What is GST in India? Guide on Goods & Services Tax Law Last Updated : 14 Oct 2019

GST - Goods and Services Tax

In 29 March 2019 saw the passing of the GST Act in the Parliament, and the same was implemented on 1 July 2017. GST is a comprehensive, destination-based and multi-stage tax charged on each value addition.  

Each item goes through change-of-hands from the time it leaves the manufacturer till it reaches the final consumer. For instance, raw materials are purchased first, after which there is the manufacturing/production process. Then comes the warehousing of the goods before they are sold to a wholesaler. The product is then sold to the retailer before it is finally made available to the final consumer. GST is charged on each of the aforementioned stages, making it a multi-stage tax.  

Get to know more about GST Rates, GST Calculator, GST Return and GST Registration from our other pages.

Goods are usually manufactured or produced in one state and sold to consumers in other states. GST is charged at the point of consumption, so if a product is manufactured in Karnataka and sold in Tamil Nadu, the whole tax revenue will go to Tamil Nadu, thus making GST a destination-based tax. 

History of GST in India 

The Goods and Services Tax was implemented in India on 1 July 2017. However, the process of implementing the new tax regime commenced a long time ago. In 2000, Atal Bihari Vajpayee, then Prime Minister of India, set up a committee to draft the GST law. In 2004, a task force came to the conclusion that the new tax structure should be implemented to enhance the tax regime at the time.  

In 2006, P. Chidambaram, then Finance Minister of India, proposed the introduction of GST on 1 April 2010, and the Constitution Amendment Bill was passed in 2011 to enable the introduction of the GST law. In 2012, the Standing Committee started discussions regarding GST, and tabled its report on GST a year later. In 2014, the new Finance Minister at the time, Arun Jaitley, reintroduced the GST Bill in Parliament, and the bill was passed in Lok Sabha in 2015. However, the implementation of the law was delayed as it was not passed in Rajya Sabha.  

GSTN went live in 2016, and the amended model GST law was passed in both the Lok Sabha as well as the Rajya Sabha. The President of India also gave assent to the law in 2016. 2017 saw the passing of 4 supplementary GST Bills in Lok Sabha as well as the approval of the same by the Cabinet. Rajya Sabha then passed 4 supplementary GST Bills and the new tax regime was implemented on 1 July, 2017.  

What are the different types of GST?

Based on the kind of transaction, there are four types of GST, viz. Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST).  

  • Central Goods and Services Tax 
  • CGST is charged on the intra state supply of products and services. The Central Government levies CGST and it is governed by the Central Goods and Services Tax Act. CGST has effectively replaced all the previous Central taxes such as Central Excise Duty, Customs Duty, Service Tax, SAD, CST, etc. It is charged to taxpayers along with SGST. The rate at which CGST is charged is usually the same as the SGST rate, and the revenue collected under CGST is remitted to the Central Government.  

  • State Goods and Services Tax 
  • SGST, like CGST, is charged on the sale of products or services within a state. The State Government is responsible for the levy of SGST. This tax replaces all the previous taxes such as Entry Tax, Value Added Tax, Entertainment Tax, State Sales Tax, cesses, and surcharges. The revenue collected under SGST is remitted to the State Government.  

  • Integrated Goods and Services Tax
  • IGST is charged on inter-state transactions of products and services. It is also levied on imports. The Central Government collects IGST and distributes it among states. IGST is levied when goods or services are transferred from one state to another. The tax was implemented so that states would only have to deal with the Union Government rather than dealing with each state.  

  • Union Territory Goods and Services Tax
  • UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is levied along with CGST.  

Tax Laws before the implementation of GST 

The main of implementing the GST was to implement a much simpler tax structure in the country. The concept of Goods and Service Tax was to implement the concept of one tax across all parts of the country.  

There was a lot of speculation at the time of implementation as some of the previous tax systems did not work out as well as it was anticipated. Listed below are some of the important difference between Goods and Service Tax and the tax system that was followed prior to the implementation of GST: 

  • The tax system before the GST had separate rates for different services. There was a separate rate for service tax and excise duty. With the implementation of GST, there is uniform SGST across all the states and one common CGST rate. 
  • Central Sales Tax (CST) and a number of indirect taxes were levied in the previous tax structure. After the implementation of GST, the entire concept of CST was eliminated. A new concept of IGST was introduced to replace the previous system. 
  • There were a number of indirect taxes that were levied by both the centre and the state. This resulted in the collection of tax by both the centre and the state. This concept of tax levied on tax is called as the cascading effect of taxes. The implementation of GST negated the overlapping of taxes collected by the centre and the state. 
  • In the previous tax rules, there was a separate tax levied both at the time of consumption and production. With the implementation of GST, tax will be levied only at the final point of consumption and not during different parts of manufacturing and selling a product. This has helped bring some transparency to the tax collection process. 

