GST - Goods and Services Tax in India Last Updated : 28 Jan 2020

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.

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.

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.

GST Rates

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

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 GST and 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.

Benefits of GST

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.

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.

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

  • States could face a revenue gap of over Rs.1 lakh crore after withdrawal of GST compensation

    States are staring at a consolidated revenue gap of up to Rs.1.23 lakh crore due to the withdrawal of compensation once the five-year GST transition period ends on 20 June 2022.

    When the GST was implemented on 1 July 2017, the Central Government had promised states that compensation will be provided in case revenue is lost for the duration of five years. The amount of compensation that is provided will be based on an agreed formula. According to a report, the consolidated revenue gap could range between Rs.1,00,700 crore and Rs.1,23,646 crore if it is withdrawn. The release of GST compensation has been discussed between central and state governments because of the shortfall in GST collection. The report further added that the withdrawal of GST compensation will have a major impact on the finances in states such as Karnataka, Chhattisgarh, Goa, Odisha, and Punjab. Meghalaya, Tripura, Uttarakhand, and Himachal Pradesh are some of the minor states where a huge revenue gap is expected. Many states have requested for a GST compensation extension for another three years. The GST Compensation Cess (GSTCC) was launched along with the GST in order to provide compensation to states. The fund is managed by the Union Government.

    23 Jan 2020

  • Higher GST rates on fabrics and mobile phones likely to boost revenue collection

    The GST Council is likely to hike the GST rate if you purchase a mobile phone or fabrics from next week. This is an attempt by the council to fix the inverted tax structure and boost revenue collection. A huge input tax credit outgo has been created due to the structure of higher tax rates on inputs than on final products. Some of the items which has seen an inverted duty structure are shoes, tractors, fabric bags, etc. For example, the GST rate on mobile phones is 12% while for batteries and other phone parts stands at 18% which has created an inverted tax structure, which in turn has led to unutilised input tax credit and hence issuance of refunds by the government. Single manufacturers last year claimed a refund of Rs.4,100 crore in case of selling of phones. Due to issues of inverted tax structure which has resulted in a huge credit outgo, the GST council is looking to increase the GST rates.If all the state finance ministers agree, the GST council will increase the rates to 12% from the existing 5%. Shoes prices under Rs.1,000 are taxed at 5% followed by leather and non-woven fabrics taxed at 12%. Parts of tractors are taxed at 28% while tractor is taxed at 12%.

    13 December 2019

  • Central GST falls short of estimate

    Central GST collections fell short of the budget estimate during the 2019 April-November period by nearly 40%. While the budgeted estimate for this period was Rs.526,000 crore, the CGST collections amounted to Rs.3,38,365 crore. This was provisional data as stated by the Minister of State for Finance, Mr. Anurag Singh Thakur. In 2018-2019, the provisional estimate was Rs.603,900 crore while the actual CGST collections stood at Rs.457,534 crore. The CGST collections in 2017-2018 stood at Rs.203,261 crore. In the current fiscal, more than 900 cases of GST evasion were registered with Rs.8134.39 crore being recovered. In 2018-2019, the recovered amount stood at Rs.19,395.26 crore from 1473 cases while in 2017-2018 the recovered amount was Rs.757.81 crore from 148 cases. The focus now is on system-generated intelligence and system-based analytical tools to prevent GST evasions in future. Random verification of goods in transit will be done by activating E-way bill squads. The Central Board of Indirect Taxes and Customs (CBIC) has established the Directorate General of Analytics and Risk Management (DGARM) to facilitate this. Input tax credit (ITC) has also been capped in order to reduce the incidence of false ITC claims. It would also increase the GST collections by boosting cash payments of tax. From now on, the ITC that can be availed by taxpayers should not exceed 20% of the available eligible credit in debit notes or invoices.

    12 December 2019

  • Increase in GST rates likely

    The GST Council is set to revamp GST rates nearly 2.5 years after its launch. There could be a restructuring of the base slab which could be increased from 5% to almost 10%. The 12% slab could be eliminated and the 243 goods that are currently in this list could be shifted to the 18% slab. While this may increase the price of these goods for consumers, it is expected to generate an additional Rs.1 lakh crore for the government. In addition to these changes, several services that are presently tax exempt could be brought into the tax ambit. These could include treatments in expensive private hospitals, high-value company home leases, and hotel accommodation below Rs.1000. Goods that are currently in the zero-tax category will remain unchanged. States have also been asked to review the current compensation cess rates. There might be an increase of 12.5% to 12.75% in the effective GST rates. This would also be the beginning of a two-slab GST rate structure in the future.

    10 December 2019

  • GST circular on BPO-KPO services withdrawn

    A GST circular stating that entities who are engaged in goods and services facilitation cannot be considered as engaged in export but only as an intermediary (unless on own account) had thrown many Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) companies in a quandary. However, that circular has now been withdrawn by the government. Under the previous rule, BPO and KPO firms were treated as intermediaries and were taxed under the Goods and Services Tax (GST). They were thus being denied refunds on inputs as the work being done for parent companies could not be defined as an export but only as a service for that company. This created a lack of clarity regarding which services could be defined as support services and those which could be categorised as ‘arranging or facilitating the supply of goods or services between two or more persons’. Support services included services provided during post-sales support, post-delivery of supply, delivery, and pre-delivery. The industry may get a respite on account of the circular being withdrawn now. However, BPO and KPO companies still need to understand the legal ramifications of the circular being withdrawn in order to chart a future course of action.

