be imposed only on value addition by the supplier.
Before the introduction of the Goods and Services Tax, whenever a businessman transferred goods from one state to another, he had to pay Central Sales Tax (CST) on those goods at the rate of 2% and no exemption was available. When he determines the selling price of the goods, then he will also include the amount of tax in the cost of the goods, which increases the price of the goods.
But due to the exemption of that tax in GST, the tax amount is not added to the cost of goods, which reduces the price of goods.
After the implementation of GST, there were many problems in transferring goods from one state to another such as the problem of CST, Entry Tax, and State VAT etc. on moving goods to different state. With the removal of all these taxes due to GST, there is less difficulty in transferring goods one state to another.
GST removed the Cascading Effect of Taxes
After the implementation of GST, the cascading effect of tax was removed i.e. the tax on tax system will no longer be in the GST system.
Let’s understand this with an example –
Mr. A is a manufacturer who sold goods from one state to another to Mr. B on which he paid excise duty and CST. Mr. B further sold goods in the same state on which Mr. B paid VAT.
On payment of VAT, B will not get credit for the excise duty and CST paid. This will also add the value of excise duty and CST to the value of the goods and will be sold further by taxing on the total value.
Whereas the tax paid in the GST system will be credited and the value of the tax will not be included in the value of the goods.
Indirect Taxes in the pre-GST Regime
After the introduction of GST, many types of indirect taxes have been abolished. The list of indirect taxes in the pre-GST regime is –
- Central Excise Duty & Additional Excise Duty
- Excise Duties
- Counter Veiling Duty (CVD) and Special Counter Veiling Duty (Special CVD)
- Service Tax
- Central Sales Tax (CST)
- VAT / Sales Tax
- Cess
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Taxes on Lottery, Betting, and Gambling
- Taxes on Advertisements
Tax Credit under GST System
In GST system, GST is levied on the value addition done by the supplier at each stage. At each stage the supplier will receive the credit of GST paid on the goods or services received and set off the GST credit from whatever GST is payable on the supply of goods and services made. If there is balance of GST payable, he will pay it.
This is the process of adjusting the tax; it has been named Tax Credit System in GST. Businessmen coming to the middle stages will be able to take advantage of this tax credit arrangement only if they have a receipt for the sales made at those stages because the receipts of the buyer will also be present with the government online and also the one who has sold. When the tally of the receipts of both the levels is correct, then only those middle businessmen will get the benefit of Tax Credit.
Components of GST
Components of Goods and Service Tax in GST System are –
- CGST (Central Goods & Service Tax) – Payable to Central Government
- SGST (State Goods & Service Tax) – Payable to State Government
- IGST (Integrated Goods & Service Tax) – Payable to Central Government
CGST and SGST are imposed on the supply of goods and services from one state to the same state (that means Intra State Supply) whereas IGST will be imposed on the supply of goods and services from one state to another state (that means Inter State Supply).
But in addition to these taxes, GST Compensation Cess will also be levied on some specified products. This cess will be levied in place of Central Sales Tax (CST).
GST Rates
The GST Council has approved a total of five slabs of GST for different types of goods. These are zero, 5%, 12%, 18% and 28%. An attempt has been made to make GST more and fairer by imposing minimum tax on essential commodities and maximum tax on luxury and less important items. For example, 28 percent GST has been fixed on Air Conditioner, Refrigerator, and Makeup etc. While Zero tax has been fixed on raw materials like grains and fresh vegetables etc. Similarly, education and health facilities are excluded from the purview of tax.
Products not included in GST
GST will be levied on the supply of all goods and services but some products have not yet been included in it –
- Petroleum Crude (that means Petrol)
- Motor Spirit
- Natural Gas
- High Speed Diesel
- Alcoholic Liquor For Human Consumption
- Aviation Turbine Fuel
Inter State Supply and Intra State Supply in GST
The supply of goods in GST is divided into two parts – Intra State Supply and Inter State Supply.
If the goods are supplied within a state, then it will be considered as Intra-State Supply and SGST and CGST will be imposed on it.
And if the goods are supplied from one state to another, then it will be considered as Inter State Supply and IGST will be charged on it.
The IGST rates are equal to the rates of both SGST and CGST.
If the goods are supplied outside India or are being supplied by or to SEZ developers or SEZ units, then this will also be treated as Inter State supply and IGST will be charged on this transaction.
Wrap Up
In this article, we have told you about an indirect tax that is Goods and Services Tax or GST. The government is trying hard to find more easy ways under which the public will know the usefulness of Goods and Services Tax. Similarly, the economy of our country will be strengthened. Apart from this, the burden of direct tax also falls on you. For example, the earner has to pay income tax or Capital Gain Tax is levied on selling a property. You should also keep information about these taxes. If you liked this article then please share it further.