What is GST? Why was it introduced? Complete guide to goods and services tax

synopsis

What is GST?

The Goods and Services Tax (GST) in India is an indirect tax that has replaced many previous indirect taxes such as excise duty, VAT, and service tax. GST is levied on the supply of goods and services. GST acts as a single domestic indirect tax law for the entire country.

History of GST:

The GST Act was approved in Parliament on March 29, 2017. It came into effect on July 1, 2017. Let's see how it came into effect:

* In the year 2000, the then Prime Minister of India, Atal Bihari Vajpayee, constituted a committee to draft the GST law.

* In 2004, a task force determined that a new tax structure should be implemented to improve the tax system at that time.

* In 006, the Finance Minister proposed to introduce GST from April 1, 2010. 

* In 2011, a constitutional amendment bill was approved to facilitate the introduction of the GST Act.

* In 2012, the Standing Committee started discussions about GST. It submitted its report a year later.

* In 2014, the new Finance Minister Arun Jaitley reintroduced the GST Bill in Parliament, and the bill was approved in the Lok Sabha in 2015.

* However, the implementation of the law was delayed due to non-approval in the Rajya Sabha.

* GST came into effect in 2016, and the revised Model GST Act was approved in both houses. The President of India also approved it.

* In 2017, 4 supplementary GST bills were approved in the Lok Sabha. The Cabinet approved them. The Rajya Sabha later approved 4 supplementary GST bills. With this, the new tax system came into effect on July 1, 2017.

The following central taxes have been replaced by GST:

* Service tax

* Central Excise Duties

* Additional Excise Duties

* Additional Duty of Customs

* Excise duties

* Cess and Surcharge

State taxes merged in GST:

* Entry tax

* Luxury tax

* Central Sales Tax

* Purchase tax

* State VAT

* Entertainment tax

* State Cess and Surcharges

* Taxes on advertisements

* Taxes on gambling and lottery

GST has four different components such as CGST, SGST, IGST, and UTGST.

* Central Goods and Services Tax (CGST): It is levied on the supply of products and services within the state. 

* State Goods and Services Tax (SGST): It is levied on the sale of products or services within a state.

* Integrated Goods and Services Tax (IGST): It is levied on inter-state transactions of products and services. 

* Union Territory Goods and Services Tax (UTGST): It is levied on the supply of products as well as services in the Union Territories of Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh in the country. UTGST is also levied along with CGST.

GST Objectives:

* Simplification and Standardization: By implementing a single tax, it ensures uniform rates in the states for the same product or service, which simplifies tax administration.

* Including Major Indirect Taxes: GST has integrated major indirect taxes (such as service tax, VAT, central excise) into one, significantly reducing the compliance burden on taxpayers. It has simplified tax administration for the government.

* Eliminating the Cascading Effect of Taxes: Under GST, tax is levied only on the net value added at each stage of the supply chain, which allows for a smooth flow of input tax credits in both goods and services.

* Reducing Tax Evasion: With GST being a nationwide tax and having a centralized monitoring system, defaulters are identified and addressed more efficiently, thereby reducing tax evasion and fraud.

* Expanding the Taxpayer Base: Previously, various tax laws had different threshold limits for registration based on turnover. As a unified tax on both goods and services, GST has increased the number of tax-registered businesses.

* Improving Ease of Doing Business: GST procedures, from registration to return filing, refund, and e-way bill generation, are now almost entirely online. This change has significantly simplified compliance in India, improving the ease of doing business.

* Improving Logistics and Distribution: The e-way bill system and the removal of inter-state checkpoints have improved transportation and destination efficiency, reducing logistics  and warehousing costs.

* Promoting Competitive Prices and Increasing Consumption: Uniform GST rates have promoted globally competitive prices across India. This has increased consumption, contributing to higher revenues. Another important objective of GST has been achieved.

GST Benefits:

* Elimination of Cascading Tax Effect: The introduction of GST has eliminated the need to file multiple tax returns.

* Regulation of the Unorganized Sector: Online compliance, payment, and claim processes have all been streamlined by the GST bill.

* Uniform Tax System: This facilitates consistency in laws, policies, and  tax rates across India. Businesses can reduce their taxes through the GST composition scheme.

