What is Goods and services tax?
Goods and services tax (GST) is a consumption-based tax ultimately borne by the end consumer of goods or service. Businesses and consumers pay GST on their purchases throughout the value chain. It was passed in Parliament on 29th March 2017 but the Act came into effect on 1st July 2017 in India. Moreover, if the purchase was made by a business for sale to a customer, then the business can claim an input tax credit to set-off GST liability. So, the GST liability is pushed to the end-consumer through the use of the input tax credit mechanism. Read more to know about GST meaning and how it is different from Income tax.
Read more: GST registration process with LegalRaasta
Why GST has been implemented?
Earlier, there were many kinds of indirect taxes like VAT, Service Tax, Luxury Tax, Central Excise etc. Out of these, some taxes like VAT and Luxury tax used to govern by the State Government whereas taxes like Service tax or central excise used to govern by the Central Government. Overall, several authorities used to levied indirect taxes and the businesses have to file various returns as well as comply with various rules. Therefore, to make it simple and easy, GST has been implemented.
In the GST regime, all the businesses and the customers now would only comply with GST regulations. It has made the compliance much easier and clear for the businesses as well as for the customers. In addition, now the government will also be able to manage GST in a better and smooth way as most of the tax departments have been consolidated and streamlined into a single department under the GST Act.
Read more: Tax rate under GST
Who is liable to pay GST?
The end consumer of goods and services will pay GST as it is a consumption-based tax. But, businesses have been made responsible for the collection of GST from consumers and payment to the government. So, in the sale of goods or services, the business will levy a GST tax and collect the same from the customer in addition to the cost of the products. As soon as the GST tax is collected, the businesses are required to file GST return each month and remit the GST tax collected before the 20th of next month.
What are the Components of GST?
There are basically three taxes applicable under the GST tax system:
- CGST: It is collected by the Central government on an intra-state sale.
- SGST: It is collected by the State government on an intra-state scale.
- IGST: It is collected by the Central government for inter-state sale.
Difference between Goods and Services Tax and Income Tax
Following is the basic difference between the two:
GST is a consumption tax where people who are engaged in the business whose annual turnover exceeds Rs, 40 lakhs is required to register as a normal taxable person. It is applicable to everyone purchasing a good and services at the same rate in India. For instance, vegetables are not taxed under GST. On the contrary, mobile phones attract 12% GST. Therefore, in the case of a vegetable purchase, both a billionaire and poor man will not pay GST. But in the case of mobile phones purchase, both a billionaire and poor man will pay GST at a 12% rate.
Income tax is the levied-based tax on the income of a person. When a person is having a taxable income of over 2.5 lakhs in India then he/she will have to pay income tax and can do ITR filing. But if a person doesn’t have any income in a year, then there is no need to pay any income tax. In a nutshell, income tax is only payable when there is an income above a certain limit fixed by the Government.
How can be GST calculated?
There are 7 slabs in which GST rates are applicable in case of goods:
0%, 0.25%, 3%, 5%, 12%, 18% and 28%
GST rate for goods is linked to the HSN code which is an internationally used system for classifying goods in the course of international trade. The council of GST has announced GST rates for each of the HSN codes. So, the GST rate can be determined based on the HSN code of the goods. You can multiply this GST rate by the value of goods to calculate GST.
There are basically 5 slabs in which GST rates are applicable in case of services:
0%, 5%, 12%, 18% and 28%
This GST rate for services is generally linked to SAC code which is a service classification system created by the service tax department in India. It is based on the GST Rate for the service, the value of service can be multiplied to calculate GST for services.
Read more: Input tax credit
For more information regarding GST registration, ITR filing, GST Return or more you can freely visit our website: LegalRaasta. Give us a call at 8750008585 and you can send us your query on Email: [email protected]. Our experts’ team will provide you the hassle-free advice related the same affairs.