What is GST in India?
GST or the goods and service tax is levied by the government, which has replaced many indirect taxes in India. GST is an indirect tax that has subsumed many indirect taxes in India such as the excise duty, VAT, Service tax, etc. The act was passed by the parliament on 29th March and it was implemented on 1st July 2017.
Under GST any business that has a sale of goods with an annual turnover of Rs. 40 Lakhs and service with an annual turnover of Rs.20 lakhs will require GST registration in India. GST is levied on the supply of goods and services. The GST tax law in India is a comprehensive, multi-stage, and destination-based tax that is levied on every value addition. Hence, we can say that GST is a single domestic indirect tax law for the entire country.
The shopkeepers, customers, and consumers pay the Goods and Service Tax and as a result, the government gets revenue. The final price of all the goods or services have GST included in it. The Goods and Service tax has removed all the indirect taxes that are imposed by the central and state government previously.
What was the need implement to GST?
Goods and Services tax was majorly introduced to lessen the tax burden of both the consumers and companies. Under the previous tax system, various taxes were included at every phase of the production network without clearing the tax at the previous stages. So in the end cost of the item doesn't reflect the genuine price of the item and how much tax is applicable. The previous cascading and inefficient system was replaced by the new GST in India.
The government of India integrated these taxes through the mechanism of the uniform taxation system in the form of the Goods and Service Tax. GST was successfully implemented after four bills were passed i.e, the Central goods and services tax GST Bill, Integrated GST Bill, Compensation GST Bill, and Union territory bill.
Implementation of GST
The Government of India publicized GST as One Nation, One tax. The tax was passed by the parliament on March 29, 2017, and was implemented on 1st July 2017. For implementing the GST, the GST council committee has to approve all the other bills like the Central goods and Service tax GST Bill, Integrated GST Bill, Compensation Bill, and the Union territory GST bill (UTST).
Who is eligible to get GST registration?
As per the guidelines of the government, the following people can register under the new GST regime.
- Individuals enrolled under the existing taxation laws can get GST registration.
- Businesses with turnover existing Rs. 40 lakhs (Rs. 10 lakhs for the states including Northeast, Jammu and Kashmir, Himachal Pradesh, and Uttarakhand.)
- Suppliers and Input service wholesalers.
- Casual taxable person (A person who is occasionally engaged in the supplies of taxable goods or services).
- For any individual who is under the consideration of the reverse charge mechanism: Reverse Charge, the receiver here is liable to pay tax.
- Individuals involved in E-commerce business.
Documents required to obtain GST registration
Basing the nature of the entities and business ownerships, an individual is required to submit a different set of documents to obtain GST registration.
- Following documents are required to be submitted for sole proprietorships:
- PAN Card of the applicant
- Aadhar Card of the applicant
- Passport Size Photograph
- Address proof
- Bank account details of the proprietor
Here is a list of documents that is to be submitted to obtain GST registration for a public or a Private Limited company:
- PAN Card of the company
- Incorporation certificate
- PAN and Aadhar details of the authorized signatory. (must be a citizen of India)
- Passport Size photographs
- MOA and articles of association
- PAN Card of all directors
- Address proof of the principal place of business
- Bank account detail
Documents required for a partnership firm:
- Id proof and address proof of all the directors
- Copy of the Partnership deed
- Bank account details
For a HUF the following documents are required:
- PAN Card
- Photograph of the owner
- Address proof of the principal place of business
Types of GST in India
The Government of India classifies the Goods and Services Tax into four types – State goods and services tax, Central goods and Services tax, Integrated Goods and Service tax, Union territory goods, and services tax. The taxation rates for all four of them are different from each other.
Central Goods and Services Tax (CGST) is levied by the central government on the interstate supply of goods and services. The CGST is regulated and held by the central government.
State Goods and Services Tax is a tax levied on the supplies of goods and services but is applicable on the intrastate level. The SGST is collected and administered by the respective state government.
Integrated Goods and Services Tax is applicable on the goods and services that are supplied from one state to another. This tax is also applicable in the case of imports from India and export from India. The IGST tax is collected by the government of India.
Union Territory Goods and Services Tax is levied in the prominent union territories in India. UTGST is applicable in all union territories like Delhi, Chandigarh, Dadra, and Nagra Haveli, Andaman and Nicobar Islands, Daman and Diu, Lakshadweep, and Puducherry. The tax generated is collected by the government of the respective union territory. UTGST and CGST are levied together.
However, these taxes are applicable only after the businesses have registered themselves under the new GST regime.
