- What is GST?
- Value Addition
- Based on Destination
- Components of GST
- Why there is a need for GST in India?
- Impact of GST on Indian Economy
- Impact of GST on Consumers
- Impact of GST on Traders
- Advantages of GST
- Abolishes the cascading effect of tax
- More threshold for Registration
- Composition scheme for small businesses
- Simple and hassle-free online procedure
- Lesser Compliances
- Defined treatment for E-commerce operators
- Improvement of logistics
- Regulation of unorganized sector
What is GST?
GST (Goods and Service tax) is described as an Indirect Tax which has replaced many Indirect Taxes in India. Simply, it is a Comprehensive, multi-stage, destination-based tax that levied on the supply of goods and services on every value addition. The GST Law was passed in the Parliament on 29th March 2017. But it came into effect on 1st July 2017. This law has replaced many indirect tax laws that previously existed in India.
Therefore, before GST, the pattern of tax levy was as follows:
But after the introduction of Goods and service tax, all the taxes have been subsumed such as Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi etc. Besides, it has been proven the biggest indirect tax reforms in the country. The motive behind the introduction of Goods and service tax is to bring together state economies and improve the overall economic growth of the nation. In intra-state sales case, there are two kinds of GST i.e Central GST and State GST whereas inter-state sales will be charged to integrated GST.
Read more: GST registration process
Let us understand the concept of Goods and service tax at multi-stage given below:
From manufacture to the final sale to the consumer, there are multiple change-of-hands an item goes through along its supply chain. Consider the following case:
- Purchase of raw materials
- Production or manufacture
- Warehousing of finished goods
- Sale to wholesaler
- Sale of the product to the retailer
- Sale to the end consumer
Goods and Services Tax will be levied on each of these stages which makes it a multi-stage tax.
In the above figure, the manufacturer who makes biscuits buys flour, sugar, and other material. When the flour and sugar are mixed and baked into biscuits then the value of the inputs increases. Then, the manufacturer sells the biscuits to the warehousing agent who packs large quantities of biscuits and labels it. Here, another addition of value will occur after which the warehouse sells it to the retailer. He packages the biscuits in smaller quantities and invests in the marketing of the biscuits. Therefore, its value increases. On the other hand, Goods and services tax will be levied on these value additions i.e the monetary worth added at each stage to achieve the final sale to the end customer.
Based on Destination
In case, when goods are manufactured in Maharashtra are sold to the final consumer in Karnataka. Since GST is levied at the point of consumption. Here, Karnataka will receive the entire Tax revenue instead of Maharashtra.
Components of GST
There are basically 4 components of Goods and service tax in India. The given table will enlighten you more about it as well as compares the different parameters:
|Union territory GST
|Tax Levied By||Central Government||State Government||Union Territory Government||Collected by Central Government, Combined levy|
|It will replace the taxes:||Excise duty, Service tax, Countervailing duty (CVD), Additional duties of excise(ADE), special additional duty (SAD), and any other indirect central levy||Sales tax, VAT, entry tax, luxury tax, purcahse tax, entertainment tax, Octroi, taxes on lottery||Sales tax, VAT, entry tax, luxury tax, purcahse tax, entertainment tax, Octroi, taxes on lottery||Central sales tax|
|Applicability||State supplies||State supplies||Union territory supplies||Supplies in Interstate and import|
|Input tax credit||Against of CGST and IGST||Against of SGST and IGST||Against of UTGST and IGST||Against of CGST, SGST, and IGST|
|Sharing of Tax Revenue||Central government||State government||Union territory government||Shared between Central and state government|
|Limit of exemptions||Annual turnover of 2 lakh rupees||Annual turnover of 2 lakh||Annual turnover of 2 lakh||Not defined|
|Composition scheme||Dealer is allowed to use the benefit of turnover 50 lakh rupees||Dealer is allowed to use the benefit of turnover 50 lakh rupees||Dealer is allowed to use the benefit of turnover 50 lakh rupees||Not available|
|Free supplies||Free supply applicable||Free supply applicable||Free supply applicable||Free supply applicable|
|Registration||Not allowed, Until turnover exceeds 20 lakh||Not allowed, Until turnover exceeds 20 lakh||Not allowed, Until turnover exceeds 20 lakh||Compulsory if the supply made through the outside state|
Read more: Tax rates under GST
Why there is a need for GST in India?
In the current regime, Goods and service tax launching is taken as a significant step in the reform of indirect taxation in India. The nation was dealing from so long with the double taxation system, cascading, a multiplicity of taxes, taxable events, classification issues etc but the amalgamation of various central and state taxes into a single tax would help the country to get rid of all of them.
GST registration has brought a uniform tax system across all the states whereas the VAT rates and regulations differ from state to state.
Impact of GST on Indian Economy
Following are the benefits offered by Goods and services tax to the Indian Economy:
- Boosting factor to Foreign investment as well as for Make in India campaign and created a unified common national market
- Boosting factor to export and manufacturing activity and leads to substantive growth
- Eradicate poverty by generating more employment
- Constant SGST and IGST rates to reduce the incentive for tax evasion.
