What is GST?
GST, or Goods and Services Tax, is an indirect tax imposed on the supply of goods and services. It is a multi-stage, destination-oriented tax imposed on every value addition, replacing multiple indirect taxes, including VAT, excise duty, service taxes, etc. Goods and services are included under a single domestic indirect taxation law for the whole of India. In this regime, tax is charged at each point of sale.
1. History of GST (Goods and Service Tax)
GST was first implemented as a tax regime in 1954 in France and subsequently adopted by several countries, including Australia, Canada, the United Kingdom, Spain, South Korea, Vietnam, Monaco, etc.
In India, the GST came into force in 2000 after a committee was set up by the then Prime Minister Atal Bihari Vajpayee, a task force. Headed by the finance ministry’s advisor, Vijay L. Kelkar, he concluded that GST could help improve the tax structure in India.
In 2006, the Union ministry of finance proposed GST introduction from 1st April 2010. But, the Constitution Amendment Bill to facilitate the introduction of GST law was introduced in 2011. However, four supplementary GST bills were passed in Lok Sabha and approved by the cabinet. Subsequently, GST came into force on 1st July 2017.
Upon implantation, the GST replaced the following central taxes:
- Service tax
- Duties of excise
- Central excise duties
- Cesses and surcharge
- Additional duties of excise
- Additional duties of customs
- Additional duty of customs
GST services also subsumed the following state taxes:
- Entry tax
- Purchase tax
- Luxury tax
- State VAT
- Central sales tax
- Entertainment tax
- Taxes on advertisements
- State cesses and surcharges
- Taxes on gambling and lottery
Note that taxpayers who have an annual turnover of up to Rs. 20 lakh can be exempted from the Goods and Services Tax. This cut off is at Rs. 10 lakh for special category states. The GST law also extended the option of choosing a compounding scheme and threshold exemption.
2. Meaning and objective of GST
GST definition states that it is a tax that has replaced multiple indirect taxes, like – VAT, service taxes, excise, etc., in India. Notably, gaining an insight into the objectives of this tax regime helps to understand GST meaning better.
For instance, the primary objectives of the GST service tax include:
- Elimination of the cascading tax effect: Under the GST bill, taxes are levied only on the net value-added portion, which eliminates the tax-on-tax regime and, in turn, lowers the cost of goods.
- The subsumption of all indirect taxes: Except for a few, indirect taxes under the state and central government are subsumed into goods and services tax.
- Increase the tax to GDP ratio and revenue surplus: A high tax to GDP ratio indicates higher tax collections, a sign of a strong economic system. A wider tax base and increased tax compliance are more likely to result in higher revenue for the government through GST services.
- Decrease corruption level and tax evasion: The GST bill aims to bring transparency in the tax system resulting in fewer instances of a false input tax credit.
- Increase tax compliance: GST online aims to increase tax compliance, especially in small and unorganised businesses, by simplifying the GST platforms registration and returns filing process.
- Increase in overall productivity and efficiency: The Goods and Services Tax in India aims to remove constraints regarding logistics and the lengthy claim process of an input tax credit. Also, by subsuming entry tax, the overall productivity of enterprises is expected to increase.
Additional Read: Taxes replaced by GST
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3. Advantages of GST
The introduction of GST is touted as one of the biggest tax reforms in India. To know more about the impacts of GST, it is imperative to learn more about its advantages and disadvantages.
In this regard, the most prominent advantages of GST include:
- Removal of the cascading effect of tax: The implementation of GST has brought indirect taxes under one umbrella, successfully eliminating the cascading tax effect and lowering the number of compliances one must consider. For example, previously, service tax and VAT had their respective returns and compliance, but with the introduction of GST, entities only have to file one return. This, in turn, simplifies the process of inputting tax credit claims.
- A uniform tax structure: GST has brought the entire country under one tax regime; it facilitates uniformity in processes, laws, and tax rates across India.
- Simplified GST online process: All goods and services tax processes can be initiated online, including registration and GSTR filing. This has simplified the process significantly and made it possible for start-ups to get registered with GST services without hassle in one place.
