Goods and Services Tax (GST)

The Union Government introduced the Goods and Services Tax to replace older indirect taxes, such as VAT, service taxes, and excise duty. Moreover, these reforms helped reduce the cascading effect of taxation and promote economic integration.

As per the Constitution (One Hundred and First Amendment) Act of 2016 and subsequent legislations, here is the vital GST information you need to know:

• The current indirect tax regime came into effect on July 1, 2017

• This taxation applies to the supply of goods and services by categorising them into different slabs: 5%, 12%, 18%, and 28% 

• Goods, like certain petroleum products, alcohol for human consumption, and tobacco, remain outside the purview of this system

• To oversee and guide implementation, the Act notified the creation of a GST Council 

• The Council consists of the Union Finance Minister and members from state and union territories  

• There are three components of GST under the taxation laws: CGST, SGST/UTGST, and IGST 

In 2000, the then Prime Minister deployed the Kelkar Task Force on Indirect Taxes to design a model for the GST regime. While it was supposed to be implemented much earlier, various administrative and political roadblocks delayed its implementation.

Check out the following timeline to get historical information about GST implementation:   

The Union Government introduced the reformed indirect taxation system to achieve the following goals: 

• Implementation of the Concept of ‘One Nation, One Tax’

With GST implementation, the government has tried to create a common market in India with a uniform taxation system. The government believes that this uniformity of taxes will eventually reduce the tax burdens. 

• Input Tax Credit (ITC)

This allows businesses to claim credit on the tax paid on inputs used in the provision or production of goods and services.

• Introduction of Simpler Compliance Process

By introducing this system, the government sought to reduce the paperwork required for compliance and ease its tax administration process. Furthermore, it also aims to widen the tax base in India and increase revenue from indirect taxes.

The new indirect taxation broke down the system into three elements, which include the following:

• Central GST: The Central Government levies and collects the CGST on the intra-state supply of goods 

• State/UT GST: While the SGST/UTGST also apply to the intra-state supply of goods, state governments levy and collect them

• Integrated GST: The centre levies this type of GST in business, and you will have to pay it on inter-state supply or imports/exports of goods

The introduction of this reformed tax regime has brought several new systems, such as:

1. E-Way Bill

Suppliers generally issue these bills when they wish to send their goods to another state or union territory. These e-way bills are necessary for the commercial movement of goods valued over ₹50,000 across state borders. 

2. E-Invoicing

e-invoicing means submitting a standard invoice, which has already been generated, on an e-invoice portal that is commonly used. It eliminates the requirement for manual data entry while filing the GSTR-1 and for the generation of Part A of e-way bills.

Before GST, both state and central governments levied various taxes. The states mainly collected taxes in the form of Value Added Tax (VAT). Previously, every state had a different set of rules and regulations. 

On the other hand, the centre taxed inter-state sale of goods in the form of Central State Tax (CST). Local bodies also levied taxes in the form of entertainment tax. The following is alist of some of the indirect taxes that were applicable in the pre-GST regime:

• Central Excise Duty

• Duties of Excise

• Additional Duties of Excise

• Additional Duties of Customs

• Cess

• State VAT

• Central Sales Tax

• Purchase Tax

• Luxury Tax

• Entertainment Tax

• Entry Tax

• Taxes on lotteries, betting, and gambling

Check the following table to learn about the distinctions between this new and older tax regime:

Learn about the online GST registration process, fees, and more on Bajaj Markets.