What is GST?, GST Meaning, Full Form, Rates & Introduction

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India is considered to be a home of taxes, especially indirect taxes. Today in India both central government and state governments have imposed indirect taxes on any transactions of goods and services. For instance: excise duty is levied on manufactured goods, VAT is charged at the time of sale of goods, customs duty is charged on the import of goods, sales tax is charged on the inter-state sale of goods and lastly service tax is charged on services provided for.

Today, we are going to introduce a new indirect tax legislation called the GST has been implemented in India from July 1st, 2017 by honourable P.M. Shri Narendra Modi Ji.

In this article, we are trying to explain GST in an easy way. So, let’s read the full article to learn all about GST.

GST Full Form

The full form of the GST is Goods and Services Tax. During the implementation, Modi Ji addresses GST as Good and Simple Tax.

What is GST?

GST Introduction

GST is expected to replace most of the indirect taxes in India. GST will be levied on goods supplied and services provided. Hence it will bring every item taxable under one umbrella which will enable easier compliance and monitoring. GST will replace the following taxes:

GST is expected to replace most of the indirect taxes in India. GST will be levied on goods supplied and services provided. Hence it will bring every item taxable under one umbrella which will enable easier compliance and monitoring. GST will replace the following taxes:

Those which are levied by Central Government;

  1. Central Excise duty
  2. CVD ie Additional Duties of Customs
  3. SAD ie Special Additional Duty of Customs
  4. Service tax

Those which are levied by State Government;

  1. VAT
  2. Sales Tax
  3. Entertainment and Amusement Tax
  4. Tax on lotteries, gambling, and betting

GST Rates in India

GST Rates slabs are at fixed at 5 bands i.e 0, 5, 12, 18 and 28%. Besides that, new category too have been launched with tax slab pegged at anywhere between 40 to 65% and that will be levied only on luxury goods and items like pan masala, high-end cars, tobacco products and aerated drinks. The 0% slab include only fewer items which are essential in every household such as Fresh Vegetables, Salt , Eggs, Milk and unbranded atta among others. Learn more about GST Rates in India by visit the link given as follow.

GST Rates Full Introduction with Items

Types of GST in India

There are three types of taxes will be started under GST.

  1. State Goods and Services Tax – State GST (SGST)
  2. Central Goods and Services Tax – Central GST (CGST)
  3. Integrated Goods and Services Tax – Integrated GST (IGST)

Central GST and State GST will be levied for transactions that are intrastate government whereas Integrated GST will be levied on transactions which are the inter-state government.

GST Types

To elaborate more clearly, let’s discuss more on these types of taxes with examples:

The GST levied by the Central government on the intrastate supply of goods and charge of services is called CGST. The GST  levied by the respective State governments on the intrastate transactions of goods and services is called SGST. IGST is levied on the interstate transaction of goods and services which will be collected and monitored by the Central Government. This IGST will also be applied on imported goods. IGST is a combination of CGST and SGST and the concept of this tax is purely based on consumption. This means that tax should be received by the same state in which the goods are supplied or services are provided and not in the state where these goods are produced or originated. The state needs to interact and deal with only the Central government and not with any every other state it conducts its business.

For example, let say a person is providing services worth Rs 20,000 in Mumbai, Maharashtra and need to collect GST worth 18% i.e. Rs 3,600 which comprises of 9% CGST and 9% SGST. In this case, the service provider needs to deposit Rs 1,800 to the central government and Rs 1,800 to Maharashtra state government.

Another example, let’s say a person from Mumbai provides service in Jaipur, Rajasthan of Rs 50,000 wherein the GST charged is same 18% i.e. 9,000 which again comprises of 9% CGST and 9% SGST. In this case, since it is an interstate transaction, IGST will be applied and the service provider needs to deposit the entire Rs 9,000 to the central government. Hence the person from Mumbai need not deposit any taxes to the government of Rajasthan.