- Regulation of the unorganised sector: The GST bill effectively streamlines the processes related to online compliance, payments, and claim processes. Further, it helps the unorganised sector, bringing them directly under the regulation of goods and service tax norms.
- GST extends the composition scheme for all small businesses: Small businesses with an annual turnover between Rs. 20 lakh and Rs. 75 lakh can become beneficiaries of GST’s composition scheme. The said scheme allows businesses to reduce their taxes.
Besides these, the GST bill has replaced 17 indirect taxes with one uniform tax. Resultantly, it has lowered the cost of goods and boosted demand for them, bringing in more revenue for both the centre and state governments.
4. Types of GST
There are four different types of GST which are as follows:
- State Goods and Services Tax (SGST) - The state government charges SGST on intra-state goods and services transactions. Subsequently, the revenue is collected by the state where the transactions in question were carried out.
- Central Goods and Services Tax (CGST) - The central government charges CGST on the intra-state transaction of goods and services. The concerned body is also responsible for collecting the revenue generated through this tax.
- Integrated Goods and Services Tax (IGST) - This GST tax is charged on inter-state transactions of goods and services and applied on imports and exports. Note that both Centre and State share the revenue collected through IGST as per the GST bill.
The state goods and service tax portion of this tax is collected by the state where goods and services in question were consumed.
- Union Territory Goods and Services Tax (UGST) - This GST tax is levied by Union Territories and charged on all transactions carried out in any UT in India. It is similar in terms of payment rules on the GST platform and distribution.
|Sale within a particular state (Eg. Sale within Maharashtra)||VAT + Excise/ service tax+central excise||Central GST & State GST||Shared between the state and centre|
|Sale between states or more (Eg. Sales from Delhi to Maharashtra) Integrated GST Centre||Excise/ service tax+ central sales||Integrated GST||
Centre shares the revenue as per goods’ destination
5. GST registration
5.1 GST registration procedure
As per the GST regime, all businesses liable to pay service tax, VAT, or central excise have to register under goods and service taxes by following the process of GST registration online. An applicant can initiate the GST registration process on the GST portal. Once the application is submitted, the online portal will generate ARN status instantly.
With the help of the ARN, an applicant can check his/ her application status. Applicants can also post queries if needed. Usually, taxpayers will receive their GST Registration Certificate and GSTIN within a week of their ARN generation.
ARN stands for Application Reference Number and is used to track GST registration application status. On the other hand, GSTIN is a 15-digit code allotted to every taxpayer registered with GST. Note that GSTIN is mandatory for businesses with an annual turnover of more than Rs. 20 lakh.
5.2 Documents required for GST registration
Submit these GST registration documents to complete the process:
A. Documents required to complete registration of GST online: Sole proprietor or individual
- Address proof
- Aadhaar card (Owner)
- Bank account details
- Photograph (Owner)
B. Documents required to complete registration of GST tax: Partnership firms inclusive of LLP
- Address proof (partners and place of business)
- Bank account details
- Copy of partnership deed
- Registration certificate or board resolution (for LLP)
- Photographs of authorised signatories and partners
- Proof of appointing authorised signatory
C. Documents required to complete registration of services GST: HUF
- PAN (HUF)
- Address proof
- Bank account details
- Photograph of the owner
- Aadhaar card and PAN card (Karta)
D. Documents required to complete registration of goods and services tax: Company (both Indian and foreign, public and private)
- PAN (company)
- Bank details
- Address proof (principal place of business)
- PAN and Aadhaar card (authorised signatories)
- PAN and address proof (directors of the company)
- Article of association or Memorandum of association
- Proof of appointment of an authorised signatory
- Photographs (directors and the authorised signatory)
- Certificate of incorporation provided by the Ministry of Corporate Affairs
5.3 GST registration fees
It is important to note that the government does not levy GST registration fees if an individual decides to register through the online GST service tax portal. However, suppose an individual wants to seek professional help from an authorised chartered accountant or GST practitioner for GST services. In that case, they will have to pay a fee to avail of the professional service.
