Understanding the Basics of GST Bill In India

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 at the place where the ultimate consumption is done. 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 services. This indirect tax has replaced many indirect taxes in India, such as VAT, service tax, or excise duty. There are differential rates prescribed by the Central Board of Indirect Tax & Customs (CBIC). There is also a GST council set up to make and implement the laws. Here are some of the key changes that GST has brought to the old tax system:

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

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What is the Purpose of Bringing GST in India?

GST, which is the biggest tax reform brought into INDIA post-independence, has paved the way to resolving major inherent flaws in the Indian indirect taxation system. Therefore, it is important to learn GST basic knowledge. The basic objectives of GST for beginners are given below.

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Deficiencies in the VAT system:

The VAT system was the biggest victim of the 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 the production of goods which formed part of goods for the dealer to sell at a later stage. While making the sales, he was either paying VAT or CENVAT on price inclusive of excise, which led to double taxation and ultimately increased the burden on the consumer. GST has addressed this flaw efficiently. Under GST, the tax is levied only on the net value added at each stage of the supply chain.

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Removing the confusion of the existing tax regime:

The Goods and Services Tax (GST) addresses the classification issues surrounding whether a product qualifies as a good or service. Previously, this caused significant confusion, litigation, and disputes over tax rates. With GST’s “supply” concept, these ambiguities have been resolved, simplifying tax classifications and reducing disputes.

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Integration of all existing taxes:

Under the old taxation policies, there were a lot of ambiguities like -

• CENVAT and VAT were both Value-added taxes still imposed separately
• Service tax and VAT were 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 statutes. Also, Central taxes like CENVAT were not allowed to be set off against State taxes. The introduction of GST subsumed all the other indirect taxes except a few, making the entire taxation system simpler and less confusing.

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Easy compliances:

With so many tax laws, there were a multitude of compliance requirements before the introduction of GST law. However, the GST was introduced with the objective of simplifying the compliance requirements and increasing tax compliance, especially in small and unorganized businesses.

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Increased Transparency:

Simplified compliance under GST has enabled better monitoring and timely action, fostering a stronger framework for indirect taxes in India. The efficiencies gained through GST integration support the development of a more robust tax system.

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

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

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

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 cess and surcharges

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What is the structure or framework of GST in India?

In India, we have the federal government, which means we have ministers at the center 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 the Centre and State governments will levy GST simultaneously. Here is the basic GST structure -

• GST has replaced a myriad of indirect taxes like VAT, customs duty, CST, Service tac, excise duty, etc.
• There will be two main types of GST in India, intra-state level GST (when goods travel within a state) and inter-state level GST (when goods travel between states).
• At the intra-state level, two types of GST are levied, CGST (central goods and services tax) and SGST (State goods and services tax).
• At the inter-state level, IGST (Integrated goods and services tax) will be levied.
• Imports will be considered as inter-state supply.
• Exports will be zero-rated.
• Supplies to SEZ will be zero-rated.

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Applicability of GST in India

Now that you know the basics of GST, let's head to the next step of GST knowledge and learn about its applicability in India -

Individuals or entities must register for GST if they:

• Supply goods or services valued above ₹20 lakh in a financial year (₹10 lakh in special category states).
• Make interstate taxable supplies.
• Operate in e-commerce, whether directly or as service aggregators.
• Act as casual or non-resident taxable persons, agents, TDS/TCS deductors, or input service distributors.
• Provide online services to customers in India from abroad.

GST does not apply to agriculturists or businesses exclusively dealing in tax-exempt goods or services.

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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 goods and services within the same 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 occurred. The State Goods and Services Tax rate shall equal the rate of CGST on a particular product or service.

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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 same 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.

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What is UTGST?

The full form of UTGST is the Union Territory Goods and Services Tax. It is a tax levied by the Government of Union Territory on the supplies of goods and services within the union territories, 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.

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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 between the states i.e. interstate 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.

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What is the difference between CGST, SGST, 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 governments can levy and collect taxes simultaneously. The above-mentioned different Acts lay down the foundation guidelines on the scope and powers of 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 a dual-modal where both central and state governments concurrently levy taxes. Because matters like import/export or supply of goods and services to another state were a subject of dispute. The decision will directly affect the revenue interests of both states; hence, the government came out with a way out via IGST. Also, harmony has been kept in the IGST rate. It is approximately aggregate of CGST and SGST. For e.g., if CGST is 9% and SGST is 9%, then the rate of IGST for the same transaction would be 18% (approx).

• CGST – It is a Central Government levy and collection of tax on intrastate supplies (within the state). The legislation governing the levy of CGST is the CGST Act 2017.
• SGST - It is a 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.
• UTGST - It is the levy and collection of GST on Union territories for 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 the UTGST Act, 2017.

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

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Goods and Services Not Covered Under GST

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

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What are the GST Tax Rates in India?

Given below are the GST tax rates that you must know about -

Under 5% Slab

Goods - Goods under this slab include apparel upto Rs.1000, braille items, agarbatti, cashew nuts, domestic LPG, coir mat, floor covering, frozen vegetables, hearing aids, insulin, medicines, matting, milk food for babies, packaged food items, packed paneer, postage stamps, roasted coffee beans, pizza bread, revenue stamps, sugar, stent, sabudana, rusk, skimmed milk, tea, stamp post marks.

Services - Services include road transport by motor cabs and radio taxis, restaurants with a turnover of upto Rs.50 lakhs, supply of tour operators services, sale of advertisement space, air travel by economy class, and transport services such as railways and airways.

Under 12% Slab

Goods - Goods include ayurvedic medicines, apparel above Rs.1000, almonds, butter, bhujia, animal fat sausage, chutney, chess board, carrom board, reagents, fruits, frozen meat products, exercise books, fish knives, forks, juice, ghee, jam, jelly, mobile phone, namkeen, notebooks, non-AC restaurants, pickle, packed coconut water, sewing machine, tongs, tooth powder, work contracts, glasses for corrective spectacles.

Services - It includes hotels, guest houses, and inns, with a tariff of Rs.1000 to Rs. 2500 each night. It also includes air tickets purchased for business class too.

Under 18% Slab

Goods - Goods under this slab include aluminium foil, biscuits, bamboo, branded clothing, furniture, CCTV, cameras, cakes, corn, curry, paste envelopes, and footwear priced above Rs.500, hair oil, icecream, mineral water, mayonnaise, monitors, padding pools, pasta, printers, preserved vegetables, soups, soaps, salad dressing, steel products, tissues, tampons, toothpaste, weighing machines, and footwear priced above Rs.500.

Services - It includes telecom services, AC hotels serving alcohol to patrons, IT services, and rooms with tariffs between Rs.2500 and Rs.5000 each night.

Under 28% Slab

Goods - Aerated water, personal use aircraft, automobile motorcycles, aftershave, ceramic tiles, chocolates without cocoa, dishwasher, deodorants, hair shampoo, dye, pan masala, shaving cream, shavers, paint, vacuum cleaners, washing machine, water heaters.

Services - Includes 5-star hotels, gambling, and betting in race clubs, hotels with a nightly room tariff of Rs.5000 and more, cinema, and entertainment.

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What are the Documents required for GST Registration?

Given the prevalence of GST in the indirect tax regime, it is important to gain a basic knowledge of GST. Now that you are aware of the basics of GST, you can go ahead and register yourself under GST. However, GST compliance can be difficult to handle. You can consider getting help from tax professionals. Tax2win experts can not only help you with GST registration but also ensure proper compliance with it and help you file a GST return. Book a Tax Expert Now!

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