- GST: A Brief History
- What is GST?
- How GST Works: GST Example: GST Explained Simply
- What is GSTIN?
- GST: Dual tax Model
- Who are taxable entities under GST?
- GST Benefits
- Indirect Taxes Replaced by GST
- What is a Reverse Charge under GST?
- GST Impact
- GST Impact on Salaried Employees, Self-employed professionals
- GST Impact on Manufacturers, Distributors and Retailers
- GST Impact on Service Providers
- GST Impact on Startups
- What is GST Return?
GST: A Brief History
An idea to reform the tax structure in India took birth in the year 2000 with the efforts of an Empowered Committee(EC) under the Late Shri Atal Bihari Vajpayee. In accordance with this, a GST bill was introduced in the year 2009 but the UPA government at that point of time failed to get it passed. All the efforts finally came to fruition in the year 2017 with the adoption of the Good and Services Tax(GST) Act, 2017. Just a minute after the clock struck for midnight after Friday, 30th June 2017 the Prime Minister initiated the launch of GST. The introductions of GST subsumed a grand total of 17 different indirect taxes levied by the state and central governments combined. So, let’s a take a bird’s eye view as well as an in-depth analysis of what is GST? , what are rules? , and the way in which it has impacted the taxation system in India.
What is GST?
GST, as the name suggests, is essentially an indirect tax levied on the sale/purchase of goods and services. The GST is a destination based / consumption based tax. This basically means that the end consumer of the Goods and Services pays the GST and rest of the people involved in the sale from Manufacturer, Wholesaler, and retailer all claim the back the taxes that they have paid.
How GST Works: GST Example: GST Explained Simply
GST has removed the payment of “tax on tax” that all people involved in the manufacture/sale of the product had to pay under the old taxation rules. Let’s take the example of the sale of a product to better understand how GST will work.
Here, We will assume the example of a Levi’s Jeans manufacturing with 10% GST applicable.
Step 1: Manufacturer buys raw material for the jeans worth Rs. 1000 this includes the GST of Rs. 100 at 10% of 1000
The manufacturer then adds a value of Rs. 100 to the product. This makes the value of the product to be Rs. 1000+100 =1100.
Under the old system, this meant that the manufacturer had to pay Rs. 110 (10% of value) tax.
However, under new GST rules, the manufacturer has to pay less tax because he has already paid Rs. 100 tax while purchasing the raw materials. So the total tax that manufacturer has to pay is 110-100 = Rs 10
Step 2: Wholesale: The manufacturer passes on the jeans to the wholesaler at a gross value of Rs. 1100 inclusive of the Rs. 110 tax. The wholesaler adds his margin to the value of the products. (Let’s say Rs. 100).
This makes the total value of the jeans to be Rs.1200 and brings the total tax value to Rs. 120(10% of 1200). Now like the manufacturer since the wholesaler also doesn’t have to pay the Rs. 120 tax because he has already paid Rs. 110 tax. Therefore the total taxable amount for the wholesaler is Rs. 120-110=Rs. 10
Step 3: Retail: The wholesaler of goods passes on the goods to a retail store. The jeans now cost Rs. 1200. On this, the retailer adds his value (margin ) of Rs. 100 and the total jeans now cost Rs. 1300 with 130 Rs. Tax.
Now whenever a consumer buys the jeans, the retailers do not have to pay Rs. 130 tax as they have already paid Rs. 120.
The total tax retailer has to pay is Rs. 130-120 = Rs. 10.
Notice, how at every stage each entity involved has to pay only Rs. 10 as the tax. This means now, there is uniformity in the way taxes are paid in the process for the sale of Goods and Services
What is GSTIN?
GSTIN basically refers to the GST Identification Number that every business will be allocated once the GST enrolment is completed. The GSTIN is basically 15-digit identification number which is based on the PAN of the taxpayer. PAN is not mandatory for registering for GST.
GST: Dual tax Model
The GST in India is basically a dual tax meaning that State government as well the Central Government are both eligible to impose their respective taxation on the particular purchase made respectively Central GST(CGST) and State GST(SGST).
In respect to the goods being transported over state borders, ie. Inter-State Transactions an Integrated GST (IGST) is levied on the purchase of that particular good/service.
In addition to this, for the supplies made within a Union Territory: the tax is called Union Territory GST or UTGST. This thus makes 4 types of taxes under GST:
- CGST (Central GST)
- SGST (State GST)
- IGST (Integrated GST)
- UTGST(Unioun Territory GST)
This system of dual taxation has been introduced in order to keep the state and the central government’s taxation systems apart and independent of the other. In order to manage the affairs of the GST taxation system in India an SGST council has been formed which is headed by the Union Finance Minister and it consists of various State Finance Ministers.
