The implementation of GST (Goods and Services Tax) has resulted in significant changes to the Indian taxation system. It has empowered both the state and the federal government to levy taxes on goods and services supplied and consumed. It sought to eliminate the cascading effect of taxation, i.e., taxation on taxation. As a result, almost all indirect taxes were consolidated under a single umbrella known as the GST. However, in keeping with India's federal structure, the GST council choose the dual GST model, that is why the concepts of SGST, CGST, and IGST have emerged as GST components.
To facilitate tax collection, the GST regime has five distinct tax slabs: 0%, 5%, 12%, 18%, and 28%. Most items of mass consumption are taxed at 5%, while luxury items are taxed at 28%. The majority of the other products are taxed at 18%. There is a special rate to encourage the gems and jewellery industry, which is a major export of India. Precious and semi-precious rough stones are taxed at 25%, while gold is taxed at 3%.
The elimination of all interstate check points has resulted in a 20% reduction in interstate travel time since the implementation of GST. According to reports, it has also had a positive impact on the transportation sector because crude consumption and delivery time have decreased. The Goods and Services Tax (GST) is an indirect tax imposed on value-addition that is extensive, destination-based, single, and multistage. In the country, GST has absorbed approximately 17 different types of indirect taxes. Among the various taxes that gave way to GST are state VAT, entertainment tax, Octroi, excise tax, and others. GST now applies to all goods and services, and the tax is levied in accordance with the tax slabs established by the GST Council.
GST's Key Characteristics
The GST's main characteristics are as follows:
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GST has resulted in the consolidation of 17 different indirect taxes at the federal and state levels.
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The GST is a consumption tax.
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GST resulted in the implementation of a 'one country, one tax rate' system across the country.
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Taxes are imposed on the "provision of goods or services."
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No distinction is made between goods and services.
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It is a general tax imposed on all goods and services.
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Most importantly, it put an end to the previous tax on the tax structure subject to certain exemption.
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GST facilitated the free flow of credit.
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At each stage of the supply chain, GST is collected on value addition. Although GST is a multi-stage tax, input tax credit mitigates the imposition of additional taxes.
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GST is a destination bases tax that means it is levied based on where the goods and services are consumed. Assume, for example, that certain goods are manufactured in State A but consumed in State B under such conditions. In that case, the GST collected is credited to State B (consumption state) rather than State A. (manufacturing state). This, however, may result in revenue loss for the manufacturing states, which is compensated for by levying the GST Compensation.
Types of GST
According to the newly implemented tax system, there are four types of GST:
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Integrated Goods and Services Tax (IGST)
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State Goods and Services Tax (SGST)
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Central Goods and Services Tax (CGST)
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Union Territory Goods and Services Tax (UTGST)
Furthermore, the government has established different taxation rates for each, which will apply to the payment of tax for goods and/or services rendered.
1. Integrated Goods and Services Tax (IGST)
The Integrated Goods and Services Tax (IGST) is a tax levied under the GST regime on interstate (between two states) supplies of goods and/or services, as well as imports and exports. IGST is governed by the Integrated Goods and Services Tax Act, 2017. The Central Government has the responsibility of collecting IGST taxes. After collecting taxes, the Central Government distributes them to the various states. For example, if a trader from West Bengal sells goods worth Rs.5,000 to a customer in Karnataka, IGST will apply because the transaction is interstate. If the goods are subject to an 18% GST, the trader will charge Rs.5,900 for them. The amount of IGST collected is Rs.900, shall be transferred to Central Government as the payment of GST on supply of goods.
2. State Goods and Services Tax (SGST)
The State Goods and Services Tax (SGST) is a tax levied under the GST regime on intrastate (within the same state) transactions. On intrastate supplies of goods and/or services, both state and central GST are levied. The State GST or SGST, on the other hand, is levied by the state on goods and/or services purchased or sold within the state. It is governed by the State Goods and Services Tax Act, 2017. The state government is the sole recipient of SGST revenue. For instance, if a West Bengal merchant sells goods worth Rs.5,000 to a West Bengal consumer, the GST charged will be a combination of CGST and SGST. If the GST rate charged is 18%, it will be split evenly into 9% CGST and 9% SGST. In this case, the trader will charge a total of Rs.5,900. The SGST revenue generated by GST, i.e., Rs.450, shall be distributed to the West Bengal state government in the form of SGST.
3. Central Goods and Services Tax, (CGST)
The Central Goods and Services Tax (CGST), like State GST, is a tax levied under the GST regime that is levied on intrastate (within the same state) transactions. It is governed by the Central Goods and Services Tax Act, 2017. The CGST revenue is collected by the Central Government. As previously stated, if a trader from West Bengal sells goods worth Rs.5,000 to a customer in West Bengal, the GST applicable on the transaction will be a combination of CGST and SGST. If the GST rate charged is 18%, it will be split evenly into 9% CGST and 9% SGST. In this case, the trader will charge a total of Rs.5,900. The Central Government will receive Rs.450 from the revenue generated by GST under the heading of CGST.
