In this article, we take a closer look at what is GST and the reason why it is making business and taxes simpler and easier.
What is GST?
Advantages Of GST
Main Constituent of GST?
Tax Laws before GST
What changes has GST bring in?
Understanding With Example!
1) GST Law:-
GST Law comprising
(i) Central Goods and Services Tax Act,
2017 including Central Goods and Services Tax (Extension to Jammu and Kashmir) Act, 2017,
(ii) State Goods and Services Tax Act, 2017 as notified by respective States,
(iii) Union Territory Goods and Services Tax Act, 2017,
(iv) Integrated Goods and Services Tax Act, 2017 including Integrated Goods and Services Tax (Extension to Jammu and Kashmir Act, 2017),
(v) Goods and Services Tax (Compensation to States) Act, 2017 (hereinafter referred as CGST, SGST, UTGST, IGST and CESS respectively at the GST portal) and
(vi) Rules, Notifications, Amendments and Circulars issued under the respective Acts.
2) What is GST?
GST is a complete indirect tax levy on manufacture, sale and consumption of goods as well as services
at the national level. It will replace all indirect taxes collect on goods and services by states and Central.
Businesses are required to obtain a GST Identification Number in every state they are registered.
GST has been apply in India from July 1, 2017 and it has adopted the Dual GST model in which both States and Central levies tax on Goods or Services or both.
SGST – State GST, collected by the State Govt.
CGST – Central GST, collected by the Central Govt.
IGST – Integrated GST, collected by the Central Govt.
UTGST – Union territory GST, collected by union territory government
3) Advantages Of GST
GST has mainly removed the outpouring effect on the sale of goods and services.
Removal of outpouring effect has impacted the cost of goods. Since the GST system of government eliminates the tax on tax,
the cost of goods decreases. GST is also mainly technologically driven. All activities like registration,
return filing, application for refund and response to notice needs to be done online on the GST Portal;
this speed up, the processes.
4) Main Constituent Of GST
There are 3 taxes applicable under this system: CGST, SGST & IGST.
CGST: Collected by the Central Government on an intra-state sale (Eg: transaction happening within Maharashtra)
SGST: Collected by the State Government on an intra-state sale (Eg: transaction happening within Maharashtra)
IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra to Tamil Nadu)
In most cases, the tax structure under the new system of government will be as follows:
Sale within the State
CGST + SGST
VAT + Central Excise/Service tax
Revenue will be shared equally between the Centre and the State
Sale to another State
Central Sales Tax + Excise/Service Tax
There will only be one type of tax (central) in case of inter-state sales. The Centre will then share the IGST revenue based on the destination of goods.
Case In Point:
Let us suppose that a dealer in Delhi had sold the goods to a dealer in Rajasthan worth Rs. 50,000. The tax rate is 18% comprising of only IGST.
In such case, the dealer has to charge Rs. 9,000 as IGST. This earnings will go to the Central Government.
The same dealer sells goods to a consumer in Delhi worth Rs. 50,000. The GST rate on the good is 12%. This rate comprises of CGST at 6% and SGST at 6%.
The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will go to the Central Government and Rs. 3,000
will go to the Rajasthan government as the sale is within the state.
5) What changes has GST bring in?:
In the pre-GST scheme, every purchaser including the final consumer paid tax on tax. This tax on tax is called stream Effect of Taxes.
GST has removed this cascading effect as the tax is calculated only on the value-addition at each stage of the transfer
of ownership. Understand what the cascading effect is and how GST helps by watching this simple video:
Case In Point:
Lets tanke an example of papercup manufacturer along with some numbers,
let’s see what happens to the cost of goods and the taxes in the earlier and GST taxes. Tax calculations in earlier system:
Warehouse adds a label and repacks @ 300
Retailer advertises @ 500
Throughout the way, the tax accountability was passed on at every stage of the transaction and the final accountability comes to rest with the customer.
This is called the outpouring Effect of Taxes where a tax is paid on tax and the value of the item keeps increasing every time this happens.
Tax calculations in current regime:
Warehouse adds label and repacks @ 300
Retailer advertises @ 500
In the demonstration of Goods and Services Tax, there is a way to claim credit for tax paid in possess oneself of input.
What happens in this case is, the independent who has paid a tax already can claim credit for this tax when he submits his taxes.
In the end, every time an individual is able to claim the input tax credit, the sale price is reduced and the cost price for the buyer
is reduced because of lower tax liability. The final value of the papercups is therefore reduced from Rs. 2,244 to Rs. 1,980,
thus reducing the tax burden on the final customer. GST regime also brought a bring under one roof system of waybills by the introduction
of “E-way bills”. This system was launched on 1st April 2018 for Inter-state movement of goods and on 15th April 2018 for intra-state
movement of goods in a thunderstruck manner. Under the e-way bill system, manufacturers, traders & transporters are now able to generate
e-way bills for the goods transported from the place of its origin to its destination on a common portal with ease. Tax authorities
are also benefitted as this system has reduced time at check -posts and help reduce tax evasion.
For further reading and awareness,
check out these articles: