Introduction to Goods and Services Tax in India

GST, one of the biggest economic reform in the history of Indian tax system has been implemented from July 1st, 2017. There are around 160 countries which have already adopted GST.

With the aims of turning India into an integrated economy at the national level and to bring together state economies, GST introduced common tax rates and common procedures.

GST had been designed in a manner to

  1. simplify tax collection; and
  2. make statutory compliance less complicated

by introducing uniform tax rates, procedures, and rules.

 

History of GST in India

History of GST in India

Concept of GST

1. Value Added Tax: Under GST, the tax is levied at each level of value addition.

Tax is levied on following three stages:

  • Manufacture – Levied on manufacturer on production;
  • Sale – Levied on seller on the sale of goods; and
  • Consumption – Borne by the final consumer on purchase for consumption.

2. Continuous Chain of Tax Credits: Since GST is a value-added tax, it offers a continuous chain of credit. This chain keeps track of taxes paid on

  • purchase of raw material;
  • production of the final good;
  • purchase of final goods by wholesaler/retailer.

Through this chain,  a registered manufacturer or a retailer can claim the credit of tax paid at each stage, thereby taxing only the value added at each stage of a supply chain.

3. Destination-Based Tax: GST is a destination based tax applicable to all transactions involving the supply of goods and services.

Consider goods manufactured in Bihar and are sold to the final consumer in Delhi. Since Goods & Service Tax is levied at the point of consumption, in this case, Delhi, the entire tax revenue will go to Delhi and not Bihar.

4. Dual GST Model: India has adopted a Dual GST model in view of the federal structure of the country. Centre and States will simultaneously levy GST on a taxable supply of goods or services or both which, takes place within a State or Union Territory.

Thus, the tax is imposed concurrently by the Centre and States, i.e. Centre and States simultaneously tax goods and services.

Now, the Centre also has the power to tax intra-State sales & States are also empowered to tax services.

Note: GST extends to the whole of India including the State of Jammu and Kashmir.

 

Benefits of Goods and Services Tax

1.Creation of unified national market: GST aims to make India a common market with common tax rates and procedures and remove the economic barriers. Thus paving the way for an integrated economy at the national level.

2.Mitigation of ill effects of cascading: By subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and improve the liquidity of the businesses.

3.Elimination of multiple taxes and double taxation: GST has subsumed majority of existing indirect tax levies both at Central and State level into one tax i.e., GST which is leviable uniformly on goods and services. This will make doing business easier and will also tackle the highly disputed issues relating to double taxation of a transaction as both goods and services.

4. Boost to ‘Make in India’ initiative: GST will give a major boost to the ‘Make in India’ initiative of the Government of India by making goods and services produced in India competitive in the national as well as international market.

5.Buoyancy to the Government Revenue: GST is expected to bring buoyancy to the Government Revenue by widening the tax base and improving the taxpayer compliance.

Tax Structure under the Goods and Services Tax Regime

GST is a destination based tax applicable on all transactions involving supply of goods and services for a consideration subject to exceptions thereof.

Under the GST regime, you will find following types of taxes:

  1. Central Goods and Service Tax (CGST) – levied and collected by Central Government on  transactions within a state,
  2. State Goods and Service Tax (SGST) – levied and collected by State Governments/Union Territories with State Legislatures on  transactions within a state,
  3. Union Territory Goods and Service Tax (UTGST) – levied and collected by Union Territories without State Legislatures,
  4. Integrated Goods and Service Tax (IGST) – levied by Centre on all inter-State supplies (on transactions between two states).

 

 

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