GST Rates in India

The GST Council has assigned GST rates to different goods and services. While some products can be purchased without any GST, there are others that come at 5% GST, 12% GST, 18% GST, and 28% GST. GST rates for goods and services have been changed a few time since the new tax regime was implemented in July 2017. The last GST council meeting was held in February this year and was chaired by then Finance Minister Mr. Arun Jaitley. 

GST Registration  

Here is the GST Registration procedure for taxpayers:  

  • Keep your GSTIN and your registered mobile number on hand.  
  • Visit ewaybill.nic.in. 
  • If you are first-time taxpayer, you will have to click on ‘E-way bill registration’ to register. 
  • You will then have to enter your GSTIN number and hit ‘Go’ to submit your request. 
  • You will then be redirected to a new screen where certain details such as the name of the applicant, the Trade name, the mobile number and address of the applicant will be auto-populated. You will then have to select ‘Send OTP’ and enter the OTP you receive on your registered mobile number and verify the same. 
  • Once the OTP is verified, you will have to provide your preferred User ID through which you can operate your account.  
  • You will then have to create a password for your account after which your registration on the GST portal will be complete.  

GST Return

A GST Return is basically a document that contains information regarding the income that a taxpayer must file with the authorities. This information is used to compute the taxpayer’s tax liability. Under the Goods and Services Tax, registered dealers must file their GST returns with details regarding their purchases, sales, input tax credit and output GST. Businesses are expected to file 2 monthly returns as well as an annual return.  

GST Calculator

Calculating the amount that needs to be paid as GST when filing your returns can be quite tedious. A number of aspects and factors must be taken into consideration, such as ITC, exempted supplies, reverse charge, etc. Failure to pay the entire GST amount can see you slapped with an 18% interest on the shortfall, thereby making it necessary to ensure that you pay the right amount towards GST.  

The GST Calculator makes it relatively simple for taxpayers to calculate the amount that needs to paid as GST. You will have to enter all the required details such as the month for which you are calculating GST, the due date for filing returns for the particular month, the actual date on which the returns are filed, the tax liability for the month, the purchases that attract Reverse Charge Mechanism, the opening balance of your cash ledger as well as your credit ledger and the eligible ITC.  

Here is an example showing how you can calculate your GST liability: 

Particulars Amount
Overall value of interstate sales  Rs.20 lakh 
Overall value of intrastate sales  Rs.25 lakh 
Advance received  Rs.8 lakh 
SGST  Rs.25 lakh x 9% = Rs.2.25 lakh  
CGST  Rs.25 lakh x 9% = Rs.2.25 lakh 
IGST  Rs.20 lakh x 18% = Rs.3.6 lakh  Rs.8 lakh x 18% = Rs.1.44 lakh  Total = Rs.5.04 lakh 

What are the Benefits of Goods and Services Tax?

The following are the benefits of the Goods and Services Tax: 

  • Elimination of the cascading tax effect 
  • Following the implementation of the Goods and Services Tax, all the taxes have been brought under a single umbrella. What this essentially means is that the cascading tax effect has been eliminated. For instance, before the GST law was introduced, if a consultant offered his services for an amount of Rs.40,000 and levied a service tax of 14% (Rs.5,600), and then purchased office supplies worth Rs.15,000 and paid VAT at 5% (Rs.750), his total outflow would be Rs.5,600 + Rs.750 = Rs.6,350.  

    Following the implementation of GST, the GST rate applicable to the service would be 18%. If the service was offered for Rs.40,000, the GST on it would be Rs.7,200. The Rs.750 spent on office supplies would be deductible, which makes the total outflow Rs.7,200 – Rs.750 = Rs.6,450. 

  • Higher threshold 
  • In the previous tax structure when VAT was charged, businesses that generated turnovers in excess of Rs.5 lakh were liable to pay VAT. It is also important to note that service providers who generated a turnover of up to Rs.10 lakh were exempt from Service Tax. However, the threshold for registration under GST is Rs.20 lakh, which means that many small service providers and traders need not register.  

