Understanding the basics of GST Bill In India

New to GST Law? In this post, we will cover the basics, which will help you develop an understanding of the GST Law in India. This comprehensive guide will cover-

What is GST?

The full form of GST is Goods and Service Tax. It is an indirect tax introduced in India from 1st July 2017. It is a value-added tax levied on the manufacture, sale, and consumption of goods and services. Alternatively, GST can be defined as a destination based tax where the tax is collected on the place where the ultimate consumption is done, no matter how long the journey of good otherwise had been!! At every stage of supply, credit for, the taxes already paid on purchases or inward supply is allowed. And, the final payout occurs from the pocket of the consumer of goods or service. There are differential rates prescribed by Central Board of Indirect Tax & Customs (CBIC). There is also a GST council set up to make and implement the by laws. Here are some of the key changes which GST has brought to the old taxes system :

  • Abolishing Cascading effect i.e. tax on tax.
  • Removing the differentiation between goods and service, the only concept is supply
  • Bringing harmony to the overall economy by concepts like E waybill
  • TDS and TCS introduced in the indirect taxes
  • Single window clearance
  • Freedom from multiple taxations
  • Increased transparency and so on

What is the date from which GST came into force in India?

With a lot of constitutional amendments and years of delay the Goods and Service tax finally been made applicable in India from 1st July 2017. Although the foundation was laid way back in 2004 when the idea was initiated by the Kelkar Task Force. Since then after a lot of discussions, approvals and debates GST successfully rolled out in the year 2017 as one of the biggest taxation reform witnessed by the Indian economy after the eve of Independence.


What is the purpose of bringing GST in India?

GST which is the biggest tax reform brought into INDIA post-independence has paved its way to resolving major inherent flaws in the Indian indirect taxation system. Such as,


Deficiencies in the VAT system:

VAT system was the biggest victim of cascading effect i.e. double tax or tax on taxes already paid. The same has been resolved with the implementation of GST. Earlier, a manufacturer was paying excise on production on goods which formed part of goods for the dealer selling the same on a later stage. And while making the sales he was either paying VAT or CENVAT on price inclusive of excise. Which lead to double taxation and ultimately increased the burden on the consumer. GST has addressed this flaw efficiently.


Removing the confusions of the existing tax regime:

The major talked about the issue of Classification of a product as a good or service has been redressed by the newly introduced Goods and Service Tax. There were a lot of confusions and litigations over the subject matter whether as to classify a product as a good or service also it leads to dispute in deciding the rate of taxes. With the concept of supply introduced by GST, all such paradoxes have settled down.


Integration of all existing taxes:

Under the old taxation policies, there were a lot of ambiguities like
  • CENVAT and VAT both were Value-added taxes still imposed separately
  • Service tax and VAT was charged separately
  • Luxury tax and VAT were imposed simultaneously

All these led to a lot of inconvenience in complying with different procedural requirements under different laws and statues. Also, Central taxes like CENVAT were not allowed to be set off against State taxes.


Easy compliances:

Trying to do 1000 things at a time obviously leads to mismanagement and ineffectiveness. The same goes for our old indirect tax structure. So many taxes with different constitutional bodies was not an easy task to do. GST has made compliances easier, as separate records or compliance under varied provisions of the law are no longer needed.


Increased Transparency:

Easy compliances have led to better monitoring. The synergies arising out of GST can now be used to take the much-needed actions timely. Which will help to build a sound structure of indirect taxes into India.


Faster redressal and quicker actions

GST has made tracking a lot easier. A person who was aggrieved or had a query previously was redirected from one place to other in name of different prevalent laws. Also no conclusion to disputes pending could be concluded because of multiple legislations applicable. All these grievances would be reduced after implementation of GST. As it is One Nation One Tax.


Single window clearances:

Multiple registrations and formalities under different laws led a person running the business into a pathetic situation. GST is like a blessing for all those who were running to different offices for compliances procedures. After GST, taxpayers would be happy to follow the simple set of rules under just one tax norm.


The ease at both ends:

Old tax regimes led people to file taxes differently for different taxes. GST has eradicated the problem from its root. Now common tax payments are required to be made. Additionally, a simple set of returns called GTSRs are required to file under GST law and no separated due dates as per varied laws need to be bookmarked.


Economies to scale:

The savings of resources like time, cost and efforts will enable both a taxpayer and the nodal officers to improvise and effectively use the available assets. The Taxpayers can now invest the same in business expansion and the government in better implementation.


