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What is GST?

The Goods and Services Tax, or GST, is an indirect tax law applicable across India. It has replaced multiple indirect taxes such as excise duty, service tax, value-added tax, octroi, entry tax, and luxury tax. Laws pertaining to the same were put into effect on July 01, 2017, in India. This indirect taxation system has gone through multiple amendments since to arrive at the current juncture. However, it must be noted that GST does not replace customs duty, which is still mandatory on imported goods and services. Every kind of product and service attracts a different tax rate under GST. For example, luxury or sin goods are classified to attract a higher interest rate, whereas necessities have been included in lower and nil rate slab rates.

History of GST

In 2000, the late Atal Bihari Vajpayee, the then prime minister of India, set up a committee to draft new indirect tax law. However, the implementation process took several years, as a result of which, the bill had to see and endure multiple introductions, amendments, obstacles, and rescheduling. Below is a summarised version of the chain of events pertaining to GST that transpired since 2000 in chronological order, starting from drafting to the final implementation of the GST Act.

Year

Event

2000

PM Atal Bihari Vajpayee sets up a committee to draft the Goods & Services Tax law for India.

2004

A task force is put together to figure out the requirements to create and implement GST with the purpose of improving the indirect tax system.

2006

The Finance Minister of India, P. Chidambaram, schedules the introduction of the Goods & Services Tax on April 01, 2010.

2007

The decision to phase out Central Sales Tax (CST) is made, after which CST rates are reduced from 4% to 3%.

2008

The EC finalises the dual structure of GST for separate legislation and levy.

2010

The introduction of GST is postponed citing structural and implementing hurdles.

2011

The Constitution Amendment Bill gets introduced with the aim of enforcing the Goods & Service Tax Law.

2012

Discussion initiated by the Standing Committee over GST gets stalled due to lack of clarity on Clause 279B.

2013

The Standing Committee presents its report on GST.

2014

The Finance Minister of India reintroduces the GST Bill to the Parliament.

2015

The Lok Sabha approves the Bill but it gets stalled in the Rajya Sabha..

2016

The Goods and Services Tax Network (GSTN) goes live; simultaneously, the GST Bill as well as all amendments made up until this point get approved by the President of India.

2017

The Cabinet approves the creation of four supplementary bills on GST. Post which, the Goods & Services Tax Law gets implemented in full force on July 01, 2017.

 

Differences Between GST and the Indirect Tax Regime

 

GST Tax Structure

Old Indirect Tax Structure

Regulatory Law(s)

There is only one law to regulate GST, which is the GST Act of 2017.

Separate laws existed to regulate the various indirect taxes. VAT, meanwhile, was at the discretion of the states.

Tax Structure

The payable GST is made of two components, namely the Central Goods and Services Tax (SGST) and the State Goods and Services Tax (SGST. Half of the collected GST revenue goes to the state while the other half goes to the Centre.

Indirect taxes were a summation of multiple taxes, including VAT, CST, and Excise Duty, among others.

Cascading Effect (Tax on Tax)

The cascading effect is reduced, which makes the regime very simple.

High cascading effect of taxes.

Tax Burden

The tax burden is usually lower.

Tax burden used to be significantly higher due to the cascading effect of taxes.

 

Learn about the online GST registration process and fees.

Types of GST Charged in India

GST is primarily categorised into three different types, i.e. CGST, SGST, and IGST.

  • Central Goods and Services Tax (CGST)

The Central government collects the CGST tax, which is levied on the intra-state supply of products and services. The introduction of the same led to the abolition of central taxes such as central excise duty, customs duty, service tax, among others.

  • State Goods and Services Tax (SGST)

As the name implies, SGST is that component of the tax which goes to the state government. SGST is applicable on goods and services sold within the state. This has, in turn, replaced several other taxes, such as the value-added tax (VAT), entertainment tax, entry tax, and state sales tax, among others.

  • Integrated Goods and Services Tax (IGST)

Integrated GST is charged on products and services that are produced and consumed in two different states. The revenue collected from IGST is distributed among the relevant states. IGST was implemented with the intention of streamlining the tax process.

  • Union Territory Goods and Services Tax (UTGST)

UTGST, as the name suggests, is applicable on goods and services supplied within the union territories of India, namely Chandigarh, Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, and Lakshadweep. UTGST is collected in addition to CGST instead of SGST.

Advantages of GST

1. Benefits for Traders and Manufacturers

  • Compliance becomes easy

  • Brings uniformity in tax rates and structure

  • Removal of the cascading or compounding effect caused by the imposition of multiple taxes

  • Paves the path for the development of a common national market

2. Benefits for Central and State Government

  • It is relatively easier to implement and administer

  • An improvement in compliance and revenue collections

  • Better revenue effectiveness

3. Consumer Benefits

  • Payment of a single and transparent tax

  • Reduction of the burden on taxpayers

Tax Laws Before GST

In the earlier tax regime, many indirect taxes were levied by both state and central governments. The states mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations. The centre taxed inter-state sale of goods. CST (Central State Tax) was applicable for the inter-state sale of goods. These indirect taxes, such as the entertainment tax, octroi, and local tax, were levied together. The following are the list of indirect taxes that were applicable in the pre-GST regime:

  • Central Excise Duty

  • Duties of Excise

  • Additional Duties of Excise

  • Additional Duties of Customs

  • Special Additional Duty of Customs

  • Cess

  • State VAT

  • Central Sales Tax

  • Purchase Tax

  • Luxury Tax

  • Entertainment Tax

  • Entry Tax

  • Taxes on advertisements

  • Taxes on lotteries, betting, and gambling

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

What are the new Compliances Under GST? 