  • Simple procedure 
  • The whole GST process, starting from registration and ending with filing returns, is done online. It is a simple procedure that can be followed even by individuals with minimal technical know-how. Registering under GST is especially simple because there is no need to run around for multiple registrations like Service Tax, Excise Duty, VAT, etc.  

  • Composition scheme 
  • Small businesses that earn turnovers between Rs.20 lakh and Rs.75 lakh can benefit under the new tax regime as the Composition Scheme can help in lowering their taxes. The compliance as well as tax burden on small businesses has significantly reduced thanks to the implementation of GST.  

  • Fewer complications 
  • The previous tax regime had Service Tax and Value Added Tax, and each of these taxes had their own compliances and returns. For instance, Excise Duty return filing had to be done on a monthly basis, while Service Tax return filing had to be done on a monthly basis for companies and LLPs, and on a quarterly basis for partnerships and proprietorships. Value Added Tax was different in different states, which resulted in inconsistencies across the country. The implementation of GST has ensured that all businesses pay a uniform tax for the supply of goods and services. 

  • E-Commerce operators no longer suffer from differential treatment  
  • Prior to the implementation of the Goods and Services Tax, there was no proper definition for the supply of good via an e-commerce portal. There were multiple VAT laws. For instance, deliveries though online portals such as Amazon and Flipkart to states like Uttar Pradesh required the filing of a VAT declaration. The registration number of the vehicle that was delivering the product would also have to be mentioned, and tax authorities had the power to seize products in case proper documents were not produced.  

    GST has effectively done away with such confusing compliances and differential treatments. The e-commerce sector now has clearly defined provisions that make it easier to engage in the supply of products across states.  

  • Regulation of the unorganised sector 
  • Before GST was implemented, some of the industries such as textile and construction were highly unorganised and unregulated. The implementation of GST has seen the inclusion of provisions for online payments and compliances. Even the availing of input credit has been clearly defined to avoid confusion, thus bringing in regulation and accountability to these sectors.  

Frequently Asked Questions

  1. Is it necessary for all traders to register under the Goods and Services Tax?
  2. All traders who earn turnovers in excess of Rs.20 lakh in a financial year will have to register under the Goods and Services Tax.

  3. Do small traders have a separate scheme to pay taxes?
  4. Yes, small traders can make the most of the composition levy in case their turnover is less than Rs.75 lakh. For certain special states, this limit is Rs.50 lakh.

  5. What are the states with a turnover limit at Rs.50 lakh for composition levy?
  6. Arunachal Pradesh, Tripura, Manipur, Nagaland, Meghalaya, Assam, Himachal Pradesh, Sikkim and Mizoram.

  7. What is the composition levy tax rate?
  8. The rate of tax applicable under the composition levy is 1% of the turnover earned in the state, with 0.5% going towards Central Goods and Services Tax and 0.5% going towards State Goods and Services Tax.

  9. Who is not eligible for the composition scheme?
    • Establishment that supply services, apart from restaurants.
    • Those involved with making inter-state outward supplies of products.
    • Those involved in making supply of products that are not chargeable to GST.
    • Suppliers who make supply of products via e-commerce operators and are mandated to collect tax at source.
 

News About GST Tax

  • Lowest GST collection in 19 months

    Collection of Goods and Services Tax (GST) has fallen to the lowest in the last 19 months, in September, to Rs.91,916 crore, on a year-to-year basis, which is down by 2.67%. Of this, state GST (SGST) was Rs.22,598 crore, Central GST (CGST) was Rs.16,630 crore, Integrated GST (IGST) was Rs.45,069 crore, and Cess was Rs.7,620 crore (which included Rs.728 crore on imports). After the regular settlements in September, the total revenue for the state and central governments was an SGST of Rs.37,719 crore and CGST of Rs.37,761 crore. The regular settlement by the government from the IGST was Rs.15,121 crore to SGST and Rs.21,131 crore to CGST. From August to September, 75.94 lakh GSTR 3B returns were filed.

