1. GST Meaning and Introduction

GST stands for Goods and Services Tax, a destination-based, multi-stage, comprehensive tax levied at each stage of value addition in the supply chain. Implemented on 1st July 2017, GST replaced multiple indirect taxes that were levied on different goods and services in India. The Central Board of Indirect Taxes and Customs (CBIC) is the regulatory body governing all changes and amendments regarding GST.

The primary objective of GST is to achieve the ideology of 'One Nation, One Tax,' simplifying the indirect taxation structure and making it more uniform across the country. It encompasses a vast range of goods and services, with tax rates uniformly applied to ensure fair distribution of wealth among residents.

2. History of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It took 17 years from then for the Law to evolve. In 2017, the GST Bill was passed in the Lok Sabha and Rajya Sabha, and on 1st July 2017, the GST Law came into force. The implementation of GST has led to significant changes in the Indian taxation system, replacing multiple indirect taxes with a single, unified tax.

3. Objectives of GST

The primary objectives of GST introduction include:

• Achieving 'One Nation, One Tax' ideology: GST replaced multiple indirect taxes with a single, unified tax system, making it easier for states to follow the same rate for a particular product or service. This has led to a unified system of indirect tax compliance, reducing complexities for taxpayers and tax administrators.

• Subsuming majority of indirect taxes in India: Under GST, major indirect taxes like service tax, Value Added Tax (VAT), and Central Excise were subsumed into one, simplifying the compliance burden on taxpayers and easing tax administration for the government.

• Eliminating the cascading effect of taxes: One of the primary objectives of GST was to remove the cascading effect of taxes, ensuring a seamless flow of input tax credits across both goods and services.

• Curbing tax evasion: With more stringent GST laws, the chances of tax evasion and fraud have been minimized, ensuring better tax compliance and increased revenue for the government.

• Increasing the taxpayer base: GST has helped widen the tax base in India, bringing certain unorganized sectors under the tax net and increasing tax-registered businesses.

• Online procedures for ease of doing business: With most GST procedures now carried out online, the ease of doing business in India has been significantly improved, simplifying taxpayer compliance.

• Improving logistics and distribution system: A single indirect tax system has led to reduced transportation cycle times, warehouse consolidation, and improved supply chain efficiency, ultimately reducing logistics and warehousing costs.

• Promoting competitive pricing and increasing consumption: Uniform GST rates have contributed to competitive pricing across India and globally, resulting in increased consumption and higher revenues for the government.

4. Advantages of GST

The GST introduction has brought several advantages, including:

• Removal of the cascading effect: GST has eliminated the tax on tax effect, leading to a decrease in the cost of goods and services.

• Technology-driven system: GST is primarily a technology-driven tax system, with all activities like registration, return filing, refunds, and notices carried out online, making processes faster and more efficient.

• Uniform tax rates: With GST, tax rates on goods and services are uniformly applied across the country, ensuring fair distribution of wealth among residents.

• Increased tax compliance: GST has simplified tax compliance, making it easier for taxpayers to file returns and pay taxes on time.

• Improved logistics and supply chain efficiency: GST has reduced transportation times and improved supply chain efficiency, ultimately leading to cost savings for businesses.

• Competitive pricing and increased consumption: Uniform GST rates have resulted in competitive pricing, increased consumption, and higher revenues for the government.

5. Components of GST

There are three taxes applicable under GST: CGST (Central GST), SGST (State GST), and IGST (Integrated GST).

• CGST: The tax collected by the Central Government on intra-state sales (e.g., a transaction happening within Maharashtra).

• SGST: The tax collected by the state government on intra-state sales (e.g., a transaction happening within Maharashtra).

• IGST: The tax collected by the Central Government for inter-state sales (e.g., Maharashtra to Tamil Nadu).

6. Tax Laws before GST

Before the GST introduction, there were numerous indirect taxes levied by both the state and the central governments. These taxes led to a lot of overlapping and complexity in the taxation system.

Some of the pre-GST taxes included:

• Central Excise Duty
• State VAT
• Central Sales Tax
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duty of Customs
• Cess
• Purchase Tax
• Luxury Tax
• Entertainment Tax
• Entry Tax
• Taxes on advertisements
• Taxes on lotteries, betting, and gambling

GST replaced all these taxes, simplifying the tax system and making it more uniform across the country.

7. How GST Helped in Price Reduction

The GST introduction has led to the removal of the cascading effect of taxes, ensuring that tax is only levied on the value-addition at each stage of the supply chain. This has resulted in reduced prices for goods and services, ultimately benefiting the end consumer.

For example, when goods were manufactured and sold in the pre-GST regime, excise duty was charged by the central government, and VAT was charged by the state government. This led to a tax on tax effect, also known as the cascading effect of taxes. With GST, this cascading effect has been eliminated, leading to lower prices for goods and services.

8. New Compliances Under GST

With the introduction of GST, several new systems have been implemented, such as e-Way Bills and e-Invoicing.

• e-Way Bills: Launched in 2018, the e-Way bill system allows manufacturers, traders, and transporters to generate e-Way bills for the goods transported within and across states. This system has reduced time at check-posts and helped curb tax evasion.

• E-invoicing: Introduced in 2020, e-Invoicing requires businesses with an annual turnover exceeding a certain threshold to obtain a unique invoice reference number for every business-to-business invoice. e-Invoicing helps reduce data entry errors and enables the seamless flow of invoice information between the Invoice Registration Portal, GST portal, and e-Way bill portal.

9. GST Rates and Applicable Slabs

The GST tax structure in India consists of six rate slabs, which are applied to various goods and services. These slabs include:

• Exempted goods (No tax applicable)
• 0.25% rate slab
• 5% rate slab
• 12% rate slab
• 18% rate slab
• 28% rate slab

Luxury and comfort goods are categorized under higher slabs, while necessities are included in lower and nil slab rates. This classification aims to ensure a uniform distribution of wealth among residents of India.

10. Composition Scheme under GST

The composition scheme under GST allows small taxpayers with an annual turnover within a specific limit to opt for the scheme and pay their taxes at a reduced rate. This scheme is voluntary and aims to ease the tax payment process for small businesses.

The rates applicable under the composition scheme include:

• Goods traders and manufacturers: 0.5% (CGST) + 0.5% (SGST) = 1% total GST rate
• Restaurants that do not serve alcohol: 2.5% (CGST) + 2.5% (SGST) = 5% total GST rate

To avail of the composition scheme, businesses must meet certain conditions and file GST CMP-02 when opting for the scheme.

Conclusion

The introduction of GST has revolutionized India's indirect tax system, consolidating it under a unified umbrella. This multi-stage, destination-based, and value-added structure simplifies tax compliance, eradicates the cascading effect of taxes, and enhances the ease of doing business in India. To navigate this new tax system effectively, businesses and taxpayers need a comprehensive understanding of GST, encompassing its history, objectives, components, and rates. VirtualGGC, a leading service provider, extends its expertise to support businesses in adapting to the GST framework, offering seamless virtual assistance for efficient tax management and compliance. Elevate your knowledge with GGCPTA's GST Income Tax course and explore our range of short-term finance courses today!