Initially, we had multiple taxes on the same supply chain. Among these were Central Excise Duty, VAT, Luxury tax, purchase tax, and more. This led to duplication of taxes and taxpayers had to bear high compliance costs. Thus, there was a need to introduce a uniform tax to eliminate the different tax practices across the entire economy.
Known as Goods and Service Tax(GST), this single uniform tax has a common set of tax laws and rules for the Centre and states. In this article, we will explore it in detail.
GST – Goods and Services Tax
GST or Goods and Service Tax is a single tax, levied on the supply of goods or services, or both. From manufacture or import till the end retail level, this is the only tax that will be levied. The input tax credit will also be available for every tax paid at an earlier stage of supply. From the reduced cost of compliance to more transparency and accountability in tax administration, it has a lot of advantages. One interesting thing about GST is its not applicable on exports or any supply of goods made to the Special Economic Zones. These zones are also known as zero-rated supply.
What is GST?
The majority of products and services sold for domestic use are subject to the goods and services tax (GST), a value-added tax (VAT). Consumers pay the GST, but businesses that sell the products and services are responsible for remitting it to the government.
In India, it is an indirect tax that has mostly superseded other indirect taxes including the excise duty, VAT, and services tax. The Goods and Service Tax Act was approved by the Parliament on March 29, 2017, and it became effective on July 1 of that same year.
In other words, the provision of goods and services is subject to the Goods and Services Tax (GST). Every value addition in India is subject to the comprehensive, multi-stage Goods and Services Tax Law. A single domestic indirect tax law, known as GST, applies to the entire nation.
How GST works?
There are two types of taxes in our Income Tax system. One is direct, while the other is indirect. Direct taxes are levied directly on the taxpayer’s income, and they are paid solely by them. On the other hand, indirect taxes are paid by the end-users of goods and services.
So, what kind of tax is GST?
Thus, since GST is also paid by the end consumer, it is an indirect tax. It is levied at every point of sale. These are paid by the end-users, who are consuming or purchasing the products or services.
Here is how GST Tax works:
- GST must be paid by the maker on both the product’s added value and the raw materials they purchased.
- The service provider will be responsible for paying GST on both the product’s purchase price and the value added to it. However, the manufacturer’s tax payment may be deducted from the total GST that must be paid.
- GST must be paid by the retailer on both the product they bought from the distributor and the margin they added. However, the retailer’s tax payment may be deducted from the total amount of GST that must be paid.
- At the consumer level, GST is required to be paid at the product or service purchased.
What is GST Number?
After you reach a certain threshold limit, you need to apply for a GST registration number. GST returns, invoices, and e-way bills must contain this information. It must be displayed at your place of business, too. In India, you can apply for your GSTIN at GST Seva Kendras or online through GST Online Portal. Separate GST numbers are also required for operating in different states.
Once you register under the GST, you get a registration certificate and are assigned a 15-digit number, known as the GSTIN(Goods and Services Tax Identification Number).
Here is an explanation of what these 15 digits represent in the GSTIN number.
- The first 2 digits are the unique code of the State, where the taxpayer is getting registered.
- The next 10 digits are the PAN(Permanent Account Number) of the taxpayer.
- The next digit or the 13th digit will be the registration number in the State.
- The 14th digit is always “Z”.
- The last digit is either an alphabet or a number. It is used for the detection of any errors.
Also Read: GST Verification
Types of Goods and Services Tax in India
There are Four main types of Goods and services tax in India. They are:
Central Goods and Services Tax (CGST)
The Central Tax (CGST) is imposed on domestic sales of goods and services. The Central Government, through the CGST, ensures that all other Central taxes, such as State Tax, CST, SAD, etc., are replaced. Prices for goods and services subject to the CGST are determined using the wholesale price.
State Goods and Services Tax (SGST)
One of the two taxes levied on the exchange of goods and services in every state is known as SGST. Every state’s state government imposes the SGST, which replaces all other state taxes, including the sales tax, entertainment tax, value-added tax, entry tax, etc. The State Government may claim the earned money under SGST.
Integrated Goods and Services Tax (IGST)
The IGST is imposed on cross-state sales of goods and services. The IGST is also applicable to commodities imported for distribution among the various states. When goods and services are transported from one state to another, the IGST is charged.
Union Territory Goods and Services Tax (UTGST)
The purpose of imposing UTGST, which is applicable to intra-UT supply of goods and services, is to use a tax collection to offer advantages similar to SGST. Five Union Territories—Lakshadweep, Damn and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands, and Chandigarh—are subject to the UTGST.
Who Needs To Pay GST in India?
Any person who carries a registered business at any place in India is taxable under GST tax. Individuals engaging in economic activity, including trade and commerce, is treated as a taxable person. In general, GST is owed by the provider of the products or services. However, the recipient may be held liable under the reverse charge mechanism in certain circumstances, such as imports and other registered supply.
Who Needs To Get GSTIN Registration
Under the regulation set by the Government, any firm that generates more than 20 lakh INR in revenue must register for GST. You must register for GST in each state where you supply goods if you are a supplier of goods to more than one state.
How Do I Calculate GST?
The calculation of the applicable taxes has gotten significantly easier as a result of the indirect taxation regime’s simplicity. Based on whether the transaction is intra-state or interstate, it is now possible to determine the GST rates that apply to the various goods or services.
