Abbreviation for Goods and Services Tax GST is an indirect tax placed on the people of India in various ways on all transactions, such as the manufacturing, sale, and consumption of products or services across India. The federal government enacted it in 2017. It has superseded previous taxes such as VAT, Excise duty, etc. Except for a few state levies, it has superseded all indirect taxes. It is the only indirect tax charged on products and services in different slabs that is identical across the country.
Many are confused by the new tax code and frequently struggle to grasp it. So we’ve compiled a list of things you should know about GST. Let us have a look at the new system:
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1.Different forms of GST are levied based on your location.
1.The Central Goods and Services Tax (CGST)
It is charged on the sale and resale of any goods or service inside the state; the tax money is divided by the central and state governments because it contains both CGST and SGST (State Goods & Services Tax). This new tax regime has replaced the previous one, in which you had to pay the state government’s Value-added Tax (VAT) and Central Excise Tax.
For example, consider a $1,000 transaction between Amritsar and Ludhiana. Because the transaction is now occurring within the state, both CGST and SGST will be levied. For example, if the state and national GST are 10%, each will get 50%.
- What if identical items are resold within the state?
If identical goods are resold inside the state, SGST and CGST are levied again. That is 5% added by the national and state governments to the updated sum computed by the seller.
2.State Goods & Services Tax
The main difference between it and the CGST is that the state government collects the tax on any products and services sold within the state, known as an intra-state sale. It has supplanted previous taxes such as VAT (VAT)
- What if the identical items are resold outside of the country?
If the transaction takes place outside of the state, known as an inter-state sale, IGST will be imposed and collected by the union government.
- Integrated Goods and Services Tax (IGST) (IGST)
It is imposed on any interstate or intrastate transaction of goods or services. The union government is in charge of collecting the tax. It also applies to imports and exports into India. The GST rate will be 0% for exports from India.
For example, if products are transported from Mumbai to Lucknow, IGST would be levied and collected by the union government because the transaction occurs outside the state.
If the same commodity is resold inside the state, as in the above instance, from Lucknow to Varanasi, CGST and SGST will be levied, with the tax split between the two.
3.Union Territory Goods and Services Tax (UTGST/UGST) is a different form of GST for the Union Territories.
It is a specific tax charged on union territories on any transaction of goods or services, in addition to CGST if the transaction occurs inside the Territory. The main difference between it and the SGST in the state is that it encompasses Union Territories, where the federal government handles the administration, and the Territory lacks a legislature. The Union government is in charge of collecting the tax. This act covers the following Union Territories:
- Daman and Diu
- Dadra and Nagar Haveli is a state in India.
- Island of Andaman and Nicobar
Because Delhi is inside the national capital region and is not covered by this statute, the CGST is imposed in this scenario.
Note: If the products or services are delivered from one state or Union Territory to another Union Territory, the IGST will be imposed.
For example, if a trader from Chandigarh sells a product within his city, CGST and UTGST will be collected because the transaction occurs intra-state and within the Union Territory.
However, if the same merchant sells his goods from Chandigarh to Daman and Diu, IGST would be collected because the transaction is inter-state.
3.Tax legislation in India before the implementation of GST
Before its introduction, India had a very complicated system of indirect taxes in which several types of taxes were imposed indirectly, for example:
When a producer purchases raw materials, they must pay VAT.
If a Wholesaler purchases a finished product from a Manufacturer, they must pay VAT and Excise Duty.
VAT is applied later if the Retailer purchases the product from the wholesaler.
Similarly, when a client or consumer purchases a product or service, they must pay VAT.
Previously, the tax regime contained both central and state taxes, with each state having its own set of procedures for collecting taxes, such as service tax, sales tax, central excise duty, customs duty, entertainment tax, luxury tax, advertisement tax, admission tax, lottery tax, and so on.
If there was an inter-state transaction of goods, the state imposed VAT in addition to Central State Tax (CST), such as central excise duty. This resulted in the tax-on-tax impact, often known as the cascading tax effect. With the introduction of the GST, the entire system of tax cascading was reduced to a basic form of indirect taxes.
4.Who is eligible?
- Any individual whose annual transaction in goods or services surpasses 20 lakh rupees. In this instance, a person must register.
- There are some exceptional instances when an individual must register with a restriction of more than 10 lakh rupees while providing services in India’s northeastern states.
- Anyone who engages in e-commerce transactions
- Every e-commerce aggregator
- Any person who transacts taxable products or services over state lines (from one state to another).
- Any non-resident who pays taxes
- Agents who provide commodities in place of any other taxable person
- Any person giving internet services to a person in India from another nation.
5.People in India who are exempt from GST
There are two kinds of exemptions.
Absolute Exemption: Such products are free from GST whether the transaction is intra-state or inter-state. The goods or services are excluded from limits or conditions in this case.
Conditional Exemption: The Act exempts these commodities on certain terms and conditions. Any service provided within the state or intra-state transaction and provided to an unregistered person by a registered individual.
The exemption can be classified according to whether it is for goods or services. Let’s have a look at the various types of exclusions.