* Streamlined GST Online Process: This has streamlined the process well. It has made it easier for startups to easily register for GST services in one place.

How does GST work?

* Manufacturer: The manufacturer has to pay GST on the raw material purchased and the value added to make the product.

* Service Provider: In this case, the service provider is responsible for paying GST on both the purchase price of the product and the value added to it.

* However, the manufacturer can reduce the tax payment from the total GST to be paid.

* Retailer: The retailer has to pay for the product purchased from the distributor and the margin they added.

* However, the retailer can reduce the tax payment from the total GST amount to be paid.

* Consumer: GST has to be paid on the product purchased.

GST Registration:

Any company eligible under GST must register on the GST portal created by the Government of India. Registered entities receive a unique registration number called GSTIN. All service providers, buyers, and sellers must register. A business earning a total income of Rs 20 lakh or more in a financial year must register for GST. It takes 2-6 working days to process.

GST Returns:

GST returns is a document containing information about income that a taxpayer has to file with the authorities. This information is used to calculate the tax liability of the taxpayer. 

Under GST, registered dealers must file their GST returns with details of their purchases, sales, input tax credit, and output GST. Businesses are expected to file 2 monthly returns as well as an annual return.

GST Rates:

The GST Council has allocated GST rates for various goods and services. Some products can be purchased without GST, while others come at 5%, 12%, 18%, and 28% GST.

Product Name Applicable GST Rate:

Mobile phone - 18%

Sanitizer - 18%

Gold Jewelry -    3%

Two-wheeler -    28%

Car - 28%

GST Payments:

Currently, GST has to be paid every month. GSTR-1 and  GSTR-3B have to be filed. In the case of returns, the relevant forms must also be submitted. Payments can be made both online and offline. After making the payment, a challan has to be generated. 

GST E-Way Bill:

An electronic document created to show proof of movement of goods is an e-way bill. You can generate the bill from the GST portal. 

GST Council:

The GST Council makes any recommendations to the State and  Central Government regarding any issues related to GST. The Chairman of this Council is the Indian Union Finance Minister. The other members of the Council are the Union Revenue or Finance Minister of all the States. 

What was the procedure in force for GST implementation? 

* The Center and the State used to collect taxes separately. Tax policies varied from state to state.

* Even if an import tax was levied on one person, the burden fell on another person. In the case of direct tax, the taxpayer has to pay the tax.

* Before the introduction of GST, there were direct and indirect taxes in India.

Who should register for GST?

The following organizations and  individuals must register for GST:

* E-commerce aggregators.

* Persons supplying through e-commerce aggregators.

* Persons paying tax as per reverse change mechanism.

* Input service distributors, agents of suppliers.

* Taxable expatriates.

* Businesses with turnover exceeding the limit.

* Persons who registered before the introduction of the GST Act.

How to calculate GST?

It is very important that you pay the correct amount for GST because failure to do so will result in a penalty of 18% interest. The GST calculator makes it easier for taxpayers to determine how much GST to pay. You must enter all the required information for better results.

Here is an example showing how your GST liability can be calculated:

If the total value of interstate sales is Rs 25 lakh, then the advance received is Rs 8 lakh. SGST is calculated as Rs 25 lakh x 9% = Rs 2.25 lakh, CGST  Rs 25 lakh x 9% = Rs 2.25 lakh 

GST Helpline:

Taxpayers who have any confusion or doubts regarding GST filing can contact the concerned authority through the GST helpline. Previously, taxpayers could contact through the helpdesk email ID - helpdesk@gst.gov.in. But now this mail ID has been discontinued. 

GST Helpline details are as follows:

Toll-free phone number 1800 1200 232 ,  1800-103-4786  (Help Desk Number) Self-help portal    https://selfservice.gstsystem.in/ 

What are the goods exempted from GST?

Appliances or equipment: Appliances for the disabled, agricultural implements, etc.

Raw materials: Handloom fabrics, unprocessed wool, cotton for khadi yarn, raw jute fiber, raw silk, etc.

Food items: Vegetables, fruits, meat, fish, cereals, etc.

Others    Books: Newspapers, journals, vaccines, maps, non-judicial stamps, etc.

