On July 1, 2021, the GST celebrated its fourth anniversary; the tax system has been both acclaimed and condemned and has surmounted all obstacles to reach this goal. As part of this Remembrance Day, let’s review the law again and learn about things like when GST is applied, GST slabs, etc. Please read the entire article to discover when GST applies to the top three industries.
What exactly is a tax?
Hugh Dalton describes ‘tax as a compelled contribution imposed by a governmental authority, independent of the exact amount of service delivered to the taxpayer in return, and not levied as a penalty for any legal infraction’.
A tax system’s classification comprises land tax, sales tax, service tax, income tax, etc. Except for income tax, all other taxes were considered in use even before the British administration was established. Sir James Wilson was the first person in the country to impose an income tax. Wilson levied this levy to compensate for the damages caused by the 1857 War Mutiny.
First, we’ll obtain a snapshot of tax evasion in India, focusing on the manufacturing and sales areas.
Raw — material — finished — product — retailer — consumers
This is the sequential sequence in which taxes are added at each phase in the industrial sector. Before we get into the specifics, let’s look at the history and execution of the GST tax system.
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The goods and services tax was imposed in the country to aggregate all other taxes charged by both the federal and state governments in the production, distribution, and sales sectors. The taxes that existed before the implementation of GST are listed here.
- Central Excise Duty
- Duties of Excise
- Additional Duties of Excise
- Additional Duties of Customs
- Special Additional Duty of Customs
- State VAT (Value Added Tax)
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entertainment Tax
- Entry Tax
- Taxes on advertisements
- Taxes on lotteries, betting, and gambling
The government assesses a proportion of a person’s past tax payments as a tax. The Cess tax is commonly known as “Charge on Tax” because it applies a tax on the current tax value. During sales, the cess tax is enforced upon the procurement of raw materials. In the case of sales and distribution, the Cess mainly reaches the client since the original added value is transferred in each consecutive stage and ultimately influences the retail price.
The government imposes this tax to pursue a particular aim, such as improving education and health care or supporting the poor after natural disasters. When the government arrives at the destination, the Cess is removed. Cess is commonly regarded as a process to help the needy from the wealthy.
Even after the establishment of the GST Cess, it is charged as necessary. To address these different taxes, the Atal Bihari Vajpayee administration presented the GST concept in 2000. Based on the suggestions of the Vijay Kaelkar committee, the Vajpayee administration proposed the GST system. After a lengthy delay, the measure was enacted on March 29, 2017, and went into force on July 1.
The GST is a destination-based tax system; the previous tax version was known as the “tax on tax” system since it was based on a value-added tax model. The present tax scheme establishes the tax on the location of the product’s sale.
When GST is levied on the top 3 industries:
- Entrepreneurship (or startup) sector:
Entrepreneurship is a successful business that contributes significantly to the nation’s economy, GDP, and job creation. The GST tax system is inextricably linked to this industry. Taxation is incorporated in every business step, particularly for manufacturers, from raw material purchases to final product sales.
An entrepreneur’s most important question is when GST applies to my company or when my business must register for GST.
When a company earns more than 20 lakhs per year, it is required to register for GST. However, the turnover limit in the northeast, J&K, Himachal Pradesh, and Uttarkhand is 10 lakh rupees.
If your startup falls into one of the two categories mentioned above, register it on the official government GST website. Learn about the registration procedure by visiting the government’s GST instructional page.
When GST is applied for goods, sales are critical in the sales industry. GST is applied to items depending on the government’s list of exemptions under this tax regime.
The slab is the designation given to the different GST percentages available for various items. As a result, the goods and services tax is divided into five slabs. They are 5%, 12%, 18%, and 28%, respectively. All commodities are classified into one of four categories.
This group contains 5% of all domestic food goods and necessary medications. This 5% threshold also applies to coal.
12% – Computers, packaged and processed foods, eyewear and lenses, exercise and laptop computers, walkie-talkie radios.
18% – Other home supplies such as toothpaste, hair oil, cosmetics, and self-supply items such as tractor tyres, electric lights, electronic equipment, and so on.
28% – goods in this category are primarily luxury and addictive drug products.
Another primary tax-paying sector in the country is the service industry. In India, the service sector contributes more to the economy than the manufacturing sector. As a result, the unavoidable issue arises: when is GST applicable for services, and what is the tax percentage for services?
Services, like products, are taxed. GST categorises the numerous services accessible in India into four slab categories.
Services subject to a 5% taxation include first-class and air-conditioned train travel, economy-class air travel, goods transportation, print media ads, newspaper printing services, decorative works, and skin and leather processing.
Services subject to 12% VAT include non-ac restaurant services without liquor sales, rental stays in hotels, camps, and clubs for less than Rs.2500 per day, complexes, and other retail sale structures.
