Introduction
In India, multiple taxes are applicable, including income tax, central excise duty, customs duties, value-added tax, GST, and more. Goods and Services Tax (GST) represents a major reform in the Indian Taxation System, reforming the tax structure remarkably.
GST was implemented in 2017 and aims to simplify the tax structure of the country by consolidating various taxes under a single roof. Regardless of one’s profession, understanding GST is essential in the contemporary Indian Economy.
This comprehensive blog will provide an overview of GST, its objectives, the history behind its implementation, different types of GST, and calculation techniques.
GST- Meaning
Goods and Services Tax (GST) represents an indirect tax structure levied on the supply and distribution of goods across the country. This tax structure fundamentally reformed the Indian Tax System and underwent a series of amendments before its implementation. Ultimately, the GST Act was enacted during the parliament session on March 29th, 2017 and came into effect on July 1st, 2017.
In India, GST is a comprehensive, destination-based, and multi-stage tax structure imposed on every single value addition by replacing various indirect taxes, such as service taxes, excise duty, VAT, and more. GST consolidates these taxes under a single indirect taxation law applicable throughout the country and tax is levied at each point of the sale.
Key Objectives of GST
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One Nation, One Tax
The main aim of implementing GST is to streamline the tax landscape. And, rather than dealing with several taxes at various levels, both consumers and businesses are now required to pay a single tax on goods and services. However, the tax process has become more accessible and manageable.
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To Stop Tax Evasion
The complexity of a higher number of taxes leads to increased chances for tax evasion at several stages. The introduction of GST has enabled the Government of India to mitigate tax evasion effectively. Furthermore, the establishment of an online tax filing system has increased tax compliance over time.
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Enhancement of Government Revenue
Through a well-planned tax tracking and compliance strategy in place, GST was implemented to augment the tax collection process and promote fiscal discipline.
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Supports a Formalized Economy
The inception of GST encourages business owners to register and maintain accurate records of their business operations, consequently leading to the formalization of the economy.
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Removing Cascading Taxation
Under the GST framework, taxes are applied only to net value-added goods and services, thereby eliminating the tax-on-tax structure.
History of GST
Pre-GST Era
Before the implementation of GST, the tax system was differentiated by several indirect taxes at different stages imposed by both state and central governments. And, some of the multiple taxes include:
- Value Added Tax
- Entertainment Tax
- Service Tax
- Excise Duty , and
- Octroi & Entry Tax
The implementation of GST was a much-needed change aimed at simplifying the tax system and promoting a transparent taxation system across the country.
Key Milestones
The journey of GST began more than two decades ago.
2000- Initiation of GST discussions
- The concept of GST was first proposed by Atal Bihari Vajpayee, who was the Prime Minister of India at the time. A committee was formed to draft the GST model, which Asim Dasgupta, the Finance Minister of West Bengal, headed.
2004- Recommendation of Task Force
- The Kelkar Task Force on FRBM (Fiscal Responsibility and Budget Management) recommended implementing GST to simplify the use of several indirect tax systems.
2006- Official Announcement
- In 2006-07, the Finance Minister, P. Chidambaram, officially announced the introduction of GST by April 1st, 2010, during his Union Budget speech.
2009- First Discussion Paper
- The committee framed for GST released a discussion paper outlining its proposed structure and working pattern.
2011- Introducing Constitution Amendment Bill
- The 115th constitutional amendment bill related to GST was introduced in the Lok Sabha session. However, it was rejected due to a lack of agreement among the members.
2014- Renewal by the Modi Government
- The Modi government introduced the 122nd Constitutional Amendment Bill, reviving the agenda for the GST.
2015- Bill passed in the Lok Sabha
- The GST implementation bill was passed in the Lok Sabha session; however, it was stalled in the Rajya Sabha owing to political disagreements.
2016- Constitutional Amendment Clearance
- Both Lok Sabha and Rajya Sabha passed the 122nd Constitutional Amendment Bill. Furthermore, it became the 101st Constitutional Amendment Act, giving approval to GST.
2017- launch of GST Nationwide
- GST was officially launched on July 1st, 2017, by President Pranab Mukerji and Prime Minister Narendra Modi, during a midnight parliament session.