A straightforward example can help to demonstrate how to calculate GST: If a product or service is sold for Rs. 1,000 and the applicable GST rate is 10%, the net price will be computed as follows: Rs. 1,100.
Advantages and Limitations of GST
Here are a few advantages of GST tax in India:
- The compounding effect on the sale of goods and services has mostly been eliminated by the GST. The cost of items has been altered by the removal of the compounding effect. The GST regime eliminates the tax on tax, which lowers the cost of goods.
- Additionally, technology plays a major role in GST. The GST portal requires that all tasks, including registration, return filing, refund requests, and notification response, be completed online, which speeds up the procedure.
Disadvantages of GST tax:
- The GST Regime is stringent, and you cannot generate e-way bills without filing a GST Return. Therefore, if you don’t register for GST and submit your returns on time, you can’t ship your goods across state lines.
- The cost of doing business has gone up because of the GST.
What is GST Return?
A GST return is a document that contains all your business transactions. From your sales, purchases, taxes collected on sales and paid on purchases are included in this document. Let’s understand different types of GST returns.
|Type of GST return||Particulars||Due dates of filing|
|GSTR-1||Monthly return for any outward supplies of goods and services subject to GST||11th of the next month|
|GSTR-2||Monthly return for inward supplies of goods and services subject to GST, for claiming the input tax credit||15th of the coming month|
|GSTR-3||Monthly return on details of Outward supplies,Inward supplies, andAmount of tax||20th of the next month|
|GSTR-4||Quarterly return for composition suppliers||18th of the month, after the succeeding quarter|
|GSTR-5||Monthly return for non-resident taxable individual||20th of the next month|
|GSTR-6||Monthly return for Input Service Distributor||13th of the Next month|
|GSTR-7||Monthly return for authorities for carrying out TDS (tax deduction at source)||10th of the next month|
|GSTR-8||Monthly return for e-commerce operators or the tax collectors for Details of supplies, andAmount of tax collected||10th of the next month|
|GSTR-9||Annual return of a registered taxable individual||31st December of the next fiscal year|
|GSTR-9C||Annual return for self-certified reconciliation statement||31st December of the next fiscal year|
|GSTR-10||Final return for any taxpayer, whose registration has been cancelled or suspended||Within 3 months of the date of cancellation of registration or date of cancellation order, whichever is later|
|GSTR-11||Monthly return for people who have UIN and want to claim a refund with details of inward supplies||28th of the month, following the month for which the statement has been filed.|
Based on the category of business, you need to file this return monthly, quarterly, or annually. The filing needs to be done on the GST portal. Now, who needs to file the GST return?
|S.no||Tax Payer||GST return Filing requirement|
|1||Regular business having more than Rs 5 crore as aggregate annual turnover (including those who have not opted for QRMP scheme)||2 monthly returns And 1 Annual return|
Along with the above returns, they also need to file a self-certified Reconciliation statement in the form GSTR-9C.
|2||Regular or small business having an aggregate annual turnover up to Rs 5 crore.||These taxpayers have the option to pay GST under the QRMP(Quarterly return and monthly payment of taxes scheme).Under this, taxpayers need to file:4 GSTR-13 GSTR-B, AND 1 Annual return|
|3||For composition dealers||4 statement cum challans in CMP-081 annual return in GSTR-4|
Also Read: How to File GST Return?
What is e-invoicing in GST?
Previously, businesses would generate their invoices through software and upload them manually to GSTR-1. They were available for viewing on GSTR-2A. Similarly, the transporters also used to generate their e-way bills by importing the information manually. Thus, to eliminate the use of paper-based invoices, and wastage and thereby, be more energy-efficient, the government introduced e-invoicing. Following are the advantages of e-invoicing:
- More transparency, as the e-invoice once uploaded is shared with the buyer on his mail ID. Thereafter, they can match the e-invoice with the purchase order.
- Reduction in tax evasions, manipulations, and frauds with real-time availability of data
- Easy and faster generation of e-way bills, as only vehicle information needs to be updated.
- Easy calculation of Input tax credit by scanning the QR code.
- No stress of losing the paper invoices.
The above article gives an overview of GST in detail. This uniform tax offers benefits to the government, industries as well as the citizens of the country. If you are a small business, you can make your products less expensive with the composition scheme. For any doubts or confusion, you can always consult a tax expert.
Yes, if you don’t file the GST return on time, then you will be liable for interest and fees.
Yes, each registered person must file a NIL GST return even if there is zero transaction.
Following are some advantages:
– Transparency of final prices
– Reduction in final prices due to reduction in duplicity of taxes
– More employment opportunities
– Low tax rates under compounding schemes.
GST rats are set up by the GST council.
Currently, the system does not support the business consumer invoices. Also, you can not store invoices for more than 24 hours.
A trader who only deals in exempt goods or whose annual sales is under Rs. 20 lakhs is free from the GST registration requirement.
GST tax came into effect on 1 July 2017.
Goods and services tax is an indirect tax.
Live fish, fresh milk, fresh ginger, garlic, grapes, unroasted coffee beans, petrol, electricity etc. are not covered by GST.
This taxation scheme, which is used throughout India, is primarily intended to reduce the cascading effect of other indirect taxes.