The acronym GST stands for Goods and Services Tax, which serves as an indirect taxation system in India. This effectively succeeds various other indirect taxes within the country. GST operates as a consumption-oriented tax applicable to both goods and services throughout the nation.
The primary objective of what is GST India is to streamline the tax structure and ensure uniform and transparent taxation for all taxpayers. Typically, the different categories of GST are levied based on the nature of the goods or services provided, and this article will delve into the concept of what is GST in a detailed manner.
What Do You Mean by GST?
So, here’s what you must now about what is GST. On July 1st, 2017, India introduced the Goods and Services Tax (GST), which represents an indirect tax framework. This tax operates on a destination-based principle, meaning that the state where goods or services are consumed is tasked with tax collection. Under the GST system, businesses with annual revenues exceeding Rs 20 lakhs (or Rs 10 lakhs for the northeastern states) are required to register and adhere to GST regulations.
Due to its multi-stage nature, the GST goods and service tax system entails tax payments at various points along the supply chain, starting from the manufacturer and concluding with the purchaser. Nevertheless, it is only the ultimate consumer who bears the responsibility of settling the tax. This has led to the establishment of a uniform tax structure across the country and the elimination of multiple taxes, thereby enhancing the efficiency of tax collection and compliance.
What are the Types of GST?
Now that you know what is goods and service tax GST, here are its types. India has implemented a dual GST goods and service tax system, where both the central government and state governments impose GST simultaneously, utilising a shared tax base.
- CGST: Imposed by the Central government on intra-state transactions involving the exchange of goods and services.
- SGST: Imposed by the government of the respective state or union territory for transactions involving goods produced and sold within the same state, which are intra-state transactions for goods and services.
CGST and SGST are concurrently applied, and the total GST revenue is divided between the central and state governments according to a predetermined ratio. The key stipulation is that the tax rate should not surpass the percentage set by the goods & services tax Act.
- IGST: Levied by the central government in the case of inter-state transactions, i.e., when the supplier and the destination of consumption are situated in two different states. The revenue generated from IGST is subsequently shared between the central and state governments.
Features of GST
- The authority to establish rules and regulations concerning the exchange of goods and services in inter-state trade will be vested in the Union Government. For transactions conducted within a state’s boundaries, including services, the power to impose GST will rest with the respective states.
- GST on India will encompass the current Central and state-level taxes. The Central taxes to be subsumed will encompass service tax, excise duty, additional excise duty, additional customs duty (CVD), and special additional duty. State-level taxes, such as state VAT, entertainment tax, central sales tax, luxury tax, entry tax (excluding Octroi), and purchase tax, will be incorporated into the goods & services tax.
- The taxation of alcoholic beverages for human consumption will remain outside the purview of GST.
- The Central government will impose the Integrated Goods and Service Tax (IGST) on inter-state transactions involving goods and services.
- The application of GST on India to petroleum and petroleum products may be considered.
- Basic customs duty will be imposed on imported goods.
- Provisions will be established for the elimination of Octroi or entry tax throughout India.
- The GST council will oversee the administration of what is the GST in India, consisting of Central and state ministers.
Business Impact of GST Implementation
The effective adoption of GST is poised to bring about a profound transformation in the Indian economy. While it could prove advantageous for specific stakeholders, others may need to adapt their strategies to thrive in this new tax regime.
With good service tax in India unifying Central and state taxes into a single system, it is expected to usher in greater transparency in the nation’s operations. This, in turn, will simplify business transactions and result in reduced logistics expenses across various sectors. The influence of GST on different industries can be examined as follows:
1. Real Estate
Bringing the real estate sector under the purview of GST will contribute to a decrease in illicit activities within this industry. This move is expected to lead to a reduction in tax evasion. The implementation of GST as a single tax will address the current challenge of collecting both VAT and excise duty. However, it is worth noting that GST could potentially have a downside as well, potentially increasing costs for consumers if real estate output is exempted from its provisions.
2. Tourism and Hospitality
Currently, the tourism and hospitality industry grapples with a multitude of taxes imposed by both the central and state governments. Good service tax in India is set to supplant all these taxes. The introduction of GST could potentially alter the availability of input credits for services utilised in the renovation and construction of hotels and resorts. The expectation is that GST will streamline the processes. However, it’s worth noting that the existing advantages derived from the Foreign Trade Policy may no longer be accessible, which could result in increased costs.