Effective set off of ITC:

Taxes were being levied both at Central and State level, along with inconvenience and added costs it also led to the problem with setting up of tax credits. GST being one single tax both at central and state level has proved to be a boon for the taxpayers by ensuring maximum credit sett offs.


Which indirect taxes have been replaced with the implementation of GST?

With the introduction of GST majority of Indirect taxes have been wiped out. The one nation one tax has subsumed in itself many existing taxes both at Central and State Level. Here is a list of Central Taxes which merged in GST-

  • Central excise Duty and Additional Excise Duties
  • Excise Duty under Medicinal & Toilet Preparation Act
  • Service Tax
  • Central Sales Tax
  • CVD & Special CVD

Central Surcharges and Cess in relation to supply of goods and services

The State levies which have been integrated with GST-
  • VAT and Sales Tax
  • Entertainment Tax (except imposed locally)
  • Entry Tax
  • Purchase Tax
  • Luxury Tax
  • Tax on Advertisement
  • Tax on lottery, betting, and gambling

State Surcharges and Cess in relation to the supply of goods and services


What is the structure or framework of GST in India?

In India, we have the federal government, which means we have ministers both at centre and state levels. The same modal has been adopted under GST. The government has adopted GST in its Dual or concurrent model. As a result of which both Centre and State government will levy GST simultaneously. The implemented GST structure is categorised under four heads, namely –

  • IGST – Integrated Goods and Service Tax
  • CGST – Central Goods and Service Tax (CGST)
  • SGST – State Goods and Service Tax
  • UGST – Union Territory Goods and Service Tax

A big applicative tax reform brought by GST is that it extends to the whole of India including the State of Jammu and Kashmir, unlike the Service Tax Act 1994.


What is SGST?

The full form of SGST is State Goods and Services Tax. It is a tax levied by the State Government on the supplies of both goods and services within the state i.e. intrastate. The tax liability under SGST will be first set off against SGST or UTGST and then the balance can be set off against IGST input tax credit only. The tax amount collected under SGST is used by the State Government of the state where the transaction took place. The rate of State Goods and Services Tax shall be equal to the rate of CGST on a particular product or service.


What is CGST?

The full form of CGST is Central Goods and Services Tax. It is a tax levied by the Central Government on the supplies of both goods and services within the state i.e. intrastate. The tax liability under CGST will be first set off against CGST and the balance can be set off against IGST input tax credit only. The tax amount collected under CGST shall be transferred to the Central Government. On a particular product or service, the rate of Central Goods and Services Tax shall be equal to the rate of SGST.


What is UTGST?

The full form of UTGST is Union Territory Goods and Services Tax. It is a tax levied by the Government of Union Territory on the supplies of both goods and services within the state i.e. intrastate. The tax liability under UTGST will be first set off against UTGST and the balance can be set off against IGST input tax credit only. The concept of this tax is the same as SGST, the only difference is that instead of SGST this tax is applicable in the union territories of India. The tax amount collected under UTGST shall be transferred to the Government of Union Territory. The rate of Union Territory Goods and Services Tax shall be equal to the rate of CGST on a particular product or service.


What is IGST?

The full form of IGST is Integrated Goods and Services Tax. It is a tax levied by the Central Government on the supplies of both goods and services outside the state i.e. intrastate as well as on imports. The tax liability under IGST will be first set off against IGST and the balance can be first set off against CGST and then against SGST/ UTGST input tax credit only. Integrated Goods and Services Tax shall be collected by the Central Government and then distributed to various States.


What is the difference between CGST, SGCT, and IGST?

CGST, SGST or UTGST and IGST are the different levies introduced under the GST framework in India from 1st July 2017. Since GST has been implemented in India in its dual modal i.e. both Central and state government can levy and collect taxes simultaneously there was urge to give them specific legislative powers. The above mentioned different Acts lay down the foundation guidelines on the scope and powers to different authorities.

GST is bifurcated on the basis of its structure into these categories

  • IGST – is a Central Government levy and collection of tax on
    1. – Import & Export or (outside country)
    2. – Interstate supplies (outside the state)

    GST has dual modal where both central and state government concurrently levy taxes. Because of which matters like import/export or supply of goods and services to another state was a subject of dispute. The decision will directly affect revenue interests of both states, hence, the government came out with a way out via IGST. Also, harmony has been kept in IGST rate. It is approximately aggregate of CGST and SGST. For eg, if CGST is 9% and SGST is 9%, then the rate of IGST for the same transaction would be 18% (approx).