Impact of GST on Consumers
Following are the benefits for consumers:
- Simple tax system
- Reduce the prices of goods and services due to the elimination of cascading
- Constant prices throughout the country
- Proper transparency in a taxation system
- Raise employment opportunities
Impact of GST on Traders
Following are the positive impact of Goods and services tax on Traders:
- Reduce multi-taxes
- Mitigate cascading through an input tax credit
- Efficient and effective neutralization of taxes especially for exports
- Developed a common national market
- Simple tax regime
- Fewer rates
- Fewer exemptions
- No need for the distinction between Goods and Services
Advantages of GST
Following are the advantages of GST registration:
Abolishes the cascading effect of tax
As GST is a comprehensive indirect tax that was designed to bring the indirect taxation under one umbrella. Not only this, it is going to play a vital role in abolishing the cascading effect of tax that was evident earlier.
Go through the given example to understand the concept of cascading:
Before the GST regime:
Let us assume that a consultant is offering his services for Rs. 50000 and charged a service tax of 15% (Rs. 50000*15%=Rs.7500)
Now, say he will going to buy office supplies for Rs. 20000 paying 5% as VAT (Rs. 20000*5%=Rs. 1000)
Therefore, he has to pay Rs. 7500 output services tax without getting any deduction of Rs. 1000 VAT already paid on stationery.
So, his total outflow will become Rs. 8500.
Under the GST regime:
The calculation would be like:
GST levy on services of Rs. 50000 @18%= Rs. 9000
Less: GST levy on office supplies (Rs. 20000*5%)= Rs. 1000
Net GST that is payable = Rs. 8000
More threshold for Registration
Every business with a turnover of more than Rs. 5 lakh was liable to pay VAT before the specific structure. Take a note here that the limit differed state-wise. Besides, the service tax was also exempted for service providers with a turnover of less than Rs. 10 lakh.
If we take the Goods and services tax regime into consideration, this threshold has been increased to Rs. 20 lakh which exempts many small traders and service providers.
Have a look in the given table:
|VAT||5 lakhs (in most of the states)|
|Service Tax||10 lakhs|
|GST||20 lakhs (for NE states, its10 lakhs)|
Composition scheme for small businesses
As per GST, every small business having the turnover of Rs. 20 to 75 lakh can avail benefit because it gives an option to lower taxes by utilizing the Composition Scheme. So, the step of introducing GST has really brought down the tax and compliance burden on many small businesses.
Simple and hassle-free online procedure
The GST has brought up online from registration to filing returns and it is as simple as eating pie. It has been proven beneficial for newbie start-ups as they do not have to run from pillar to post to get different registrations such as Excise, VAT, and service tax.
You can have a free trial of our TaxRaahi for filing GST return through Legal Raasta. It will help you to make your GST application journey easy and hassle-free. Click on the below button to get started.
Read more: How GST Software Benefits your Business
Before the GST regime, there was service tax and VAT, each was having their own returns and compliances. Go through the given table below:
|Service tax||Monthly basis|
|VAT||Partnership-Quaterly Company/Proprietorship/LLP – Monthly|
|Excise||Vary for different states—
There are some states that require monthly returns over a threshold limit.
Many states like Karnataka requires a monthly return
But under GST, there is only one unified return to be filed. Hence, it contains 11 returns out of which 4 are basic returns that apply to all taxable persons. On the other hand, the main GSTR-1 is a manual populated and GSTR-2 and GSTR-3 will be auto-populated.
Defined treatment for E-commerce operators
Before the GST regime, Supplying goods through e-commerce sector was undefined. The VAT laws were not that constant. For example, Online websites like Flipkart and Amazon who deliver to Uttar Pradesh had to file a VAT declaration and mention the number of registration of the delivery truck. Sometimes, the tax authorities could have seized the goods if the documents were not produced.
States like Kerala, West Bengal, and Rajasthan were treating the e-commerce brands as facilitators or mediators which did not require them to register for VAT. So, all these treatments and confusing compliances have been removed under GST. It happened for the first time, GST has mapped out the provisions applicable to the e-commerce sector and it applies throughout the nation. There is no complication regarding the inter-state movement of goods anymore.
Improvement of logistics
Before, in India, the logistics industry had a compulsion to maintain multiple warehouses across states to avoid the current CST and state entry taxes on inter-state movement. So, these warehouses were forced to operate below their capacity, giving room to increased operating costs.
Under GST, all the above restrictions on inter-state movement of goods have been lessened. As a result of GST, e-commerce aggregators players and warehouse operators have revealed their interest in setting up their own warehouses at strategic locations such as Nagpur despite other cities on their delivery route. Unnecessary logistics cost reduction is already increasing profits for a business involved in the supply of goods through transportation.
Regulation of unorganized sector
Before the era of GST in India, it was noticed that particular industries such as textile and construction were largely unregulated and unorganized. But in the post GST era, there are provisions for online compliances and payments, and for availing of input credit only when the supplier has accepted the amount. This introduced the accountability and regulations of these industries.
By all means, to take this step was never easy but however, the government is still trying to make the path of GST smooth and simple. Besides, it is equally important to have a look at global economies that have implemented GST previous to us and who are doing very well and had an experience in having a unified tax system & easy input credits.
If you are seeking a reliable organization for your GST Consultation then your reach ends here. We at Legal Raasta provide the best advice and ways to file GST return. Give us a call at 8750008585 and send your query on Email: [email protected]
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