Besides, the entire GST journey marked a significant and transformative tax reform, unifying several indirect taxes into a single tax system and promoting the principle of “One Nation, One Tax.”
Types of GST
- Central Goods and Services Tax (CGST)
- CGST is imposed by the central Government of India on intra-state sales.
- For Example: Essentially, when the goods and services are sold within a particular state, CGST applies.
- State Goods and Services Tax (SGST)
- This tax is collected by the state government on intra-state business transactions. It is collected in addition to CGST, when goods and services are supplied within the state.
- Integrated Goods and Services Tax (IGST)
- This tax component comes into play during interstate transactions, where the supply takes place from one state to another. In this context, only IGST is collected, which is then distributed between the central and state governments. Nevertheless, it eliminates the necessity for multiple state entries and further tax complications.
- For example: If a mobile company based in Jaipur, Rajasthan and sells mobiles worth 1,00,000 to Mumbai, it is considered as interstate supply and IGST is applicable.
- Union Territory Goods and Services Tax (UTGST)
- UTGST is applied within the Union Territories of India, wherein these regions are directly administered by the central government.
- For example, A business dealer in Ladakh sells products worth 50,000 to a customer in Ladakh. The GST applicable is 18%, consisting of 9% UTGST and 9% CGST.
GST Rate Structure in India
The GST rate slabs are applicable across 1200 goods and approximately 500 services that come under the tax brackets of 0,5,12,18, and 28%.
| GST Rate | Category |
| 0 % | Fresh foods, Books, Hotels, Jute & Handloom |
| 5 % | Packaged items and foods, public modes of transportation |
| 12 % | Processed foods, mobile phones, business class air tickets, gaming items |
| 18 % | Telecom services, electronics |
| 28 % | Luxury goods, 5-star hotel accommodation, private lottery |
GST Calculation Guide
The GST amount collected from the customers must be deposited with the Indian Government by filing GST returns monthly. The GST amount to be deposited is calculated after considering the Input Tax Credit (ITC), which includes the tax amount paid by the business supplier on business expenses.
Furthermore, GST taxpayers need to consider several aspects, such as whether the transaction is inter-state or intra-state, zero-rated supplies, and reverse charges. Also, it’s important to keep track of purchases (inward transactions) to identify the items that are eligible and the ones that are not eligible for input tax credit.
Calculation Formula:
- GST Amount = (Base Price X GST rate)/100
- Net Price = Original Price + GST amount
Let’s illustrate with an example:
If you are selling a commodity from Mumbai to Bangalore worth Rs 1,00,000, and the GST rate applicable is 18%.
GST Amount= (1,00,000X18)/100 = Rs 18000
Net Price= 1,00,000+18,000= Rs 118000
So, the total amount that you need to pay for the product is Rs 1,18,000
Challenges of GST
GST implementation has encountered several challenges over time:
- Frequent fluctuations in tax rates create confusion for businesses.
- Tax compliance is considerably a burden for small businesses.
- Frequent technical issues with the GST portal, hinders smooth business operations.
- Excluding major items like alcohol and petroleum products from GST coverage.
However, addressing these concerns is crucial for the successful acceptance of GST.
What Lies Ahead for GST
The Indian government is planning to expand the taxpayer community by incorporating additional businesses and rationalizing the current tax slabs. However, the future of Indian GST will implement stringent reforms aimed to prevent tax evasion, including:
- Integration of emerging technologies, like Artificial Intelligence (AI), Machine Learning (ML) to ensure tax compliance.
- Prohibition of e-way bill generation without e-invoice transactions.
- A streamlined process for single return filing.
- Reduced tax slabs
- Implementation of locking strategies for auto-filled data in GSTR-3B returns.
Moreover, these developments are expected to contribute to an efficient tax system in the country.
Conclusion
GST marks a revolutionary shift in the Indian taxation landscape and has effectively organized the tax structure of the country. And, unifying different types of indirect taxes under a single system, the GST tax structure has reduced tax evasion, enhanced transparency, and streamlined business operations, enabling the government to manage taxes efficiently.
Regardless of your profession, a comprehensive understanding of GST is essential for navigating the Indian economic condition. However, this blog provides an in-depth explanation of GST, encompassing its meaning and objectives, various types, and the calculation process, providing you with a complete picture of the Indian GST system.