Apart from filing the GST return, the new GST tax regime has introduced several new systems. They are:

E-Way Bill

Eway bills are typically issued by a supplier when they wish to send their goods to another state or union territory. These eway bills are necessary for the commercial movement of goods valued over ₹50,000 across state borders. The online eway bill login portal through which you can generate the document in question is ewaybillgst.gov.in. Alternatively, you can generate one through a text message or via the official application that is available on Google Play Store as well as the Apple App Store. Once the way bill is generated, the supplier, the recipient, and the transporter receive a unique e-way bill number, which essentially greenlights the movement of goods from point A to B.

E-Invoicing

The e-invoicing system requires large businesses with annual aggregate turnover of more than ₹100 crore to obtain a unique invoice reference number. The same will be applicable for every business-to-business invoice that should be uploaded on the GSTN's portal. The portal verifies the genuineness of the invoice and authorises the same with a digital signature and a QR code. 

E-invoicing additionally allows the interoperability of invoices and reduces data entry errors. It is designed to pass the invoice information directly from the Invoice Registration Portal (IRP) to the GST portal and the e-way bill portal. It will, therefore, eliminate the requirement for manual data entry while filing the ANX-1/GST returns and for the generation of part-A of e-way bills.

What Changes Does GST bring in? 

The Goods & Services Tax brought a major change in the taxation visuals in India. Earlier, different taxes were paid separately to the state and the centre. However, GSTIN subsumed all taxes into one, and now there is the practical application of 'One Nation, One Tax.' Some of the changes that GST brought in are as follows:

  • No multiple taxes to be paid

  • Replacement of indirect taxes like excise duty and sales tax into one

  • Clear distinction of taxes on luxuries and necessities

  • Introduction of simplified ways to fill Income Tax Returns and taxes, for instance, through the official GST online portal.

  • Boost for Real estate and MSME sector

  • Ease for transportation of goods, as no separate taxes

  • Tax administration under both State and Central governments

  • Transparency in the taxation process

FAQs

✔️What is GST?

GST is a tax charged on the consumption and supply of goods and services in India. The Government collects it from the ultimate point of consumption.

✔️What is the full form of GST?

The full form of GST is Good and Services Tax.

✔️What are the different types of GST?

There are four types of GST, namely CGST, SGST, IGST, and UGST.

✔️Who collects IGST?

Both Central and State Governments collect IGST based on the prefixed revenues.  

✔️Can I pay the GST bill online?

Yes, the GST bill can be paid online through the GST official website.

Latest GST News

Group of Ministers May Recommend 28% Gst on Online Gaming

The panel of state ministers are planning to recommend a 28% GST on online gaming. Regardless of whether it is a game of chance or skill, but ultimately the final decision on this issue will lie with the GST Council.

Currently, a 18% GST is levied on online gaming. This tax is applied on gross gaming revenue, which is the rate that is being charged by gaming portals online. As per sources, there will not be any further deliberations at the Group of Minister’s level. According to a KPMG report, the sector of online gaming is expected to grow to Rs.29,000 crore by 2024-25 from Rs.13,600 crore in 2021.

- Nov 23, 2022

Centre may soon release Rs 30,000 cr as GST compensation for June

The Centre is said to release Rs. 30,000 Crores as the goods and services tax (GST) compensation for June 2022. June was the last month of the five-year promised compensation pledged by the Union Government, and due to the lack of funds in its designated cesspool, the Centre shall make compensations.

Liabilities from claims of the past may also be released should the Centre be presented with reconciled figures and statements issued by auditor generals. According to an official’s statement, the funds released from the Central government could be “adjusted against future cess collections” should the Centre require so.

 

- Aug 26, 2022

No GST applicable on UPI Services: Finance Ministry

The Finance Ministry of India stated through Twitter, “There is no consideration in Govt to levy any charges for UPI services. The concerns for the service providers for cost recovery have to be met through other means.” Hence, the Ministry of Finance has confirmed that the Unified Payments Interface (UPI) will not be levied with a GST.

The Ministry further explained that the Government has financially supported the digital payment ecosystem of India for two years now in order to promote digital payment platforms and to urge the people to utilise digital payments as their primary form of monetary exchange.

 

- Aug 26, 2022

More GST rate changes likely to address inverted duty, exemption

In addition to deleting some further exemptions, the GST Commission may consider another set of rate modifications to address the outstanding instances of inverted duty.

According to the officials, inverted duty refers to systems in which the rate of tax on inputs is higher than the rate of tax on external suppliers, discouraging value creation.

Saurabh Agarwal, a tax partner at EY, stated that the rectification of inverted duty structures in industries such as textiles, electric cars, and others will assist the business in liquidating accrued credits, smoothing working capital concerns, and reducing compliances. Also, resolving inverted tariff frameworks in areas where production-linked incentive (PLI) programs have been implemented can enhance the internal rate of return.

- Aug 19, 2022

Tax Body Clarifies: Employees Don't Need To Pay GST On Perk

As per a recent notice issued by the Board of Central Excise and Customs, perks received by employees do not need to be taxed under GST. This topic has remained a bone of contention for some time now, with previous notifications stating that any transaction between two parties would fall under the purview of GST, even if no considerations were involved. This latest notification follows Schedule III of the GST Act (2017) which states that perks do not fall under the purview of GST, given that they fall under the ambit of the contract of employment.

- Aug 05, 2022