6 - GST login for existing users
Existing users can access GST services details by simply logging into the GST portal. ‘Notably, the GST bill and its online portal have simplified the GST registration and payment process. The portal has also made accessing details such as allotted GSTIN, orders, and notices easier. Although, you will require the credentials for GST login, such as username and password, and follow a few steps to access such details from the GST portal.
The below steps explain the GST portal login process.
Step 1: Visit the official Goods and Service Tax portal
Step 2: Navigate to the right-hand corner of the homepage
Step 3: Click on the ‘Login’ button
Step 4: Enter your username, password, and CAPTCHA code and click on the ‘Login’ button
Step 5: After completing GST login, you will be redirected to the dashboard, where you will find the summary of GST credit, ‘Pay Tax’ tab, ‘File Returns’ tab,
Annual Aggregate Turnover or AATO, saved forms, notices received, etc.
If you don’t have your credentials, you can easily retrieve them through the GST services portal. All you need to do is click on the ‘Forgot Password’ button on the login page and follow the subsequent steps.
7 - GST rates slabs
In a broader sense, there are 4 GST tax slabs in India. GST rates have been structured to ensure that food items and essential services are kept in the lower tax brackets, while luxury items and services fall in the higher brackets. Based on their type, more than 1,300 goods and nearly 500 services are categorised under four different goods and service tax slabs – 5%, 12%, 18%, and 28%. Note that the GST on gold does not belong to these categories and is at a slab of 3%. Similarly, semi-precious and rough precious stones come under the special GST services slab of 0.25%.
7.1 GST rates in India
The GST rates in India can be summarised as follows:
Under the 5% slab
Goods - The goods under this slab include apparel up to Rs. 1,000, agarbatti, Braille items (watches, paper, typewriters), coir mat, cashew nuts, domestic LPG, edible oils, floor covering, fish fillet, fertilisers, first-day covers, frozen vegetables, footwear up to Rs. 500, hearing aids, insulin, milk food for babies, medicines, matting, packed paneer, packaged food items, pizza bread, postage stamps, roasted coffee beans, revenue stamps, rusk, sugar, stent, sabudana, stamp-post marks, skimmed milk and tea.
Services - The services under this slab include road transport by motor cabs and radio taxis, supply of tour operators’ services, restaurants with a turnover of up to Rs. 50 lakh, air travel by economy class, sale of advertisement space, transport services such as railways and airways.
Under the 12% slab
Goods - The goods included under this slab encompass ayurvedic medicines, almonds, apparel above Rs. 1,000, animal fat sausage, butter, bhujia, chutney, chess board, carom board, cake server, reagents and diagnostic kits, exercise books, fruits, frozen meat products, fish knives, forks, fruit juice, glasses for corrective spectacles, ghee, jam, jelly, mobile phones, namkeen, notebooks, non-AC restaurants, pickle, packed coconut water, sewing machine, tongs, tooth powder, work contracts.
Services - Services under this section include hotels, guest houses, inns with a tariff between Rs. 1,000 and Rs. 2,500 each night. This slab includes air tickets purchased for the business class as well.
Under the 18% slab
Goods - Some of the goods covered under the purview of this slab include aluminium foil, furniture, biscuits, bamboo, branded clothing, CCTV, camera, cakes, corn, curry paste, envelopes, footwear priced above Rs. 500, hair oil, instant food mixes, ice cream, mineral water, mayonnaise, monitors, padding pools, pasta, printers, preserved vegetables, soups, soaps, salad, dressing, steel products, tissues, tampons, toothpaste, weighing machines (both electronic and non-electronic variants), etc.
Services - Under 18% GST slab include telecom services, AC hotels that serve alcohol to patrons, IT services, and hotels with room tariffs ranging between Rs. 2,500 and Rs. 5,000 each night.
Under the 28% slab
Goods - Aerated water, personal use aircraft, aftershave, automobile motorcycles, ceramic tiles, chocolates without cocoa, dishwasher, deodorants, dye, hair shampoo, paan masala, paint, shaving cream, shavers, vacuum cleaners, water heater, washing machine, etc., are a part of this slab.
