The new Goods and Service Tax (GST) standardizes all indirect taxation systems in India to include previous state and central tax laws. It essentially subsumes several taxes and levies such as duties, service tax, surcharges, and state VATs.
The previous system proved very expensive on businesses, hurting their working capital with multiple tax payment requirements. And working capital is critical to keep a business up and running, especially for MSMEs (Micro Small and Medium Enterprises) for day to day operations. The non-transparent nature of the previous taxation system would also prove to be a hurdle.
GST is also applicable on goods and services consumed for all transactions such as sales, transfers, purchases, barters, leases, and imports. By changing the tax slabs, the way businesses do business is changed. Thus, GST had a positive effect on cash flows and timelines of businesses.
Being GST-compliant also makes the loan application process easier and makes the chances of approval much more likely. If you run a business and need a quick business loan, on Finserv MARKETS, you have a number of great options to choose from. They can help you meet your working capital needs or other financial needs for running your business. You can get loans up to INR 30 lakhs in just 24 hours. You can even get customised loans to give your business the needed financial boost to scale new heights through better competitiveness and higher profitability. These loans can help you meet your needs, be it short-term, intermediate-term, or long-term finances.
Source: Axis Bank
Understanding the New GST Taxation Model
The new GST taxation model involved both the central and state government in its implementation. Since India is a federal country, both the central and state government have power to levy and collect taxes through their legislations.
They implemented a Dual GST Model with distributed powers to both the central and state government to levy taxes concurrently. The components of GST are Central GST (CGST), State GST (SGST), Union Territory GST (UTGST), and Integrated IGST (IGST).
Basic Outlook on CGST
As mentioned earlier, CGST is an abbreviation for Central GST and is levied by the Union or Central government of India for any transaction of goods and services in a state. It replaced all the different Central taxes such as Service Tax and CST as well as duties such as Central Excise Duty, Special Additional Duty (SAD), and Customs Duty.
CGST is applied to transactions made within one single state by state governments. It is a consumption-based and destination-based tax so taxes are paid to the state when goods and services are consumed. However, it is only paid to state where the goods and services are consumed, not where they were produced.
The CGST rate is mostly equal to SGST and it is charged on the product’s base price. It is usually charged with SGST or UTST on any transaction for consuming a good or service depending on the state or Union Territory where the good is consumed. Here’s an example to visualize this. Karan sells a product to Suresh in Rajasthan. So, he will need to pay two taxes: CGST to the Union government and SGST to the state government. They both are charged at 9%. So the product has a base price of INR 8,000 and with tax, the final product cost is INR 9,440.
If you’re a consumer, who does the tax burden fall on?
The major burden as you can guess falls on you, the consumer. All taxes in every transaction condition are borne by consumers when they pay the final product price with taxes. The manufacturer or product and service dealer does not bear any cost. GST is levied on consumption so states where the products were produced are not entitled to collect those tax revenues. If the producing state levies a tax, then that new tax rate is transferred to the consuming state through the Union government.
If you’re a business owner, how does the tax apply to you?
Mainly as a business owner, the new GST tax law do not require separate registrations for CGST, SGST, UTGST, and cesses. If you operate different branches in the same state, a single registration is applicable with one place as main place of business and the branches as additional places. But having different branches in different states, you will need to register in each state. If you have different verticals in the same state, then you need to register separately for each vertical.
With the new rules and uniform system across all states, running business activities are a lot simpler for MSMEs and large companies. Now, it is a big part of their growth and success. If your business is GST-compliant, getting a business loan is much easier and we know loans are very needed. On Finserv MARKETS, you can get business loans approved within 24 hours through their easy eligibility criteria with minimal documents required. You can choose to withdraw only the amounts you need with interest charged solely on the amount withdrawn. You can also avail Hybrid Flexi Loans on Finserv MARKETS, which help lower your EMIs up to 45%, thus boosting your cash flow. You can enjoy repayment options based on your cash flow with zero prepayment charges. Choose to repay the whole principal at the end of the tenure while repaying only interests as your EMIs.
Input Tax Credits with CGST
Avoiding tax on tax was a major challenge and so the input tax credit mechanism was introduced within the new GST taxation system. Input is any goods aside from capital goods used in the course of or continuation of your business. The taxes paid on the inward supply of inputs, capital, and services are termed as input taxes and CGST can be included in that.
Input Tax Credits are a deduction on taxes paid on inputs from the total payable tax on final output by your business. It means that if you are a manufacturer who is receiving input goods and services, you can deduct the taxes paid on those input goods and services against the taxes on your output.
GST-compliance has developed an easier business initiation process, higher company visibility in a competitive market, decreased tax burden, and higher cash flows. But even when it pinches your finances, businesses can thrive in the market with easier business activities in the new centralized taxation system. In the long-run, all businesses in India should remain GST-compliant because it will prove to be the way to go.
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