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The Goods and Services Tax, or GST, is an indirect tax law applicable across India. It has replaced multiple Indirect Taxes such as excise duty, service tax,

Value-added taxes, octroi, entry tax, and luxury tax. Laws pertaining to the same were put into effect on July 01, 2017, in India. This indirect taxation system has gone through multiple amendments since to arrive at the current juncture. However, it must be noted that GST does not replace customs duty, which is still mandatory on imported goods and services. Every kind of product and service attracts different tax rate under GST. For example, luxury or sin goods are classified to attract a higher interest rate, whereas necessities have been included in lower and nil rate slab rates.

Before we continue with more of the Indian GST, let us understand the basic idea of GST.
  1. GST is a value-added tax levied on supply.
  2. GST offers an extensive and continuous chain of tax set-offs.
  3. The supplier at each stage can use the input tax credit of GST paid on the purchase of goods and services. The business can set off this Input Tax Credit (ITC) against the GST payable on the supply of goods and services to be made.
  4. Input tax credit refers to the set-off of tax paid on purchases that you can use against the tax collected on sales. Only the balance amount of tax needs to be paid.
  5. There is no cascading effect on tax effects under the GST framework. Cascading effect refers to the system where tax is charged on every stage by including the tax previously paid on purchases. This leads to tax on tax.

In the earlier tax regime, many indirect taxes were levied by both state and central governments. The states mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations. The centre taxed inter-state sale of goods. CST (Central State Tax) was applicable for the inter-state sale of goods. These indirect taxes, such as the entertainment tax, octroi, and local tax, were levied together. The following are the list of indirect taxes that were applicable in the pre-GST regime:
  1. Central Excise Duty
  2. Duties of Excise
  3. Additional Duties of Excise
  4. Additional Duties of Customs
  5. Special Additional Duty of Customs
  6. Cess
  7. State VAT
  8. Central Sales Tax
  9. Purchase Tax
  10. Luxury Tax
  11. Entertainment Tax
  12. Entry Tax
  13. Taxes on advertisements
  14. Taxes on lotteries, betting, and gambling
Taxes like CGST, SGST, and IGST have replaced all the above taxes.

Under the previous indirect tax system, India’s value-added tax’s tax collection guidelines were not uniformly followed. The Centre’s CENVAT and the state-level VAT varied. Its application was confusing and stayed divided by the following reasons:
  1. The tax on tax effect due to:
    1. Including CENVAT in the value for calculating VAT
    2. Duty of Non-VAT CST
  2. Some of the local levies in State VAT, such as entertainment tax, luxury tax, tax on betting, lottery, gambling, etc., were not brought under VAT.
  3. Double taxation of certain goods and services
  4. Service tax and VAT were not integrated.
  5. No CENVAT after the manufacturing stage.
All these issues lead to under-reporting of sales by businesses, which in turn decreased the revenue to the government from tax collection. The government introduced GST to solve these issues, ensure proper tax payments and reporting by businesses, and ensure proper tax collection.

In brief, this tax is levied on the supply of goods and services. It is calculated on the value added to any goods. Goods and Services Tax in India is a comprehensive, destination-based and multi-stage tax added on every value addition.

Let's take a complete look into what these various terms mean, thereby understanding what GST is all about.
  • Comprehensive - GST covers every aspect of sale and purchase. It replaced various other taxes. It is called comprehensive because it encompasses every aspect of commercial life.
  • Destination-based - GST is levied in a state where the product is sold rather than the state where it was manufactured. For example, if these goods were produced in West Bengal and sold in Andhra Pradesh, the GST will be levied and collected in Andhra Pradesh.
  • Multi-stage - In the production of any goods or services, there are usually plenty of stages. These stages include the procurement of raw materials, production or manufacture, warehousing, selling to wholesalers, retailers and finally, the end consumers. At every stage, GST is levied. This makes it a multi-valued tax.
  • Value addition - Let's take an example of textile production. First, raw materials such as cotton or silk are taken and made into cloth. This increases the value of the raw materials. Then the fabric is designed into clothes which further enhances their value. After the dresses are made, they are branded and sold to retailers who advertise and market them, thereby increasing their value. GST is levied on each of these stages where value is added to the product.

