Goods and Services Tax (GST) - Meaning, Types & Benefits

GST or Goods and Service Tax is a comprehensive, destination-based tax on the supply of certain goods and services. It was implemented in order to replace the variety of indirect taxes (like VAT, excise, import and export duty, etc.) that existed before it; so as to make the taxing process easier and less convoluted. The rates are still more or less the same, however, having one tax makes it a lot easier to track the calculation and to curb evasion.If the previous taxes focused on the point of origin of a product or service, GST is calculated from the perspective of the point of consumption. Pre-GST, the statutory tax rate for most goods was about 26.5%; post-GST, most goods are expected to be in the 18% tax range.

The tax system was implemented from July 1, 2017 through the 101stAmendment of the Constitution. However, the idea of it was conceived much earlier.In 2000, the then Prime Minister Shri Atal Bihari Vajpayee established a committee tasked with drafting a new comprehensive law and setting up the background technology and logistics for it.A task force set up in 2002, called the Kelkar committee, was responsible for recommending tax reforms. The committee concluded in 2005 that a new tax structure would help improve the tax regime.In February 2006, the then finance minister proposed a GST rollout by April 1, 2010. It wasn’t
successful and the new government after the 2014 elections, the new Finance Minister introduced the GST Bill in the Lok Sabha.In May 2016, the Lok Sabha passed the Constitution Amendment Bill, which was sent back for review and was finally passed by the Select Committee of Rajya Sabha in August 2016. A 21-member selected committee, called the GST Council was formed to look into the proposed GST laws which were passed by the Lok Sabha and Rajya Sabha and enacted as Acts in April 2017.Following that, state legislatures in several states passed the corresponding state goods and services tax bills. After several GST laws were passed, the Goods and Services Tax was implemented across all of India as of July 1, 2017.

There are 4 types of GST in function today:

1. Central Goods and Services Tax: CGST is charged on the intra state supply of products and services.
2. State Goods and Services Tax: SGST is charged on the sale of products or services within the boundaries of a state.
3. Integrated Goods and Services Tax: IGST is charged on transactions of products and services across state boundaries.
4. Union Territory Goods and Services Tax: UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is imposed along with CGST.

1. GST got rid of the cascading effect that was experienced earlier, which was basically when tax was calculated on an amount that included another tax.2. It created a level and higher threshold for eligibility as before, the limits for imposing different indirect taxes differed from tax to tax and from state to state. Implementation of GST set the overall threshold for taxing to Rs. 20 lakhs countrywide.3. GST introduced a composition scheme which has brought down the tax and compliance burden on a number for small businesses and start ups.4. The entire GST process, from registration to filing returns, is online and far easier to follow than running from one place to another for different tax registrations.5. Before GST, every tax seemed to have different compliance conditions. Under GST, however, there is only one return to be filed.6. GST defined the laws and provisions for e-commerce businesses which were variable under the previous tax regime.7. GST has brought a regulation to the unorganized sector due to online provisions for compliance and payment. Also Read: Advantages of GST: Benefits of Goods & Service Tax in India

The concept of GST was introduced as a comprehensive, destination based tax. Let’s take a look at what exactly that means with an exampleLet's say that there is a manufacturer in Bangalore who produces shoes. The manufacturer purchases raw materials, such as leather and rubber, from suppliers located in different parts of the country. Once the shoes are manufactured, they are then sold to distributors who are located in various states. Finally, the shoes are sold to retailers and consumers across India.Under the GST system, the tax is calculated at every stage of production, including the purchase of raw materials, the manufacturing of the shoes, and the sale of the shoes to distributors, retailers, and consumers. However, the GST paid at each stage of production is added to the cost of the product, and ultimately, it is the final consumer who bears the cost of the tax.Since GST is a destination-based tax, the tax revenue collected on the sale of the shoes will be given to the state where the shoes are ultimately consumed by the end consumer. So, if a customer in Mumbai purchases the shoes, the GST revenue collected on the sale will go to the state of Maharashtra where the shoes were consumed.In this way, the concept of GST as a destination-based tax ensures that the tax revenue is collected in the state where the product is ultimately consumed, making the tax system more efficient and equitable.