  • CGST – is a Central Government levy and collection of tax on intrastate supplies (within the state). The legislation governing levy of CGST is CGST Act 2017.
  • SGST- is State Government levy and collection of tax on intrastate supplies (within the state). Though every state has its own legislation for governing its state levy. The core things (to the extent feasible) have been kept intact to preserve the basic nature of GST law. Some common features in all SGST acts
    1. The Basic Law
    2. Chargeability
    3. Taxable Events
    4. Taxable Persons
    5. Classification
    6. Valuation
    7. Collection and levy of Tax etc
  • UTGST - is Levy and collection of GST on Union territories on intrastate supplies (within the state). The Union territories like Andaman & Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu and Chandigarh are governed by UTGST Act, 2017.

Note: Union territories such as Delhi and Puducherry have their own legislature hence are governed under SGST and not under UTGST.


What is the meaning of "Goods" under GST?

Goods in GST means every kind of movable property like pen, car, food, animals etc. It also includes actionable claims and growing crops or grass, although these things are not normally construed as movable and are attached to earth. Reason for the same being, these things can be sold separately or sold under a combined contact with land. But, goods in GST does not include

  • Money
  • Securities

The definition of goods has been given under section 2(52) of CGST Act 2017


What is the meaning of "Services" under GST?

Services under Goods and Service Tax means anything which is NOT

  • Goods,
  • Securities,
  • Money
But activities like the conversion of money by money exchanges or authorized dealers for a service charge or fee is included under the ambit of Service. The definition of service has been given under section 2(102) of CGST Act 2017.

Are all goods and services covered under GST? Which goods and services have been excluded from the GST coverage?

Goods and Service Tax has covered broadly each and every good under its ambit. The two exceptions remaining out of the purview of GST for the time being are

  • Petroleum Products
  • Alcoholic liquor

Talking about services there is a notified list given by the government to which GST does not apply

1. Sale of Land and Building
2. Court or Tribunal services
3. Services by an employee to the employer (in relation to employment)
4. Duties performed by
  • Members of Parliament, State Legislature, Panchayats, Municipalities, Local Authorities etc (MPs, MLAs, etc)
  • Person holding post as per Constitutional provisions
  • Chairperson, Director, Member of a government or local body establishment (except employees)
5. Actionable Claims like bill of exchange etc (excluding Betting, Lottery and Gambling)
6. Services of Funeral, Burial, Crematorium, Mortuary (including transportation of the deceased)

What are the GST Tax Rates in India?

Though GST was outlooked as One Nation, One Tax and One Rate but the later part could not be successfully implemented. Numerous reason contributed to the same such as economic disparities in India, people’s attitude to accept change, the feasibility of merging existing varied tax rates into one etc. As a result Goods and Service Tax was introduced in India with different tax rates. The GST Tax Rates for Composition Taxpayers are-

  • 1% – For Traders and manufacturers
  • 5% – For Suppliers of Food and Beverages Service (Restaurant etc.)
The GST Tax Rates prescribed for Goods are-
  • 0.25%
  • 3%
  • 5% – Coal, Household necessities, Cashew, Ice, Atta Chakki, Hearing aids, Medicines etc
  • 12%- Books, Notebooks, Intraocular Lens, Processed food, Ketchup, Playing Cards and Computer etc
  • 18% - Aluminium foil, CCTV, Set Top Box, Swimming Pools, Kajal stick, Printer (without multifunctions), Toothpaste, soap, hair oil and industrial goods etc
  • 28%- The highest tax rates for goods under GST applies on products like Luxury bikes, cars, cigarette, aerated drinks, air conditioner, refrigerator etc
Also, cess has also been implemented for some categories. For Services the prescribed GST Tax Rates are-
  • 5%- Applicable on services like rented cabs, railways, goods transport services, advertisements in print media, specified job work, etc
  • 12%- Popular Services covered under this category are business class air travel, accommodation with tariff ranging between Rs 1,000 to Rs 2,500 or non-air-conditioned restaurants
  • 18%- This is the most widely applicable rate for services. It is applicable to Outdoor catering, Specified construction services + on all others for which a rate has not been prescribed specifically. I.e. it is a general rate for taxation of services under GST
  • 28%- The highest tax rate applies to luxuries like luxurious hotels, go-karting, race clubs, entertainment entries like amusement parks, gambling etc.