4. Union Territory Goods and Services Tax, (UTGST)
The Union Territory Goods and Services Tax (UTGST), which is levied on the supply of goods and/or services in India's Union Territories (UTs), is the counterpart to the State Goods and Services Tax (SGST). The UTGST is levied on goods and/or services supplied in the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra and Nagar Haveli, and Lakshadweep. It is governed by the Union Territory Goods and Services Tax Act, 2017. The revenue generated by UTGST is collected by the Union Territory government. In Union Territories, the UTGST replaces the SGST. As a result, in Union Territories, the UTGST will be levied in addition to the CGST.
Why was there a need for GST(Goods & Services Tax)?
The most important question that arises here is why GST is required. To understand this, we must first examine the previous structure of indirect taxation that existed. The Central Government imposed Central Excise Duty on goods manufactured, Service Tax on services rendered, and CST on interstate sales of goods, but these taxes were collected by the appropriate State Government, and State Governments levied VAT on retail sales, Entry Tax on goods entering the State, Luxury Tax, Purchase Tax, and so on. There was an apparent multiplicity of taxes being levied on the same supply chain.
As a result, there was a tax cascade. Furthermore, certain taxes levied by state governments were not permitted as a set-off for payment of other taxes levied by them. Furthermore, the presence of numerous VAT laws resulted in disparities in tax rates and tax practises, dividing the country into distinct economic spheres. The establishment of tariff and non-tariff barriers hampered the free flow of trade throughout the country. Furthermore, the large number of taxes imposed a high compliance cost on taxpayers in the form of returns, payments, and so on.
Determining the Application of CGST, SGST, UGST or IGST in India?
The location of the consumer and the supplier of goods and services is the most important factor in determining whether to apply SGST/UGST in addition to CGST or only IGST.
The GST regime takes into account two types of transactions and applies GST based on them.
1. Intra-State transactions
When a transaction occurs within a state, both the SGST and the CGST are applied at the time of collection. For example, if a supplier supplies 1 tonne of iron ore to a consumer in Jharkhand, the supplier will be required to collect 5% of the GST collected from the consumer. The 5% GST collected is made up of 2.5% CGST and 2.5% SGST. The collected tax will be directed to the central and state governments.
2. Inter-State transactions
If the transaction takes place between two different states, the IGST is levied. For example, if a supplier delivers iron ore from Jharkhand to a consumer in Punjab, IGST is charged. The IGST tax collected by the central government will be split between the Punjab government (the state of consumption) and the Centre in this case. In a nutshell, intra-state transactions are subject to both the CGST and the SGST, whereas inter-state transactions are subject to the IGST. Most importantly, a consumer will not have to spend more money because the combined rate of CGST and SGST equals IGST. The system has created a win-win situation for both the consumer and the seller by bringing uniformity to the tax structure.
Conclusion
GST is set to change the system of indirect taxation by introducing transparent and corruption-free tax administration, thereby removing the current flaws in the indirect tax structure. GST will unquestionably benefit both consumers and businesses. It is expected to significantly improve the positions of each of these stakeholders in India. The previous structure of indirect taxation needed to be improved due to flaws such as the cascading effect of taxation. This need for change leads to the requirement for GST. The introduction of GST will enable India to better negotiate its terms in international trade forums. It seeks to broaden the tax base by bringing small and medium-sized businesses and the unorganized sector into compliance. This will make Indian markets more stable, allowing them to compete in the international market.
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FAQs:
1. What is the purpose of GST?
GST has absorbed approximately 17 indirect taxes previously levied by the state and federal governments. There was a lack of uniformity in the tax structure as a result of different sets of tax rules adopted by respective State governments. As a result, internal trade within the country was hampered, and tax evasion was possible. All of these issues have been eliminated by the implementation of GST.
2. Is GST beneficial to the country?
GST has brought about a one-tax, one-nation system that benefits everyone. Consumers must now pay only one tax. Similarly, it is beneficial to traders/business owners because input credit is now easier to obtain, allowing them to keep their goods/services prices low.
3. Is there any limit for GST?
Yes, the government has set a limit of 20 lakh under the GST Act. It means that GST registration is now required for businesses with a 20 lakh aggregate turnover or more in a fiscal year.
4. Who is eligible to pay GST in India?
If an individual or a company's turnover exceeds 20 lakh in a fiscal year (FO), they must collect and pay GST. In some states, the limit is ten lakh rupees.
5. Are there any ramifications for failing to pay GST?
If a company is found to be not paying GST, the minimum penalty is $10,000, and the maximum penalty is 10% of the unpaid tax.