Services - Services attracting 28% GST include 5-star hotels, gambling and betting in race clubs, hotels with a nightly room tariff of Rs. 5,000 and above, cinema and entertainment.
8 - GST calculation
8.1 How to calculate GST
In India, GST (Goods and Service Tax) is calculated as a sum total of GST payable on reverse charge, inward supplies, and output supplies. This total is derived individually for every month, and you will have to pay the amount calculated while filing GST returns every month.
As a taxpayer, you will have to consider all aspects and charges such as reverse charge, exempted supplies, inter-state sales, along with eligible and non-eligible ITC, while calculating GST. Calculating the right GST amount will help you evade the 18% interest that will be levied if your payment falls short of your actual obligation.
You can also use the GST calculator available with the government of India’s GST portal to find out your total tax liability by filling in all the necessary amounts under the mentioned heads, such as return filing month, current ledger balance, tax liability under RCM, etc.
8.2 GST calculation formula
GST amount = (Original price x GST rate) / 100
Net price = Original price + GST amount
Example: Say you are selling a commodity from Mumbai and sending it to Kolkata for Rs. 10,000, and the rate of GST applied on it is 12%.
The GST amount applicable for it will be (10,000 x 12) / 100 = Rs. 1,200; and the net price will be Rs. 10,000 + Rs. 1,200 = Rs. 11,200.
9 - GST return filing
When to file GST returns?
Fundamentally, GST return or GSTR is a document that has to be filed by taxpayers with the concerned tax administrative authority. This document comprises income/ sales or/ and purchase/ expense and proves useful in computing an entity’s tax liability.
Under the GST tax regime, registered dealers have to file GSTR, which includes:
- Output GST
- Bank account details
- Input tax credit
As per goods and service tax norms, regular businesses that have an annual aggregate turnover of more than Rs. 5 crore must file one annual return and two monthly returns, i.e., a total of 25 returns in one year at the online GST platform.
However, under the QRMP scheme, the number of goods and services tax returns varies for those who file quarterly GSTR-1 filers. In that case, they have to complete a total of nine GST service tax returns in a year, inclusive of the annual return and GSTR-3B. Likewise, the number varies for special cases such as composite dealers, who must file GSTR five times a year.
11th* of the next month with effect from October 2018
|GSTR-3B||Monthly||20th of the next month|
|GSTR-4||Quarterly||18th of the month subsequent quarter|
20th of the next month
13th of the next month
10th of the next month
10th of the next month
31st December of next financial year
10 - New compliances under GST
In addition to filing goods and service tax returns online, the tax regime has also introduced multiple new systems
- E-way bills: This centralised e-way bills system was launched for inter-state movement of goods on 1st April 2018 and intra-state movement of goods on 15th April 2018. With the help of this system, traders, manufacturers, and transporters can easily generate e-way bills for transported goods.
It is also beneficial for tax authorities and has helped decrease time at check-posts. Further, it has even been effective in reducing tax evasions.
- E-invoicing: The GST bill system applies to businesses with an annual turnover of over Rs. 100 crore in the preceding fiscal year. Such businesses must obtain a unique invoice reference number for all B2B invoices by uploading them on GSTN’s online invoice registration portal.
The said portal verifies the accuracy and authenticity of the invoice and subsequently authorises the businesses with a digital signature and QR code.
The biggest advantages of e-invoicing include reduction of data entry error and a boost in inter-operability of invoices. The system helps transfer invoice information from IRP to the GST platform and e-way bill portal instantly. Plus, it eliminates the need to file GSTR-1 manually.
- HSN code requirements: Businesses must mention their SAC/ HSN code on all supplies of goods or services on tax invoices from 1st April 2021. For example, B2B supplies for a registered entity with an aggregated turnover of up to Rs. 5 crore in the preceding year must mention their 4-digit HSN code on the invoice.
Similarly, B2B or B2C supplies for registered entities with a turnover exceeding Rs. 5 crore in the preceding year have to mention their 6-digit HSN code on the invoice. Notably, any changes in mentioning 4/ 6-digit HSN or SAC code must be detailed under Table 12 of the GSTR-1 form.
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