Structure of the GST slab rates
To make GST easier and simpler it was divided into four tiers. Zero rates, lower GST rates, standard GST rates, and higher GST rates.
Zero rate Tax: This is the nil rate tax that applies to goods and services. This type of tax is equivalent to tax exemption and does not affect the actual price of the product. The zero rates of the GST slab keep the costs of essential things under check.
Lower rate tax: This is 5% of the tax rate which is applied to the consumer price index basket and mass consumption.
Standard rate tax: Here the rate of tax is between 12% and 18%.
Higher rate tax: The tax rate is 28% on goods like washing machines, air conditioners, soft drinks, etc. Earlier due to the cascading effect this tax which was just 27% was increased to 30-31%. But due to the higher tax rate under the GST scheme, it has become fixed to 28%.
Goods and services that come under GST.
As we saw that the structure of GST includes 4 slab rates the products and services that come under the GST are also divided under these 4 slab rates 5%, 12%, 18%, and 28% respectively. Since the 0% slab is the exemption slab it does not come under the tax rate list.
5%- Consumables like sugar, coffee, tea, edible oil, footwear, milk food, apparel for kids, etc.
12%- butter, ghee, processed /packed food, almonds, mobile, computer, umbrella, etc.
18%- Hair oil, toothpaste, Industrial intermediaries, soap, ice cream, toiletries, corn flakes, etc.
28%- Small card, High- end motorcycle, AC, fridge, Luxury items, and cigarettes, etc.
Goods and Services Exempted under GST
Exempted goods under GST
Food: Cereals, edible fruits, and vegetables, edible roots and tubers, fish and meat, tender, coconut, jaggery, tea leaves, coffee beans, seeds, ginger, turmeric, betel leaves, papad, flour, aquatic feeds, and supplements.
Raw material: Raw silk, silk waste, wool, khadi fabrics, the cotton used for khadi yarn, raw jute fiber, firewood, charcoal, and handloom fabrics.
Tools: Hearing aids, hand tools (such as spades and shovels), tools used for agricultural purposes, handmade musical instruments.
Exempted Services under GST
Agricultural services: Agricultural services include harvesting, cultivating, packaging, renting, purchase, or leasing machinery for agriculture, warehousing, the supply of farm labor are all exempted under the GST regime.
Transportation Services: Transport of merchandise by inland waterways, transportation of travelers via air, transportation by non-AC vehicles, movement of rural production like milk, salt, or food grains.
Educational services: Include student and faculty transportation, mid-day meal program, catering services, security, housekeeping, and services during admission, examination, etc.
Medical services Include the services provided by a vet, clinics, or paramedics, services by ambulances, charity homes, and organizations that facilitate religious pilgrimages.
Advantages of GST
The GST is considered to be a value-added tax. Since its implementation, it has reduced the burden of indirect taxation considerably. The GST revenue is collected by the government. There are several benefits of GST.
Majorly, GST has removed the cascading effect on the sale and purchase of goods and services. Since this cascading effect has been impacted the cost of goods has reduced considerably. As the tax on tax is reduced the cost of goods reduces considerably.
As the whole process of GST is online the activities like registration, return filing application for a refund, and response to the notice must be done online on the GST portal which accelerates the whole process of registration.
There has been a reduction in the production of costs as the burden on the manufacturing sector has reduced.
Their consumers do not need to spend a lot of money to purchase the same goods and services which were earlier available at a higher price.
A composition scheme has been introduced for small businesses which is highly beneficial for Small businesses and MSMEs.
There are relatively lesser compliances under GST and majorly the whole process is online.
Compliances under GST.
Apart from GST return filings, several new GST regimes have been introduced.
E-way Bills were launched on 1st April 2018 for the inter-state movement of goods and services and 15th April 2018 for the intrastate movement of goods and services. Manufacturers, traders, and transporters can generate the E-way bill for the goods that are being transported from the place of origin to the destination on the common portal easily. This system has reduced time at check posts and helped the reduced tax evasions which have benefitted the tax authorities too.
The E-invoicing system was made applicable from 1st October 2020 for the businesses that have an annual aggregate turnover of more than Rs.500 crore in any preceding financial year(2017-2018). From 1st January 2021, this system was extended for those with an annual aggregate turnover of more than Rs.100 crore. E-invoicing has allowed interoperability of invoices and helps reduces data entry errors.
Implementation of the Goods and Services Tax in India is certainly a very revolutionary act for the development of the Indian economy. GST is like a boon for the Indian economy which will help the country to rank soon in the list of developed nations.