Basics of Goods and Service Tax (GST) In India

Introduction of GST

Most revolutionising tax reform in Indian taxation history. GST was launched with effect from 1st July 2017 by Shri Narendra Modi, hon’ble Prime Minister of India in the presence of Shri Pranab Mukherjee the then President of India.

 The Government of India, following the credo of ‘One Nation & One Tax’ and wanting a unified market in order to ensure the smooth flow of goods across the country implemented the goods and services (GST) from 1st July 2017.

GST is a destination based single tax on the supply of goods and services from the manufacturer to the consumer and has replaced multiple indirect taxes levied by the central & state government thereby converting the country into a unified market.

Aim or Purpose or Benefit of GST 

1. To make life easier for manufacturers, producers, investors and consumers.
2. Other benefits – GST is expected to improve the ease of doing business in tax compliance, reduce the tax burden by eliminating tax on tax improve tax administration, mitigate tax evasion, broaden the organization segment of the economy and boost tax revenues.
3. Tax is a source of revenue for growth also it plays a very important role in making the state accountable to its taxpayers. 
4. Effective taxation ensures that public funds are effectively employed in fulfilling social objectives for sustainable development.

How GST Implemented in India

The GST has replaced 17 indirect taxes (8 Central + 9 State Level) and 23 Cesses of the Centre and the States, eliminating the need for filing multiple returns and assessment & rationalising the tax treatment of goods and services along the supply chain from producers to consumers. GST comprises Central GST (CGST) and the State GST (SGST), subsuming levies previously charged by the Central and the State Government respectively with the implementation of GST, luxury goods have become costlier, while items of mass Consumption have become cheaper. Tax liability arises when the taxable person crosses exemption limit i.e., 20 lakhs.

GST (CGST + SGST) is charged at each stage of value addition and the supplier off sets the levy on inputs in the previous stages of value chain through the tax credit mechanism. The last dealer in the supply chain passes on the added GST to consumer, making GST a destination-based consumption tax.

Input tax credit (ITC) in GST lets businesses reduce their tax liability by claiming credits on GST paid for business related purchases.   For example, manufacturer buy raw material Rs. 10,000 GST paid 18% i.e., Rs. 1,800 and eligible to claim ITC of Rs. 1,800.

• Goods sold worth Rs. 15,000 and GST collect – Rs. 2,700.
• ITC of Rs. 1,800 can be used to set off now only 900 needs to be paid as GST.

So, GST is not taxation at source. It is a destination tax or rather it’s a consumption tax. A product is manufactured in Mumbai and travel through the country before it reaches Delhi, where the buyer or consumer pays tax for it. Both the centre and state have their share in this tax.

GST Rates

The provision of availing input credit at each stage of value chain helps in avoiding the cascading effect (tax on tax) under GST, which is expected to reduce prices of commodities and benefits the consumers.

Goods and services in India fall under different GST slabs – 0% for essential items, 5% for basic necessities, 12% for standard goods, 18% for most consumer products, and 28% for luxury and sin goods.

GST is applicable on the ‘Supply of goods or Services’ as against the present concept of tax on the management or Sale goods or on the provision of service. Import of goods & services is treated as inter state supplies and would be subject to IGST in addition to the applicable customs duties. CGST, SGST and IGST are levied at rates mutually agreed upon by the centre and state under the aegis of the GST council.

CGST and SGST is payable on all intra state supply of goods or services or both. IGST is payable on all inter state supply of Goods and services.

GST Council – Constitution

1. Chairperson – Union Finance Minister and Chairperson, GST Council.
2. Members – Finance Ministers of State and Chief or Deputy Chief Ministers of States
3. States have 2/3 weightage and the Centre has 1/3 weightage
4. Decision is taken by 75% majority
5. Council shall make recommendations on everything related to GST including rules and rates etc.

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