    4 October 2019

  • Sahaj and Sugam GST forms may prove challenging for small businesses

    The new Sahaj and Sugam GST forms may make it difficult for small taxpayers to get the input tax credit that they deserve. The current GSTR-9 form is also seen as challenging for small taxpayers. However, for the financial years 2017-2019 and 2018-2019, submitting this form was made mandatory for taxpayers with less than Rs.2 crore aggregate turnover. However, this has not been made applicable for the current financial year. For the financial year 2019-2020 the last date for filing of annual GST returns is 31 December 2020, by which time there is speculation that the annual return forms will be simplified for easier filing. What makes the current forms difficult is the inability to revise them immediately in the event of any mistake, such a data entry error. Mistakes can only be rectified in subsequent returns. Also, in GSTR-1, outward supply transactions can only be amended once. Another challenge is that discounts offered or goods rejected cannot be listed as a negative amount on the net basis, resulting in funds being blocked at the government level for long periods of time. The proposed new system will require fewer details and can be filed by taxpayers having B2B/B2C transactions with a Rs.5 crore or less turnover.

    4 October 2019

  • New manufacturers can pay tax at 15%, without exemptions: Finance Minister

    Right before the GST Council meeting, Finance Minister Nirmala Sitharaman has announced a few new measures to help boost the Indian economy, MSMEs, housing, and exports. A number of announcements have been made by the Finance Minister at the press conference.

    The Finance Minister has proposed to cut down the corporate taxes for domestic companies and new local manufacturing companies through an ordinance. She said that any domestic company will get an option to pay income tax at a rate of 22% subject the condition that they will not avail any incentive. If a domestic company decides to go for this measure, they will not be required to pay the minimum alternative tax which has an effective rate of 25.17%. This includes the surcharges and cess. The new domestic manufacturing companies that are incorporated after 1st October will be able to pay income tax at the rate of 15% without any incentives. The effective tax rate for these companies will be 17.01% including all the surcharges and cess. After the expiry of tax holidays, the companies will be allowed to opt for lower tax rates. The enhanced surcharge introduced in the Budget will not be applicable to capital gains which rise as a result of sale of equity shares in a corporation which is liable for STT. Super-rich tax will not be applicable on capital gains which arise from the sale of any kind of security including the derivatives in hands of FPIs. In addition to all this, she further announced that the companies which have announced a buyback before 5 July 2019 will not be charged with tax. The total revenue for reduction in corporate tax rate is estimated at Rs.1.45 lakh crore per annum. She concluded that the tax concessions will bring investments in the Make in India project and in turn, boost the employment and economic activity. This will eventually bring in more revenue. Reportedly, the share market has also witnessed improvements right after the announcements of the Finance Minister. Sensex has moved upwards with 1,140 points. Nifty, on the other hand, shot up by 225 points.

    20 September 2019

  • Lowering tax for auto and allied components sector unlikely

    As per government officials, the Goods and Services Tax (GST) panel is unlikely to approve the lowering of tax for the auto and allied components sector given that a study has warned of major revenue losses. As per the report, the total annual revenue loss could be as Rs.50,000 crore if the GST panel lower the tax rates to 18% from the existing 28%.

    It needs to be mentioned that state officials of West Bengal, Punjab, and Kerala have already opposed any cut in tax rates in the auto or consumer goods sector due to uninspiring tax collections in this fiscal year. The total tax revenues of 20 states fell 7% to Rs 4.9 trillion in the April-July period. The tax collections in the states of Andhra Pradesh, Rajasthan, and Punjab plunged by 59%, 35.5%, and 12.5% respectively.

    The GST panel meeting which is scheduled to be held on 20 September will be closely watched as it could help investors in assessing the government’s seriousness when it comes to reviving growth in Asia's third-largest economy. The GST council meeting is chaired by the Union Finance Minister and all state finance ministers are its members.

    19 September 2019

  • GST Council to discuss tax cuts for various sectors

    To override the prevailing economic slowdown, the GST Council is all-ready to make some crucial announcements in the upcoming meeting to be held on 20 September 2019. Agendas on tax cuts for high distress and consumer interface sectors will be discussed by the Council in the meeting. This comes in the backdrop of a substantial decline in demand and sales. The segments that are likely to be a part of the meeting include hotels, automobiles, matchsticks, biscuits, and outdoor catering segments. All listed segments may or may not see a reset in the GST rates owing to varied complexities involved. The automobile sector, which is the main sector that is pulling the economy down, has been demanding the cut in the GST rates for cars from 28% to 18%. If the demand is fulfilled by the government, the sector may just be able to reinvigorate, along with the push from the festive offers. However, the GST Council has stated that the rate cut in the auto sector will hurt the GST collection badly as around Rs.50,000 crore to Rs.60,000 crore is contributed by the auto sales, to the total GST collection.

