GST Full Form and Definition – Beginners Guide
GST Full Form and Definition
GST stands for Goods and Services Tax. Goods and Service Tax (GST) is a type of tax introduced in India from July 2017. GST is a consumption based tax ultimately borne by the end consumer of a goods or service. Throughout the value chain, businesses and consumers pay GST on their purchases. However, if the purchase was made by a business for sale to a customer, then the business can claim input tax credit to set-off GST liability. Thus, through the use of input tax credit mechanism, the GST liability is pushed to the end-consumer.
What is the full form of GST?
The full form of GST is Goods and Services Tax. GST is applicable on purchase of goods or services in India.
Why GST is implemented?
Before the implementation of GST, there were various indirect tax systems like VAT, Service Tax, Central Excise, Luxury Tax, etc., Some of these indirect taxes like VAT and luxury tax were governed by the State Governments, while taxes like service tax or central excise were governed by the Central Government. With indirect tax being levied by various authorities, businesses had to file various returns and comply with various rules. To simplify the entire indirect tax system, GST was implemented.
Under GST, businesses and customers would have to comply only with GST regulations. Hence, compliance is easier for businesses and customers will also have clarity on the tax paid by them. Further, Government will also be able to manage and govern GST better as many of the tax departments have been consolidated and streamlined into one department under GST Act.
GST vs Income Tax
GST is a consumption based tax levied on the sale of a goods or service. Hence, GST is applicable for everyone purchasing a goods or services in India at the same rate. For example, vegetables are not taxed under GST. On the other hand, mobile phones attract 12% GST. Hence, in the purchase of vegetables, both a billionaire and poor man will not pay GST. On the other hand, on the purchase of a mobile phone, both a billionaire and poor man will pay GST at 12% rate.
Income tax is levied based on the income of a person. If a person has a taxable income of over 2.5 lakhs in India, then he or she will have to file income tax return and pay income tax. If a person does not have any income in a year, then income tax need not be paid. Thus income tax is applicable only when there is income above a certain limit fixed by the Government.
Who pays GST?
GST is a consumption based tax and the end consumer of a goods or service pays GST. However, businesses have been made responsible for the collection of GST from consumers and payment to the Government. Hence, in a sale of goods or service, in addition to the cost of the product, the business will levy a GST tax and collect the same from the customer. Once the GST tax is collected, businesses are required to file GST return every month and remit the GST tax collected before the 20th of next month.
How to calculate GST?
GST rate for goods are applicable in 7 slabs namely – 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. GST rate for goods are linked to HSN code, an internationally used system for classifying goods in the course of international trade. GST Council has announced GST rates for each of the HSN codes. Hence, based on the HSN code of the goods, the GST rate can be determined. The GST rate can be multiplied by the value of goods to calculate GST.
In case of service, GST rates are applicable in 5 slabs namely – 0%, 5%, 12%, 18% and 28%. GST rate for services are linked to SAC code, a services classification system created by the Service Tax Department in India. Based on the GST rate for the service, the value of service can be multiplied to calculate GST for services.
Click here to find GST rate for all goods and services.