How to know GSTIN - GST Identification Number:

GSTIN is a 15-digit unique code provided to every taxpayer. GSTIN is provided based on the state you live in and PAN. What are its uses. 

* Loans can be obtained with the help of this number.

* Returns can be claimed.

* Verification process becomes easy. 

* Modifications can be made. 

Verify the GST number online by visiting the official GST page. Enter the GSTIN mentioned in the invoice in the search box, then enter the captcha, then click 'Enter' to view the details. 

Revised GST Compliance:

In addition to filing GST returns online, the tax framework has introduced several new protocols. 

E-way bills: This centralized e-way bill system was launched on April 1, 2018 for inter-state movement of goods and on April 15, 2018 for inter-state movement. This system allows traders, manufacturers, and transporters to easily generate e-way bills for transported goods. It has streamlined processes for tax authorities. Reduced time spent at checkpoints, thereby curbing tax evasion.

E-invoicing: Applicable to businesses with an annual turnover of over Rs 100 crore in the previous financial year, the e-invoicing system mandates obtaining a unique invoice reference number for all B2B invoices. These invoices are uploaded to the GSTN online invoice registration portal, where their accuracy and authenticity are verified. Once approved, businesses are issued a digital signature and QR code. E-invoicing reduces data entry errors, increases invoice interoperability, and facilitates instant transfer of invoice information between the IRP and the GST platform. It also eliminates the need for manual filing of GSTR-1.

HSN Code Requirements: From April 1, 2021, businesses must include their SAC/HSN code on all goods or services supplies in tax invoices. For example, entities with a total turnover of up to Rs 5 crore in the previous year must mention their 4-digit HSN code on invoices, while those with a turnover of more than Rs 5 crore must indicate their 6-digit HSN code. Changes in the 4/6-digit HSN or SAC code must be recorded under GSTR-1 Form Table 12.

Questions and Answers Regarding GST: 

1) When was GST implemented in India? 

GST came into effect at midnight on July 01, 2017 after the GST Act was approved in Parliament.

2) Who is eligible to pay GST?

Generally, GST has to be paid by the goods or service provider. However, under the reverse charge process, the recipient may be held liable in certain circumstances, such as imports other registered supplies. 

3) Do I have to pay GST every month?

A GST-registered business must submit monthly or quarterly GST returns along with an annual GST return depending on their business category.

4) Who cannot claim GST?

Unregistered persons, businesses that have not reached the limit for registration cannot claim GST. 

5) Who is exempt from GST?

Farmers, those with annual turnover below specified limits. In addition, those supplying NIL-rated or fully exempt goods services, entities engaged in certain activities that do not fall under the purview of GST are exempt. Small and medium-sized businesses benefit from exemptions based on their total turnover, which varies from state to state.

6) What is the purpose of Form GSTR-3B?

GSTR-3B form serves as a simplified summary return for taxpayers to declare their GST liabilities for a specific tax period to fulfill these liabilities. Regular taxpayers are required to file Form GSTR-3B returns regularly.

7) What is the function of Form GSTR-2A?

GSTR-2A form is a dynamically generated tax return automatically provided to businesses through the GST portal regarding purchases. It aggregates information from sellers' GSTR-1 filings describing goods/or services purchased within a given month.

8) What is the limit imposed on GST?

The Central Government has set threshold limits of Rs 20 lakh and Rs 40 lakh for GST registration for suppliers of goods. However, since the income of each state also depends on GST, each state government should take a decision regarding the threshold limit within a week.

9) What are the four types of GST in India?

In India, there are four types of GST: Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax (UTGST).

10) What is the main objective of GST?

Its main objective is to simplify the tax process. 

11) What type of tax is GST? 

It is an indirect tax that has replaced many indirect taxes in India.

12) Is GST good for the country?

GST simplifies the country's tax system, making it easier for consumers to pay a single tax. Keeps the price of goods or services low. 

13) Are there any consequences for not paying GST?

If GST is not paid, the organization or individual has to pay a penalty of at least Rs 10,000 and a maximum of 10%.

14) Is it mandatory for businesses to file GST?

It is mandatory to file GST return even if the transaction is low or zero for a specific period. Filing GST return is very important,  it helps in filing GST return without unnecessary penalties in the future.