    19 September 2019

  • Tax on hybrid vehicles may be cut by the GST Council

    According to reports, the GST council may cut the tax rates by 15% for hybrid vehicles. The main reason for the decrease in tax is to boost the auto sector as it is struggling. The reduction of tax rates to 28% from 43% can be completed by removing the cess on hybrid vehicles. In June 2019, the automobile industry has seen a decrease in passenger vehicle sales by 30.98%, the lowest in 20 years. According to a government official, it is easier to cut rates for hybrid vehicles compared to other categories as it will not have a major impact on the revenue. The official further added before the proposal is finalised, the panel will discuss the matter. Hybrid vehicles use an electric motor as well as a small internal combustion engine. In July 2019, rates of electric vehicles were decreased to 5% from 12%. Personal and commercial use four and two-wheelers (apart from rickshaws, bicycles, and electric vehicles) come under the 28% GST slab. Under GST, 28% tax and 15% cess are charged on hybrid vehicles. Before GST, 30.3% was the charge on hybrid vehicles.

    9 September 2019

  • In order to check on GST Evasion, B2B invoices must be generated on the government website

    In a move that will help bring down Good and Service Tax (GST) evasion by using fake invoices, officials have announced that all business-to-business (B2B) sales that make a turnover over a specified number will have to generate invoices by the month of September on a centralised government portal.

    An officers committee has already been set up to check on the implementation progress of the e-invoice or electronic invoice project and the monitoring of the project will be handled by the revenue secretary. An official said that the e-invoice that must be generated for B2B transactions will be implemented in a phased manner over the next three to four months. Apart from helping bring down GST evasion, it will also help make the process of filing returns for businesses simpler. The method to process the e-invoice will be similar to the process of generating the E-Way bill or GST payment on the GSTN website. The revenue department might introduce the project to business-to-consumer (B2C) sales as well, depending on the success of the BEB project.

    21 May 2019

  • E-invoice provision may be launched by the government soon

    In a move to stop GST evasion, the government plans to launch a mechanism where businesses who are making a turnover over a specific amount will have to generate an electronic invoice on the Good and Service Tax (GST) portal or on a government portal. The e-invoice that is generated by these businesses will come with a distinctive number.

    According to a senior government official, the distinctive number can be matched with the taxes paid and sales return invoice. The entire value of sales that have been recorded by the business must be generated in the e-invoice. A software that has been linked with the GST portal will be provided to businesses in order to generate the e-invoice. The process for the generation of the e-invoice will be similar to GST payments or e-way bills. The threshold of the software is based on the invoice’s value. The main focus of the government will be to prevent GST evasion in order to increase compliance and revenue.

    3 May 2019

  • Businesses to generate e-invoice on GST or government portal for all sales

    A fully electronic tax invoice that records the complete value of sales will be required from businesses soon. This system is currently being developed by GST officers and will be required from businesses who generate a turnover above a certain amount. This e-invoice will have to be generated on the GST or government portal for all sales. The aim of this is to reduce the possibility of tax evasions. Businesses with a turnover that exceeds the threshold specified will be allotted a unique number for each and every electronic invoice that is generated. This number will be matched against the number on the taxes paid and sales returns. These businesses will also be given a software that links to the GST or government portal which will generate the e-invoice. The threshold can then be determined either on the turnover or on the value of invoices. This system will replace the generation of e-way bills for the movement of goods which is now required for anything exceeding Rs.50,000. Since data of individual invoices would be auto-populated in the forms for the returns, it will reduce the hassle of businesses when filing returns. As an incentive to adopt this system, when procurements are made based on e-invoices, mandatory departmental audits may be reduced in frequency.

    30 April 2019

  • Firms with an annual turnover exceeding Rs.2 crore must file their GST report for FY18 by 30 June

    Businesses or companies which have an annual turnover of more than Rs.2 crore must start the preparation for filing their GST audit report for the financial year 2017-18 as the format has been made available on the official portal of GST Network (GSTN). The due date for filing the GST audit report for FY 2017-18 is 30 June 2019. Earlier, the GST Council had extended the due date for filing the GST forms by 3 months. GSTR-9, GSTR-9A, and GSTR-9C are the forms that should be used by the taxpayers to file their GST report for FY18 and all of the three forms had already been notified by the ministry on 31 December 2018. While GSTR-9C can be filled up offline and then uploaded on the portal, the other two forms GSTR-9 and GSTR-9A can be directly filled up and submitted online through the GSTN portal.

    16 April 2019

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