    10 December 2019

  • GST structure may be reviewed in light of revenue shortfall concerns

    The Goods and Services Tax (GST) Council may review the structure of GST after concerns were raised about the revenue. This meeting is set to take place on 18 December 2019. The review will discuss measures for augmentation of revenue, compensation cess rates, GST rates, and exempted items. Inputs from state governments have been sought by the GST Council secretariat on these issues. The recalibration in rate is supposed to also take into account compliance measures that are currently not under implementation, the inverted duty structure, and other revenue augmentation strategies. Experts have opined that this could mean an increase in the effective GST rates. GST compensation cess collections have been a cause for concern in the past few months with several states complaining about the delay in payment of compensation from the Centre due to the decline in GST revenue. It is unlikely that the compensation amount can be met from the compensation cess even though compensation requirements have increased. Although the bulk of goods that fall under GST come under the rate slabs of 12% and 18%, there are 7 different GST rates. There could be a merger of the 12% and 18% GST slab following the review. In order to pay the compensation amount to the states, there could also be a hike in the compensation cess. Items that are currently exempted or have low GST rates could also have changes in their GST rates.

    6 December 2019

  • Monthly savings of Rs.320 for Indian households after GST implementation

    The Ministry of Finance recently noted that GST implementation has resulted in a savings of nearly Rs.320 on a monthly basis for Indian households. This is after the purchase of edible oils, cereals, washing powders, toiletries, cosmetics, sugar, sweets, chocolates, namkeens, etc. The price of edible oils fell by Rs.15, cereals by Rs.94, washing powders by Rs.11, toiletries and cosmetics by Rs.19, sugar by Rs.6, sweets and namkeens by Rs.13, and chocolates by Rs.25. Miscellaneous household products had Rs.70 reduced. Other products that had a reduction in prices after GST was implemented are coir and furniture products by Rs.24 while the price of tiles and other materials fell by Rs.43.

    5 December 2019

  • Monthly savings of Rs.320 for Indian households after GST implementation

    The Ministry of Finance recently noted that GST implementation has resulted in a savings of nearly Rs.320 on a monthly basis for Indian households. This is after the purchase of edible oils, cereals, washing powders, toiletries, cosmetics, sugar, sweets, chocolates, namkeens, etc. The price of edible oils fell by Rs.15, cereals by Rs.94, washing powders by Rs.11, toiletries and cosmetics by Rs.19, sugar by Rs.6, sweets and namkeens by Rs.13, and chocolates by Rs.25. Miscellaneous household products had Rs.70 reduced. Other products that had a reduction in prices after GST was implemented are coir and furniture products by Rs.24 while the price of tiles and other materials fell by Rs.43.

    5 December 2019

  • More than Rs.1 lakh crore in GST collected in November

    The GST collection in November 2019 crossed Rs.1 lakh crore with a revenue growth of 6% amounting to Rs.1.03 lakh crore. The GST collections in November of last year amounted to Rs.97,637 crore. In October 2019, the government collected Rs.95,830 crore worth of GST. Of the Rs.1,03,492 crore GST collected in November 2019, the IGST (which included Rs.20,948 crore on imports) was Rs.49,028 crore, the SGST was Rs.27,144 crore, the CGST was Rs.19,592 crore, and the Cess (which included Rs.869 crore collected on imports) was Rs.7,727 crore. On domestic transactions, the GST growth of 12% was the highest in 2019.

    2 December 2019

  • GST e-invoicing mandatory for businesses with less than Rs.100 crore turnover from 1 April 2020

    Businesses with Rs.100 crore and above turnover will mandatorily have to submit e-invoices for GST returns from 1 April 2019. This is to facilitate GST compliance and reduce tax evasions. It will be launched on a voluntary and trial basis from 1 January 2020 and start with firms that have a turnover exceeding Rs.500 crore. Businesses with turnover less than Rs.100 crore would have to start from 1 February 2020. E-invoicing also helps to simplify the system for taxpayers. Because the returns are pre-populated, there will be a decrease in reconciliation issues. However, it will still be voluntary for businesses with less than Rs.100 crore turnover from 1 April. Small and medium size enterprises will find it easier to avail instant loans from banks. This is because banks will be able to rate the MSMEs on their invoices and not require so much documentation for validation purposes. The new system may lead to increased GST revenue collections over time. The GSTN portal will be linked to the companies’ systems and the invoices will be generated and passed onto the GSTN portal ideally within 24 hours.

    29 November 2019

  • Major changes sought by Finance Commission Chief in GST structure

    Major changes have been sought by the Chairman of Finance Commission in the Goods & Services Tax (GST) structure which will include the reduction of cumbersome compliance processes and removal of frequent rate changes to augment the collection. A rationalisation has also been pitched for centrally sponsored schemes by the chief while also declaring that the role of NITI Aayog has not been clearly defined by the government. Presently, NITI Aayog does not have the authority to make financial decisions. The demand for changes in the GST structures comes after the concerns regarding the steady dip in the GST collection which has not achieved its target of Rs.1 lakh every month except for one. The distribution of revenue between the states and the Centre is decided by the Finance Commission. The chief has, however, revealed that despite all the problems in the GST structure, the country has seen one of the fastest GST adoption rates. The changes sought in the GST structure will make the system simpler, reduce the compliance cost, and result in an improved course of revenue collection.

    27 November 2019

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