Following is a list of some of the most frequent commodities that are exempt:
- Sheep, poultry, goat, fish, and other live animals and meat
- For example, tomatoes, bananas, and walnuts are examples of vegetables, fruits, and dry fruits.
- Natural goods such as milk and eggs
- Wheat, barley, rice, and other grains
- Coffee, tea, and spices
- Plants and seeds, such as oilseeds and flowers
- The use of fossil fuels
- Some Pharmaceuticals and Drugs
- Pottery, hand tools, and so on
Services excluded from GST include:
- Agriculture services like cultivation, renting agricultural machinery, and agriculturists are not subject to GST.
- To a certain extent, transportation services
- Postal services, for example, are provided by the government and the judiciary.
- Transportation for students, mid-day meals, examinations, and other educational services
- Medical assistance
- Some NGOs provide services.
6.Nil-rated, zero-rated, exempt, and non-GST
- Nil Rated – any supply with 0% GST, such as bread, salt, books, newspapers, etc.
- Zero-rated – Any export of goods or services from India and any supplies to a special economic zone (SEZ) shall be zero-rated.
- Exempt – supplies where GST is not applicable
- Non-GST: These are supplies where taxes are not covered by GST law but are taxable under another law, such as electricity, alcohol, and gasoline, which are not covered by GST but are taxed under an earlier tax system.
7.GST Identification Number and Registration (GSTIN)
Any qualifying supplier can register for GST by accessing the GST Portal. Afterward, go to the menu and pick the ‘Administration’ tab. Later, go to Registration, pick the ‘New Registration’ link, and fill out the necessary information. It may take up to six days to receive your identification number.
The GST Identification Number (GSTIN) is a unique number assigned to each provider based on the state in which they have registered for GST. It has 15 numbers and is assigned if a PAN card is available.
The supplier is qualified for GST Return after successfully registering. The record includes all of the provider transaction information about the buy and supply. All businesses must file returns twice a month, as well as an annual return.
GST Slabs of Various Types
Apart from alcohol, petroleum, and electricity, other commodities and services are taxed differently under GST. In comparison, necessary products and services are taxed at the lowest rate possible. On the other side, luxury things are taxed at a higher rate. Let us examine each of the following:
- 0% – This is the exempted list, which includes about 7% of commodities such as food grains, milk, curd, fruits, fresh vegetables, books, salt, newspaper, healthcare services, flour, educational services, and hotels with tariffs fewer than Rs 1,000.
- 5% – Frozen vegetables, branded paneer, agarbatti, cashew nuts, spices, skimmed milk powder, coffee, pharmaceuticals, and transportation services fall under this category.
- 12% – Frozen meat goods, cheese, butter, ghee, fruit juices, sewing machine, umbrella, telephones, job contracts, restaurant services, packaged dried fruits, and business class plane tickets are all included in this category.
- 18% – This is the category into which most items fall. This category includes pastries, cakes, cornflakes, ice cream, sauces, branded garments, jams, mineral water, envelopes, camera, computer, or computer products, mobile phones, sanitizers, cinema tickets, tractors, licensed Air Condition restaurants offering liquor services, telecom, and broadband services, and IT services.
- 28% Chewing gum, shampoo, pan masala, vacuum cleaner, shavers, autos, motorbikes, water heaters, cigarettes, five-star hotels, racing, cinema tickets, betting, and lottery are all subject to this levy.
The mechanism allows a trader to produce invoices digitally in the event of an intra-state supply of products. An online document displaying the movement of the commodities is created. By 1 June 2018, any inter-state delivery of commodities worth more than 50,000 rupees that extends beyond 10 kilometers of the state must be approved by an e-way Bill.
10 Advantages of GST in India
- Elimination of the tax cascade effect – formerly, we saw that many indirect taxes were adopted one after the other or a ‘Tax on Tax’ system that was not only sometimes higher but also difficult. However, the advent of GST has united all indirect taxes in India under one framework.
- Less compliance: Previously, there was a requirement to file various returns under various indirect taxes. With the adoption of GST, which replaced all indirect taxes, just a few returns are required.
- Possible price reductions and procedural costs: Previously, the tax was occasionally extended above the limit due to the cascading effect, but with the introduction of GST, clear slabs are established, so there is no manipulation of adding another variety of tax.
- More efficiency with online services: You no longer need to visit a physical location to register or file a return. The government established many online services, such as the GST site and e-Way Bill, through which one may access work digitally. You may also contact the authority via a Toll-Free Number and a helpdesk email ID. You may also seek assistance via the GST App, which is accessible in the Google Play Store.
Many people perceived the introduction of new tax legislation as making things more complicated until they learned more about it. Previously, we had to deal with many indirect taxes, many of which were unknown to the general public. Still, with the adoption of GST in India, all taxes have been replaced with a single tax system (save in rare situations) that applies throughout the country and has particular tax slabs. As a result, you no longer need to be concerned about the allegations filed against you. As we progress, we will become more accustomed to the tax and enjoy it.