What is Good & Services Tax (GST) in India?

Nov 15, 2021GST Accounting

In this changing environment, various taxes have been formulated and eliminated. In the midst of all this, GST in India has been one of the major tax overhaul in recent times. Today, we will discuss GST in India, its components, benefits and how it has changed the economic scenario of our country. 

Let us begin with a very simple question:

What is GST in India?

GST stands for goods and service tax. In other words, goods and service tax means GST, it’s an acronym. GST in India is an indirect tax that came into effect on July 1, 2017, in replace of multiple existing taxes.

GST explained in simple form is a multistage tax because it is imposed at every stage right from the production process, to the final retail seller. It is meant to be returned to the concerned party except for the final consumer. Therefore it is collected from the point of consumption and not from the point of origin.

GST in India tax has been divided into five tax slabs for easy collection. They are: 0%, 5%, 12%, 18% and 28%. These slabs were not mentioned in the previous tax regime. However, there have always been exceptions. For example; liquor, electricity, and petroleum products are not taxed under GST. They are separately taxed by the state government. There is also a different rate of taxation for gold (3%) and semiprecious stones (0.25%).

To understand this concept in detail let us focus on the components of GST

There are three major tax components of GST in India:

CGST which stands for central goods and service tax. This act has been implied to make a provision for levy and collection of tax on the Intrastate sale. Under this act, the location of the supplier and the place of the supply that is the location of the buyer is the same. This tax is levied by the central government and is governed by the CGST act of 2017.

SGST stands for state goods and services tax. This tax is imposed on both goods and services within the same state that is Intra state. This tax is collected by the state government. It functions according to the act of SGST, 2017.
Below given is an example to understand the concept of CGST and SGST:

Let us assume that Ram dealer in Kolkata who has sold goods to Anand in the same city. The net worth of the goods is Rs.10,000. Then the GST rate on these goods would be 18%. This 18% is divided into two equal half: CGST (9%) and SGST (9%). Therefore the dealer collects Rs.1800 in which 900 would be given to the central government and the other half would be received by the state government.

IGST which stands for integrated goods and services tax. This tax is governed by the IGST act of 2017. According to this act, tax can be collected on transactions made within India( different states) and outside the boundaries of our country as well. The concept of this tax is inter-state i.e. the location of the supplier and the location of the buyer are in different states. Exports, imports, and transactions made by SEZ units also fall under the same category. Therefore in such cases, the seller has to collect the IGST from the buyer. Indirectly this tax is shared between the Centre and the state government. One most important thing about this tax is that it can also be zero-rated. Below given is an example to understand this concept in detail:
Hypothetically a businessman from Mumbai has sold goods to a dealer in Kolkata. The net worth of the goods is Rs.1,00,000. The rate of GST in India, in this case, would be 18%. This 18% would comprise IGST. So, Rs.18,000 would go to the Centre.

Well, now the rising question is:

Has GST has been beneficial for our country or not

After understanding the concept of GST and its components, it will be comparatively easy for us to judge whether the concept of GST is beneficial for a country or not. If we compare the pre-GST in India situation and the post-GST in India scenario, we will see that before 1 July 2017, the statutory tax rate of most of the daily goods has been reduced from 25–26% to 18%. Even though there have been exceptions, GST in India has also helped the masses.

India is the country in which most of the population is below the poverty line, therefore the price of medicine and other dairy products have been reduced due to a reduction in multiple taxes. Therefore we can say that you should of GST have more or less been beneficial for the countries economic as it has health in eliminating many different types of taxes which increased the price of daily products.

It is also important to understand how and by whom is this tax calculated.

According to the implementation of the 101st commitment of the Constitution of India, GST in India came into function. The tax rules, rates, and regulations are governed by the GST council. This council consists of the finance ministers of the state as well as the center. Therefore it comprises 33 finance ministers who are chaired by the union finance minister.

Benefits of GST

  • Before the implementation of GST in India, individual states had strong taxation rights. They levied many indirect taxes like the central sales tax, VAT, excise, etc. But with the coming of GST, the registered tax assesses are asked to pay a single uniform tax.
  • Cascading tax effect popularly known as the tax on tax has also been eliminated after GST in India has been imposed.
  • Under the previous tax structure, various indirect taxes had different sales turnover limits for registration which has been changed now. For example, after the 32nd GST council meeting, the GST exemption limit for the suppliers of goods has increased from Rs 20 lakhs to Rs.40 lakhs. There has also been an increase in the special category of the state.
  • A composition scheme has been introduced under GST in India to encourage the reduction of taxes. Under this scheme, the register small business owners are required to pay a fixed percentage of tax. Therefore, businesses with a turnover of Rs.1.50,00,00,000 have to pay a GST rate of 1% while small service providers who have an annual turnover of 50 lakhs are required to pay the GST rate of 6% instead of 18%.
  • GST in India has also helped in regulating unorganized businesses. According to the economic survey which was held in the year 2017, it has been discovered that there has been an increase in the taxpayers. When has also been an increase in the number of voluntary registration. Therefore it can be clearly stated that GST in India has helped in organizing many small businesses:

GST in India has its benefits but in some cases, it has received criticism and discouragement. Let us also acknowledge such situations.

The technicalities of the implementation of GST in India has been criticized by the opposition party of India as well as some of the financial institutions.

The 2018 version of the World Bank (India Development Update) describes this system of taxation as too complex, with many rules and highly toxic for the economy in totality. It has also tried to bring out various flaws that the implications of GST in India has as compared to other countries. This report also states the fact that the GST rate in our country is the second-highest in the list of 115 other countries at 28%.

This system is further criticized by Indian businessmen. Their complaints include delayed refund of tax, complexity in paperwork, much documentation and high need for administrative efforts.

The opposition party (Congress)has constantly been criticizing the implication of GST. Rahul Gandhi, the party president said, “destroying small businesses and industries.” He also renamed GST as ‘Gabbar Singh Tax’.

Some of the disadvantages of GST are as follows:

  • The implication of GST in India changed the entire tax system. Businessmen now have to hire a professional to make sure that their GST is up to date. This has increased the total operational costs.
  • One of the main reasons why GST in India has been criticized so much is because it was introduced in the middle of a financial year. This not only created tension but also gave rise to situations of chaos and confusion.
  • GST in India brought with it many changes, including the change in the limits of tax payment. Earlier only businesses with a turnover of Rs.1.5,00,00,000 had to pay tax but after the implementation of GST, every small business which has a turnover of about Rs.20 lakhs has to pay this tax. Therefore GST has been creating difficulties for small-scale business owners.

The introduction of GST in India has meant that the business needs to raise GST invoices for every sale or service that they provide. Using an invoicing solution like Easyops can help you manage your GST. Easyops can not only help you with invoicing, but we also provide GST data for your return filing.

Well, we are sure that is a lot of useful information on GST. We hope that this article was helpful. For further doubts, please leave a comment below and if you liked this article, give us a thumbs up!
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