Services subject to 18% taxes include liquor sales and air-conditioned restaurant services, outdoor catering, commercial accommodation costing less than Rs.7500 per day, cultural art performances in theatres, and films costing less than Rs.100.
Services with 28% taxation – Commercial accommodation with a fare of more than Rs.7500/day and all other entertainment facilities, including gambling.
Other important GST facts:
- GST’s constitution and articles:
GST was established under the 101st Constitutional Amendment Act and Article 279 of the Indian Constitution. In addition, the tax measure was submitted to parliament as the 122nd constitutional amendment bill.
- GST: direct or indirect tax?
The tax structure is divided into two sorts. The first is a direct tax, which is charged directly on the asset, such as personal income tax.
The other type is an indirect tax, such as sales tax, which does not affect the initial purchase but is imposed on the final product consumer. Because all previously existing indirect taxes are now included in the goods and services tax, GST is referred to as an indirect tax.
- When the first GST was implemented in the world:
France was the first country to impose a goods and services tax in 1954, and since then, 160 nations have implemented GST.
- India’s first state to accept GST:
On August 12, 2016, Assam became the first state to adopt GST, while Telangana ratified the law on April 9, 2017.
When GST was adopted, it had three variation taxes: SGST, CGST, and IGST. Let’s see what terms these taxes are indicated by.
SGST: This is an intra-state tax levied when a sale occurs within the state.
CGST: Also applicable when the sale is made within the state, making this variation an intra-state one.
IGST: This tax is levied when a sale is made between two states. It is an interstate tax.
In the case of IGST, the tax first reaches the central government, after which the union government allocates a portion to the destination state. The tax distribution will be completed in three months.
The GST model in India is dual since national and state governments manage taxation. The government adopted the GST model from Canada, which introduced the GST type of taxes in the country in 1991.
The Indian GST Council determines laws and regulations, such as how and when GST is applicable. The council has 33 members, with two representing the union government and the remaining 31 representing the 28 states and three union territories.
The Finance Minister serves as the council’s chairman. FM Nirmala Sitharaman currently leads this GST council. The last 44th council meeting, held on June 12, 2021, implemented the necessary reforms and rules in the tax system.
GST’s brand ambassador is the 74-year-old and well-known actor Amitabh Bachchan. On July 1, 2017, the Central Board of Excise and Customs appointed him as the ambassador of this tax system. Amitabh Bachchan promoted the GST concept, which stands for ‘One Nation, One Tax, One Market,’ in the Indian Finance Sector video. The film was titled ‘GST – An Initiative to Create a Uniformed Market’.
- Products exempt from GST:
We learnt where and when GST is applicable, and it is also vital to know which items are excluded from GST.
Tea leaves, fruits, vegetables, milk, jaggery, turmeric, curd, coffee bean, and other major farming products.
Following that, GST is waived for silk items, charcoal, firewood, wool, textiles, agricultural implements, and musical instruments.
Furthermore, some services like transportation, agriculture, tourism, library services, and electricity distribution are free from GST.
When a person fails to pay the required GST, he becomes responsible for various costs. The individual may face prison time if the unpaid tax is of a more significant value. The penalty for any undefined tax evasion might be up to 25000 Indian rupees.
Benefits of GST:
- By putting all of the many indirect taxes under one roof, GST has reduced the complexity of the old tax arrangement.
- This tax system has made the tax filing procedure less time-consuming.
- GST has had a positive influence on the nation’s GDP.
- GST was also implemented to combat corruption and the underground economy.
- The most important feature of GST was to eliminate the cascading impact.
Advantages of GST:
- While GST has benefited many corporate sectors, it has negatively influenced the real estate industry.
- The affordability of the software necessary to submit tax registration in digital format has raised the expense of taxation.
- The tax burden for SMEs has grown since, under the previous tax version, only enterprises with an annual income of more than 1.5 crores were required to pay excise duty. Firms with a turnover of more than 40 lakhs are required to register for GST in the GST version.
- Long-standing criticism from the public and the opposition was that petroleum goods should be subject to GST to reduce their cost value.
- The division of taxes between the federal and state governments is becoming more complicated.
I hope the post answers your basic queries, such as where GST was first used. When does GST apply? Pros and drawbacks of GST and a few additional undisclosed facts. As a result, this post would have been beneficial. GST is a tax implemented by the Indian government to improve the nation’s economy, create a climate conducive to conducting business, reduce corruption, and so on.Similarly, the commencement of this taxing system was challenging for the public since GST was implemented in the middle of a fiscal year, making it impossible for individuals to adjust their tax structure in a short period. However, the tax form has successfully finished its fourth year, and individuals have learnt how to use this taxation system. Economists predict the government will improve this system by responding to a few further public requests in the next fiscal years.