Understand the GST Input Tax Credit in India

Now the question arises of input tax credit! Input tax credit means that the tax paid earlier by the manufacturer or dealer can be set off against the future liability of taxes at the time of sale. One of the unique features of GST is that it offers full input tax credit of CGST, SGST and IGST paid against the inputs i.e. raw materials, capital goods, and input services as well as utilization of such input tax credit against the output CGST, SGST and IGST liability on the supply of goods and services. Let’s take an example to understand this further:

Let’s say Mr. A from Maharashtra sells goods to Mr. B who also resides in Maharashtra worth Rs 100,000. Mr. B, in turn, resells the goods to Mr. C from Gujarat for Rs 150,000. Let’s assume GST applied is 18% ie 9% CGST and 9% SGST. Since Mr. A is selling the goods to Mr. B within Maharashtra, it is an intrastate sale and hence CGST of 9% and SGST of 9% will apply. So Mr. A will charge total 18,000 to Mr. B as a tax of which Rs 9000 will be deposited to the Central government and Rs 9000 will be deposited in the state of Maharashtra.

Now Mr. B is reselling it to Mr. C who is from Gujarat which makes the transaction interstate and hence only IGST of 18% will apply. So Mr. B will charge Rs 27,000 which will be deposited to the Central Government.

Finally, Mr. C sells it to the customer Mr. D who is also from Gujarat for Rs 250,000. Again both CGST and IGST will be applied at 9% and 9% respectively. Now in the first transaction between Mr. A and Mr. B CGST of Rs 9000 was deposited to Central Government and Rs 9000 was deposited to the state of Maharashtra.

In the second transaction between Mr. B and Mr. C, IGST of total Rs 27,000 was deposited to the Central Government. In the third transaction between Mr. C and Mr. D, Rs 22,500 was deposited to Central Government and Rs 22,500 was deposited to the state of Gujarat.

Now the input tax credit will be applied. Of the total Rs 27,000 collected by Mr. B, he can reduce input tax worth Rs 9000 and another Rs 9000 as this was paid by him earlier while purchasing goods from Mr. A. Hence the net amount paid by him will be Rs 9,000.

In the case of the transaction between Mr. C and Mr. D, out of the total Rs 45,000, Rs 22,500 will be entirely adjusted with the tax earlier paid by Mr. C (Rs 27,000) and the remaining Rs 4,500 will be adjusted against the SGST of Rs 22,500. The key point to note here is that IGST credit tax will be first applied to set off against IGST, CGST and then balance to SGST in that order. The taxpayers need not worry about any further adjustment. Post this it is the responsibility of each state and Central government to follow the procedure. And the procedure states that since GST is a consumption-based tax the tax should ultimately go to the state where the goods were finally consumed. In the above example, the goods were finally sold and consumed in the state of Gujarat. Thus any tax received by the state of Maharashtra needs to be deposited to the Central Government ie Rs 9,000. The IGST utilized on the CGST of Rs 4500 need to be also adjusted and given to the state of Gujarat by the Central Government.

In the above example, the goods were finally sold and consumed in the state of Gujarat. Thus any tax received by the state of Maharashtra needs to be deposited to the Central Government ie Rs 9,000. The IGST utilized on the CGST of Rs 4500 need to be also adjusted and given to the state of Gujarat by the Central Government.

Thus the three taxes are very important under GST and understanding the three together is also very important. Another unique feature of GST is that it will restrict the unconditional usage of accumulated input tax credit. There would not be the cross-utilization of credits between CGST and SGST. CGST input credit should be utilized against the liability of CGST whereas the SGST input credit should only be utilized against the liability of SGST. IGST, however, allows utilization of the credit between CGST and SGST in that order as seen in the example above. This is because IGST is a combination of both CGST and SGST.

Under the GST regime, the existing indirect tax legislation will be pooled together. In all, there will be three tax legislation to administer GST, one to administer CGST at Central level, one to administer SGST at the state level and one to administer IGST also at the Central level. Though each state will have its own SGST rules to administer, certain rules and procedures will be reached at consensus across every state government in order to achieve common and standardized procedures and compliances. This will ensure simplification of procedures as well.