At present, the education sector benefits from several exemptions and privileges. It falls under the negative list of services, which means it is exempt from service tax. If these exemptions are maintained, the education sector is likely to remain in its current situation. However, for the education sector to experience tangible advantages, it is imperative to eliminate taxes on the inputs used within this sector.
4. Financial Services
The implementation of good service tax in India could potentially lead to a rise in the costs associated with banking and financial services. Currently, these services are subject to a 15% service tax. With the anticipated GST tax rate falling in the range of 18% to 20%, services will likely become more expensive.
Furthermore, the introduction of GST may introduce a range of compliance issues. The banking sector is advocating for financial and banking services to be exempt from GST, as it is anticipated that taxing these services would pose significant challenges. Consequently, GST is set to emerge as a transformative step, reshaping the entire indirect taxation system of India.
How Does GST Works?
The manufacturer will be liable to pay GST on both the raw materials purchased and the value added during the production process to create the product.
- Service Provider
In this scenario, the burden of good service tax in India payment on both the purchase cost of the product and the additional value incorporated into it will fall on the service provider. Nevertheless, the manufacturer’s tax payment can be offset against the overall GST liability.
The obligation to pay this tax lies with the retailer, encompassing both the product they acquired from the distributor and the markup they introduced. Nevertheless, the retailer’s tax payment can be subtracted from the overall GST amount that needs to be settled.
GST is applicable to the product that has been bought.
Advantages of GST
Here are the benefits of GST:
- Removal of cascading effect: GST has eradicated the cascading impact of taxation, reduced logistics expenses, eliminated inter-state levies, and established a single unified market. The cascading effect, which involves taxes levied on top of existing taxes, has been eliminated, resulting in cost reductions for goods. As a result of the introduction of GST, the end consumers now enjoy more affordable prices for goods.
- Simplification of taxes: By replacing 17 indirect taxes, it has effectively eradicated compliance expenses for businesses.
- Digitisation under GST: All GST-related tasks, including registration, filing returns, making tax payments, applying for refunds, and responding to notices, must be conducted via the GST portal online. The digitalisation of GST compliance procedures has expedited the processes and minimised the need for manual labour.
- Uniformity in the market: The formerly divided market spanning state boundaries has been consolidated, resulting in a significant reduction in the cost of goods.
Limitations of Goods and Services Tax (GST)?
Here are some constraints or drawbacks associated with the Goods and Services Tax (GST):
1. Improved Software Costs
To adhere to the accounting principles of GST, companies must enhance their software systems. The specialised GST-compliant software incurs extra costs for purchase, installation, training, and upkeep. Consequently, this has led to an overall rise in the operational costs for businesses.
2. Penalties and Fines
Medium and small-sized enterprises (SMEs) often face challenges. It is due to a lack of resources and infrastructure when it comes to adhering to the existing GST regulations and tax system. Suppose they aren’t well-versed in the requirements and are not able to maintain or issue a GST-compliant invoice and record. In that case, their business might be at risk, potentially leading to penalties and fines imposed by the government.
3. Higher Tax Liability of SMEs
Prior to the implementation of GST, small businesses with a turnover of approximately Rs. 1.5 crores were required to pay the excise duty. Nevertheless, with the introduction of the Goods and Services Tax (GST), a business with an annual turnover exceeding Rs. 20 lakhs is now mandated to register for GST. While there’s a GST composition scheme available to reduce the tax liability for businesses, it is applicable to organisations with an annual turnover of less than approximately Rs. 1.5 crores.
To sum up, based on the above considerations, it is evident what is the GST in India and how it has successfully made a noteworthy impact. This is levied on both services and goods, including essential everyday commodities. This tax will be indirectly remitted to the government through intermediaries such as sellers, manufacturers, service providers, suppliers, and others. Its single-point tax system has substantially reduced the opportunities for tax evasion.
FAQs on good service tax in india
1. Why is GST necessary?
The primary goal of implementing GST is to eradicate the issue of tax on tax, commonly known as double taxation. It arises as taxes accumulate from the production stage to the consumption stage.
2. What category of tax is GST?
GST, which is short for Goods and Services Tax, is an indirect value-added tax. This tax is imposed on the majority of goods and services sold within India for domestic consumption.
3. How is GST applied?
Within the GST framework, tax is imposed at each sales transaction point. In the context of intra-state sales, both Central GST and State GST are levied. On the other hand, all inter-state sales are subject to the Integrated GST.