The Goods & Services Tax brought a major change in the taxation visuals in India. Earlier, different taxes were paid separately to the state and the centre. However, GSTIN subsumed all taxes into one, and now there is the practical application of 'One Nation, One Tax.' Some of the changes that GST brought in are as follows:
  • No multiple taxes to be paid
  • Replacement of indirect taxes like excise duty and sales tax into one
  • Clear distinction of taxes on luxuries and necessities
  • Introduction of simplified ways to fill Income Tax Returns and taxes, for instance, through the official GST online portal.
  • Boost for Real estate and MSME sector
  • Ease for transportation of goods, as no separate taxes
  • Tax administration under both State and Central governments
  • Transparency in the taxation process

There is a four-fold break-up of goods and services tax in India. It oversees the levy of tax for central government GST, GST for states, union territories, and the integrated goods and services tax. You can check out the details of these below.
  • Central Goods and Services Tax - The central government levies a CGST on goods and services transactions. It is levied along with the State Goods and Services Tax and the Union Territory Goods and Services Tax. These are shared between the state and centre. For example, if you are a Mumbai-based trader selling to another Mumbai-based trader for an amount of Rs.50,000 with a GST calculated at 18%, then 9% will go to the state's coffers, and the other 9% will go to the central government's coffers.
  • State Goods and Services Tax - SGST or State Goods and Services Tax is calculated for intrastate goods and services transactions. The State Government keeps all of this tax that is levied. This tax replaces the other previous taxes such as VAT, octroi, luxury, entertainment and purchase tax.
  • Integrated Goods and Services Tax -Integrated Goods and Services Tax is the tax that is levied on service transactions and inter-state goods. It applies to exports and imports too. Both the state and the center take their respective shares of the tax. SGST part of the tax goes to that state where the goods or services are consumed.
  • Union Territory Goods and Services Tax - Union Territory Goods and Services Tax is the same as State Goods and Services Tax except that it is levied in the Union Territories of the country rather than the states. So expect to pay this tax in Pondicherry, Daman and Diu, etc.

The below mentioned entities and individuals must register for Goods And Services Tax:
  • E-commerce aggregators
  • Individuals who supply through e-commerce aggregators
  • Individuals who pay tax as per the reverse change mechanism
  • Agents of input service distributors and suppliers
  • Non-Resident individuals who pay tax
  • Businesses that have a turnover that is more than the threshold limit
  • Individuals who have registered before the GST law was introduced

The introduction of GST bill will help in simplifying administration as it removes multiple taxation systems at every stage of trade model and removes disturbances in production. It also aims towards providing a uniform tax rate for all goods and services. The manufacturers will be benefited by the tax regime as it will reduce the tax that levied on them. A system of seamless tax-credits will lead to minimal cascading of taxes, thus reducing hidden costs during trade.
  • Easy Compliance
  • Uniformity in tax rates and structure
  • Removal of cascading or compounding effect of tax
  • Enhance the competitiveness
  • Move towards development of a common national market
  • Simple and easy administration
  • Payment of the single and transparent tax
  • Reduction of burden of the taxpayers
  • This is a federal law, which means that the states will no longer have the right to make new laws on taxation towards goods and services.
  • It simplifies the tax system and makes it easier to understand as well as cheaper to implement at various levels.
  • Tax evasion at various stages will be eliminated as tax offsets can be collected only if taxes have been paid originally. You will also be able to buy raw materials or constituent materials for production only from those who have paid taxes, in order to claim benefits.
  • It will be cheaper to buy input goods and services for production from other states.
  • The current supply and distribution chain may undergo a change with a change in taxation system that does away with excise and customs duties.
  • The consumer will get the end-product at cheaper rates because of elimination of multiple taxes and the tax cascade.
  • As of now, petroleum and petroleum products have been kept out of the GST regime until further notice.
  • Sale of newspapers and advertisements are also likely to fall under the GST regime, allowing the government to increase its revenue considerably.

Any company that is eligible under GST must register itself in the GST portal created by the Government of India. The registered entities will get a unique registration number called GSTIN.

It is mandatory for all Service providers, buyers, and sellers to register. A business that makes a total income of Rs.20 lakhs and more in a financial year must be required to do GST registration. It takes 2-6 working days to process and sometimes takes more time.

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