Goods and Service Tax

The Goods and Service Tax popularly known as GST is a form of indirect tax charged on the supply of goods and services. GST was introduced in India on 01.07.2017 through the Goods and Service Tax Act, 2017. Since the inception of GST in 2017, it has replaced several indirect taxes such as VAT, Service Tax, Luxury Tax and Excise duty and simplified the indirect taxation system in India. Let us have a basic understanding of GST in India.

Features of GST

• Integrated and Simplified

As mentioned in the above para, the GST has replaced many indirect taxes which were prevailing before 01.07.2017 and integrated into a simplified version.

Earlier the manufacture of goods were charged to excise duty followed by the state level VAT/ sales tax at the time of each sale from manufacturers to wholesalers to retailers to final customers resulting in a complex network of indirect taxes. Apart from these, there were service tax applicable of services rendered and luxury taxes applicable of luxury goods. These indirect taxes were charged on different bases at different rates. The administration as well as the compliance of indirect taxes require significant time and effort.

GST has streamlined these to a certain extent though it is still not a perfect solution and is being evolved from time to time.

• Multi stage

The GST is levied on every stage of supply chain staring from the procurement of raw materials to manufacture to wholesale to retail to sale to the ultimate customer making it a multi stage tax.

• Value addition

At each stage of the supply chain, the product or service undergoes value addition. GST is charged on the value added at each stage through set off of input tax credit on the previous stage.

• Destination based

The GST is a destination based tax and GST is charged at the place of consumption and not on the place of supply.

Applicability

• GST is applicable to the following persons.
• Every person having an annual sale or service revenue exceeding Rs.20 lakhs in a financial year
• A person making inter-state taxable supply of goods or services
• E-commerce operator
• A person supplying goods through a e-commerce operator
• Aggregators who supply services under their own brand name
• Casual Taxable Person
• Non-resident taxable person
• Person required to deduct/ collect tax (TDS/TCS)
• Input Service Distributor
• Person supplying online information and database access or retrieval services.
• Person required to pay tax under reverse charge
• Person supplying goods on behalf of another taxable person

GST is not applicable to

• Agriculturists
• A person engaged exclusively in the business of supplying goods or services not liable to GST by way of an exemption or otherwise.

 

Components of GST

GST is divided into 3 components of tax as under.

• CGST

CGST stands for Central Goods and Service Tax. CGST is that portion of tax collected on intrastate supply of goods and services by the central government. When a supplier registered in Kerala sells his product within Kerala, both CGST and SGST are collected.

• SGST

SGST stands for State Goods and Service Tax. SGST is the portion of GST collected by the state government on intrastate supply of goods and services.

• IGST

IGST stands for Integrated Goods and Service Tax. IGST is the portion of GST collected by the central government on interstate supply of goods and services. When a supplier in Kerala sells his product in Tamil Nadu, IGST is attracted.

Input Tax Credit

A major disadvantage of indirect tax which prevailed earlier was its cascading effect i.e. there were so many limitations in setting off the input tax credit against the output tax liability especially in cases of interstate transactions. GST was introduced as solution for this problem and seamless input tax credit is a major feature of GST.

Input Tax Credit generally means the GST paid on purchase of goods and services. The beauty of Input Tax Credit in GST is that the GST paid on purchase of goods and services can be set off against the GST payable on supply of goods and services.

For example, Mr. A purchases goods at the rate of Rs.8,000 plus GST @ 18% and sells them at the rate of Rs.10,000 plus GST @ 18%. The output GST payable by Mr. A is Rs.1,800. However, he can utilise the Input Tax Credit  Rs.1,440 and pay the difference portion amounting to Rs.360 only.

That covers the basic concepts of GST which every Indian need to know. For more complex and specialised contents on GST, follow us on our social media platforms and do not hesitate to reach us on our phone or whatsapp. You’re always welcome to visit any of our offices listed in our contact us page.