Goods and Services Tax (GST) is an indirect tax introduced in India by one hundred and first amendment to the Constitution of India. GST, a ‘value-added’ tax came into effect after 1st July 2017. The tax is destination-based and is levied on the manufacturer, seller, and on the consumption of different goods or services. In other words, a consumer has to bear the GST whenever they purchase any goods or use services, like buying food, shoes, electricity, transportation, hospitality, and more.
GST is an indirect tax as it is not directly levied on the consumers by the government. The manufacturer, seller, service provider adds the tax component into the cost and pass on the costs to the customer. Thus, GST is a ‘destination’ based tax collected from the consumer at the time of sales of goods. To summarize, Goods and Services tax is a multi-stage, destination-based, comprehensive tax that is levied at every value addition stage.
Why do we need GST?
GST is hailed as an important tax reform in the country and is instrumental in streamlining the process of tax collection and removing the ambiguities of the earlier tax regime. The tax reform is considered necessary in bringing transparency and a step in catapulting Indian economy towards $5 trillion bracket. Some of the reasons to introduce GST are:
- Deficiency in the VAT system
One of the major flaws in the earlier tax regime was the double taxation or the tax on the tax system. GST addressed the problem of VAT or CENVAT efficiently bringing down the cost of goods.
- Removing the confusion on goods and services
In the earlier tax regime, there was a lot of confusion in the categorization of goods and services and the resultant tax slabs applicable to them. GST removed all the paradoxes and made the regime more transparent in its application.
- Integration of taxes
GST implementation led to subsuming various taxes (Central and State) into one tax including:
- VAT or CENVAT
- Octroi
- Purchase tax
- Luxury tax
- Central sales tax
- Entry tax
- Service tax
- Central excise duty
- Customs duty, and more
- Simplification of taxes
Introduction of GST has led to the simplification of taxes making the compliance easy. By replacing 17 indirect taxes, the compliance cost of the small businesses is eliminated.
- More transparency
With sorting out of compliance issues, monitoring of tax revenue becomes more transparent. This has led to better tax coverage and tax collection.
- Quick redressal
Implementation of GST has led to the elimination of multiple legislation due to a number of different tax laws. This has led to quick redressal of complaints related to any tax dispute.
- The ease of doing business.
The entire process of GST collection is digital from registration, tax filing, tax payment, refund, and reply to notice. The process is carried out on the GST portal reducing the overall time consumed.
What are the different types of GST?
The GST tax structure in India is categorized under four types, these are:
- Central GST or CGST
- State GST or SGST
- Union territory or UGST
- Integrated GST or IGST
Central GST or CGST
CGST is an indirect tax that is levied by the Central government on the transaction of all goods or services within the state or intrastate. The tax-revenue collected from all the transactions under CGST is transferred to the Central treasury.
State GST or SGST
GST collected on sales of goods or services within the state or intrastate is called as SGST. The State GST is equal to CGST in terms of rates. The tax-revenue collected under the SGST is transferred to the state government’s treasury.
Union Territory GST or UTGST
The GST collected in the Union territories of India like Chandigarh, Daman and Diu, etc is called UGST. It is similar to State-GST (SGST) where the tax revenue is transferred to the respective administration where the goods or services are finally consumed. UGST is also levied at the same rate as the CGST.
Out of the seven Union territories, Puducherry and Delhi have their respective governments and these are semi-union territories. These two places have partial statehood and levy SGST instead of UGST.
Integrated GST or IGST
The interstate transaction of goods and services attracts tax called Integrated goods and services tax. It is collected by the Central government and is transferred (SGST/UGST) portion to the respective State government where the goods or services are consumed. It is also applicable to the export-import of goods and services. The rate applicable on IGST is equal to the CGST along with SGST.
Example to understand all the taxes under GST.
Let us assume, a single product worth Rs.10 lakh is sold that attracts GST @18%, how the tax revenues are distributed among the stakeholders.
The scenarios:
- In the case of interstate sale of goods
- For Union territory
- For the intrastate sale of goods
| Place of sale | Analysis | Tax- Distribution |
| Sales in other States | Inter-State | IGST @18% |
| Sales within the State | Intra-State | SGST@9% + CGST@9% |
| Sales within a Union territory | Intra-State | UGST@9% + CGST@9% |
What goods and services are not covered under GST?
Goods that are not covered under the GST regime are:
- Petroleum products
- Tobacco products
- Alcohol for – Human consumption
- Entertainment tax
Services that are exempt from the GST are:
- Sale of a building or land
- Court services or tribunal services
- Service of an employee in a company
- Funeral services
- Duties performed by elected representatives (Central, State, Governing bodies)
Tax slab rates under GST
There are more than 1300 goods and 500 services that are brought under the GST tax net. There are four tax slabs in GST, these are – 5%, 12%, 18%, and 28%. GST council has kept the taxes on the essential commodities including food items at the lowest (5%), whereas the tax on luxury goods and services are in the highest bracket.
Some of the goods and the tax slab are:
| 5% GST | 12% GST | 18% GST | 28% GST |
| Spices | Cakes | Washing Machine | Personal Aircraft |
| Frozen vegetables | Drip Irrigation System | Vacuum Cleaner | Sunscreen |
| Rusk | Photographerrs | Pasta | Tobacco |
| Fish fillet | Pack water bottle – 20 liter | Tyres | Hair clippers |
| Pizza bread | Butter | Biscuits | Bidis |
| Sabudana | Mechanical sprayers | Vanity case | Weighing machine |
| Tea | Ghee | Pastries | Waffles plus wafers coated with chocolate |
| Baby milk food | Almonds | Soups | Wallpaper |
| Plain Chapati, Khakhra | Pouches, handbags, and purses | Preserved Vegetables | ATM Vending Machine |
| Floor covering | Fruits | Camera | Yachts |
| Fertilizers | Art ware of iron | Curry paste | Motorcycles |
| Footwear under Rs.1,000 | Boiled sugar confectionery | Instant food mixes | Ceramic tiles |
| Apparels under Rs.1,000 | Packaged coconut water | Shampoo | Dishwasher |
| Real zari | Pickle | Printers | Aerated Water |
| Agarbatti | Mirrors framed with oornaments | Mixed condiments | Pan Masala |
In addition to the above, there are two additional tax slabs:
0.25% – On rough Precious and Semi-precious stones
3% – On gold
Introduction of GST is a biggest tax reform undertaken by the government in independent India. GST implementation has simplified the tax regime of the earlier period, bringing in transparency in tax collection and application. It has been beneficial to the traders, manufacturers as well to the consumers due to reduction of prices of essential commodities. The categorization of GST into three segments has further clarified the process of tax liability and collection for the states and the Central government.