The rates have kept changing since the introduction of GST and are supposed to evolve more over the time. More harmonization in rates can be witnessed in the next financial year but the dream of One Rate is yet far to be fetched. For checking what is the tax rate of your goods/services click here..


Who is required to register under GST?

For registration under Goods and Service tax in India, the government has prescribed an exhaustive list. Which can be better understood in these two parts

Registration on Turnover Basis Mandatory registration(No turnover limit applies)
Suppliers with an annual aggregate turnover exceeding Rs.20 Lakhs – including J & K(From 1 April 2019 this limit has been revised as For Supplier of goods – Rs 40 Lakhs For Supplier of services – Rs 20 Lakhs) Rs.10 Lakhs other North-Eastern States except J & K. Note: Turnover shall be sum total of all sales whether intrastate, interstate, export, exempted or NIL rated etc The person paying tax under RCM (Reverse Charge Mechanism)
CTP (Casual Taxable Person)
NRTP (Non-Resident Taxable Person)
The agent of a principal
Notified E-commerce operator
ISD (Input Service Distributor)
TDS deductor
CTP dealing in handicrafts shall get registration if turnover exceeds Rs 20 lakh threshold Those giving OIDAR (Online Information and Database Access or Retrieval) services from outside India to a non-registered person in India.
Those selling through e-commerce operator – 20 lakh condition apply Who was already registered under old indirect tax laws

What is GST Compensation Cess?

As GST is a consumption based tax and the revenue goes in the treasury of state where goods are finally consumed. The same proved out to be an issue for states having main capacities in manufacturing. Goods and Service Tax Compensation Cess as the name suggests, has been introduced to compensate states facing the problem of lower revenue collections. It is levied on certain notified goods like

  • Cigarettes
  • Tobacco
  • Coal
  • Aerator water
  • Motor vehicle etc

Compensation Cess or GST Cess has been introduced for a period of 5 years from the date of GST implementation in India. It is collected from all taxpayers dealing with notified goods (except composition dealers) at certain % of the transaction value of goods, and later on, distributed amongst the compensated states.

Compensation Cess is like all other GST taxes and its input tax credit is also available. But, can be adjusted only against Compensation cess and no inter-head set-offs are allowed.


How GST will be beneficial?

The Goods and Service Tax has bought manifold synergies to the entire tax regime. GST can be overlooked as a boon to both stakeholders and the government, by minimizing compliance requirements at both ends. Which will resultantly bring into effect increased economies of overall national resources? Let us understand one on one forecasted benefits of GST

The cascading effect has been mitigated:

One of the major drawbacks in the indirect tax system was the cascading effect i.e. tax imposed on taxes paid on an earlier stage. For an example: A manufacturer was required to pay excise on raw materials + VAT was also imposed when the finished goods were sold. The excise so paid at earlier stage formed part of the cost of raw material and hence when final payout for VAT was made it included a component of excise on which VAT is being paid.GST has given freedom to taxpayers form this biggest ill of the tax system.


Multiple taxes has been evaded:

Previously, there were so many different taxes levied both at Central and State level. GST has come as a common roadmap which has subsumed various Central And State Levies like Excise, VAT (except on some products), Sales tax, Entertainment tax etc


The classification has become easier:

Before GST was implemented, there were a lot of litigations on whether a supply is a good or service and the same involved lot of debates, cost, and operational difficulties. For Example a free service with a car and a nominal amount charged for it, etc. With the introduction of GST, all these seem to have ended, because GST has just one concept that is supply and the year-old fights of goods or services are no more in existence.


Push to ‘Make in India’ initiative:

Introduction of GST is foreseen to bridge the gap between international and domestic market prices of the commodities, through the reduced burden of taxes. Which can be proactively be seen as a base to grow in domestic industries and support of Governments “Make in India” initiative.


Boost to the Government Revenue:

Increased transparency and easy compliances through GST have also lead to effective monitoring by the authorities. Resultantly, over the time span, it can be traced in revenue collections by the tax department.


A unified national market:

The foundation of GST lies in submerging different taxes prevalent on different levels in the Indian economy into ONE single tax i.e. Goods and Service Tax. GST aims to build a common platform and a unified national market by integrating the economic barriers.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.