The GST Council, which oversees GST, is composed of 33 members, including 2 from the union government and 31 from 28 states and 3 union territories with legislatures. The council is made up of:(a) the Union Finance Minister, who also serves as its chair(b) the Union Minister of States responsible for Revenue or Finance, who also serves as one of the council's members; and,(c) the Ministers of States responsible for Finance or Taxation, or other Ministers as designated by each State Government (as member).

The GSTN or the GST Network is a non-profit organisation which was established with the goal of developing a sophisticated network that stakeholders, the government, and taxpayers may use to get information from a single source (portal). Tax authorities may utilise the portal to track every transaction, while taxpayers can connect to file their tax reports.The GST Identification Number is a distinctive 15 digit code that is provided to every taxpayer based on the state they live in and their PAN . It is most actively used for:1. Availing loans2. Claiming refunds3. Simplifying verification process4. Making corrections

A GST certificate is the legal document issued by the relevant authorities which is mandatory to prove registration under the GST Law. It is mandatory for any businesses with an annual revenue of over Rs. 20 lakhs and some special enterprises to register under the law. The certificate can be downloaded from the official GST portal for any registered taxpayer.This certificate is a digital document that contains GSTIN, Legal Name, Trade Name, Business Constitution, Address, Date of Liability, Validity Period, Types of Registration, Particulars of Approving Authority, Signature, Specifications of the Approving GST Officer, and Date.

A GST - registered taxpayer (each GSTIN) is obliged to submit a document to the tax administration authorities called a GST return , which contains information about all of their income, sales, and/or expenses, along with their purchases. Tax authorities use this to determine net tax liability.There are 13 returns under GST. They are the GSTR-1, GSTR-3B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6, GSTR-7, GSTR-8, GSTR-9, GSTR-10, GSTR-11, CMP-08, and ITC-04. However, all returns do not apply to all taxpayers.

GST RATES

The GST council is responsible for deciding and revising the GST slab rates periodically. Essential goods bear a lower rate whereas luxury goods usually attract a higher rate of GST.GST rates in India for various goods and services are divided into four slabs: they are at present 0% (nil-rated), 5%, 12%, 18%, & 28% GST. The council has revised some rates on some products several times since its foundation.Also, businesses subject to the composition tax scheme are taxed at lesser or nominal rates such as 1.5%, 5%, or 6% on their revenue. But an additional cess is imposed on sale of goods like cigarettes, tobacco, aerated water, gasoline, and motor vehicles.

Certain products and services are considered exempt from the GST regime, such as:

• FAO supplies for specified projects in the country.
• FIFA-specified supplies for the Under-17 Football World Cup in India for women.
• Import of specified goods for defence not made indigenously up to the year 2024.
• Platinum/silver supply made by Diamond India Ltd. for export.
• Platinum/silver import by Diamond India Ltd.

Along with being destination based, the idea behind GST as a concept was for it to be a comprehensive tax. The main motto of implementation of GST was ‘One Nation, One Tax’. What this means is that GST was introduced to replace the number of various taxes levied by different governments (central, as well as state) at different stages of the product.Here’s a quick look at the taxes GST subsumed on implementation:On a central level:

• Central Sales Tax
• Service Tax
• Central Excise Duty
• Excise Duty (Additional)
• Countervailing Duty or Additional Customs Duty
• Special Additional Customs Duties

On a state level:

• State VAT
• Entry Tax and Octroi Duty
• Luxury Tax
• Amusement and Entertainment Tax
• Taxes on Advertisements
• Goods and services related to cess and surcharges
• Purchase Tax
• Tax on betting, lottery and gambling.

There are a number of returns to be filed under GST by different individuals but here’s a broad list of persons who should register under the GST law.1. Any goods business with an annual turnover of over Rs. 40 lakhs.2. Any service business with an annual turnover of Rs. 20 lakhs or more.3. An e-commerce operator or aggregator.4. Interstate supplier.5. Agents of suppliers.6. Every person who is registered under an earlier law (i.e., Excise, VAT, Service Tax etc.)7. Casual taxable person8. Non-resident taxable personRegistration under the GST law can be done online through the official GST portal at https://reg.gst.gov.in/registration/ . The entire registration takes a total of 2-6 working days to process; at the completion of which the applicant will be provided with the GST certificate and a GSTIN.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.