Before GST, management of all indirect taxes involved huge number of monthly, quarterly and annual submissions and administration for both taxpayers as well as the government. With the implementation of GST and all taxes brought under one bucket, there will be automation and redundancy of many procedures making the compliance requirements easier for both taxpayers as well as the Central and state governments. Under GST, the taxpayer can expect robust and automated indirect tax management system which will considerably reduce manual filings and interactions with the tax authorities and departments. The Central Government has also set up the GST Network which will ensure progressive automation of compliance processes at the state level. Each state will be provided with a unique code by the GSTN.

Let’s list down few advantages of GST:

For the Government:

  1. An increase in Revenue: The expansion of the tax base will automatically result into increase in revenue to the governments. The low GST rate will induce the business and consumers to pay the taxes and cut down more on cash transactions. The scrapping of various concessions and exemptions will ultimately result into increase in tax collection for the government. Not only at the central government, the state government will also expect to see an increase in revenues.
  2. Streamlining of Administration: Bringing all the indirect taxes under one umbrella will ensure the streamlining of all administration procedures as well. GST offers a good opportunity to link ADHAR cards and Pan cards with the bank account for the government in order to ensure streamlined and standardized administrative procedures.

For the Businesses:

  1. Possible reduction of tax costs: Businesses in India can expect a reduction in tax costs depending upon the products. Where one product was loaded with numerous indirect taxes such as excise, customs, VAT, sales tax amounting to 30 – 35 %, will now considerably reduce to one single rate. GST rates range from 12% to 18% which goes maximum to 28%. GST will also support the reduction in tax due to the full utilization of input tax credit thereby reducing and eliminating the cost of the tax on tax.
  2. Optimization of Resources, Cost and Time: The time consuming and cumbersome nature of the indirect tax legislation for the business will be reduced with the implementation of GST. GST, with its simplified procedures and compliance framework, will drastically reduce the need for resources as well as cost and time spent by businesses on the management of the various indirect taxes.
  3. Reduced Litigation: Another advantage of GST – one country one tax – is that the numerous legislations of various indirect taxes which leads to various litigations will be cut down considerably. These litigations have to be fought for decades before a final verdict is expected. GST with fewer and simplified legislations will ensure the reduction of compliance and self-assessment will further reduce the queries and objections raised by the Department.
  4. Efficient Structuring of Operation: GST with its structure neutral effect and commonality of tax laws across the country will organize and operate feasibly for the businesses rather than organizing operations based on the requirements of the various indirect tax legislations.
  5. Self-Assessment: GST offers a more comprehensive self-assessment, unlike the earlier indirect taxes self-assessments, with lesser intervention by the department. Furthermore, automation of procedures and compliances would pave a way to the true self-assessment and businesses would ultimately benefit from the reduced intervention from the government authorities.

For the Consumers:

  • Possible Cheaper goods and Servies: Over a period of time, with the implementation of GST, the prices of the goods and services will be reduced. This is because goods that cost taxes of 30 – 35% will see a reduction a tax rate of 12 to 28% which in turn will bring down the cost of the goods and services. Reduction in prices has the potential to increase the consumption of goods and services.
  • Improved Service Levels: With the implementation of GST, there will be the simplification of procedures and removal of check post verifications procedures while traveling by road. This will ensure faster delivery of goods to the consumers and improve the service levels offered by the businesses.
  • Access to goods and services: Under GST, with the standardization of taxes and simplification of documentation and procedures, traders, dealers and service providers who currently operate in smaller areas will be benefited to expand their operations across the country. The dealer from one state need not worry about the legislations and GST rules of another state while transferring the goods as GST is paid to the Central Government or to his own state government. This will bring about easy access to goods and services to the consumers.

Overall GST will result in all-round benefits to all the sections of the society and will offer numerous opportunities for growth and development to the economy of India. It will help support the growth of domestic businesses and bring in investments from overseas as well.

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