The GST has been formulated as a 4-tier tax system with tax slabs of 5%, 12%, 18%, 28% for various different categories of products and services. There are obviously exceptions to the tax slabs and essential products such as rice and wheat are exempt from this taxation and are levied 0% taxation for their sale. Also excluded from GST taxation are the exports as well as supplies to SEZ’s (Special Economic Zones).
Who are taxable entities under GST?
In a nutshell, any person who carries out business activities in India needs to register under the GST act. GST Registration is mandatory for the following entities:
- Businesses whose turnover exceeds Rs 20 lakhs (10 Lakh for northeastern states)
- Input Service Distributor
- E-Commerce Aggregator
- E-commerce supplier
- Food Business Operators’s, who need to apply GST as well as get FSSAI License
The Goods and Services Tax has brought a wide array of changes to the taxation system of the country. It has brought a breath of fresh air to the way businesses operate and how the sale and purchase of goods happen across the country. Let’s look at the benefits of this new destination-based tax system and how it will further improve
- GST has helped eliminate the cascading effect of Taxes. The “tax on tax” system under VAT has been finally dealt with
- Higher Threshold for Registration (Threshold increased to Rs. 20 lakh this exempts many small traders from taxes)
- Composition scheme for Small Businesses
- The advent of Digitalization of the Tax system with the introduction of GST Network (GSTN). Making tax returns a simple online procedure
- Ease of Compliance. Compliances are simplified and have a streamlined process for all kinds of taxpayers and businesses across all states.
- E-commerce operators have been considered and there is a set pattern of how e-commerce taxation now occurs
- Logistics improvement: Many times in order to avoid taxes like customs tax etc companies started maintaining multiple warehouses. These warehouses were operating at low capacity, giving rise to higher wastages and overhead costs
- Regulation of Unorganized sector: Online compliances and GST registration procedures have made it easier to look after the unorganized and many a time overlooked industries like textile and construction.
Indirect Taxes Replaced by GST
GST is an indirect tax, meaning it will only effect indirect taxes and the direct taxes levied on the general public remain to continue in the same system. Therefore, direct taxes like Income Tax, Corporation tax etc. still have to be paid by individuals with regards to the already set systems. The taxation system of Goods and Services Taxes has become the one uniform taxation system for the entire nation and has replaced a variety of taxation systems such as VAT and CENVAT. In addition to this, GST has also removed the cascading effect of taxes. Cascading effect basically means that all the people involved in the manufacturing stage up until the sales stage had to pay a tax on the tax that was already levied on them for in the previous stage of production. Thus, the implementation of GST has removed this effect of cascading taxes. Here’s a list of the taxation system this GST will replace.
Taxes levied by the Central Government:
- Central Excise Duty
- Additional Duties of Customs (CVD)
- Special Additional Taxes
- Service Tax
- Customs Tax
Taxes by the State Governments
- State VAT
- Central Sales Tax
- Entertainment and Amusement Tax (Except those on local attractions)
- Taxes on Lotteries, betting and gambling
What is a Reverse Charge under GST?
In general, when a supplier supplies goods to a buyer, he is charged GST and has to pay the same to the government. However, in the case of the reverse charge, the tax is liable to be paid by the receiver of the said goods/service. There are certain conditions under which the GST changeability is reversed, these are as follows.
- Supply from an Unregistered Dealer to a Registered Dealer
- Services through an e-commerce operator
- Supply of certain goods and services by CBEC
GST has completely changed the taxation system and the way the sale of goods and services is handled in India. The system has been hailed to bring economic stability and it will impact every sector of the industry and the way business dealings occur across the country. Let’s look at how this ‘one nation one tax’ system will impact the economy.
GST Impact on Salaried Employees, Self-employed professionals
GST is basically a taxation system for businesses and has no direct impact on salaried individuals as well as Self-Employed professionals like lawyers, doctors etc. with their own practice. However, day-to-day expenses, as well as the cost of goods and services this class of people consume, will change and a more transparent system will be put into place to combat many other extra taxations that use to frustrate customers before. In addition to this, as salaried employees will play the role of consumers and customers in the GST taxation system, there will be some positive impacts of this system.
- Increased transparency as well as clarity in the taxation system.
- Increased employment opportunities
GST Impact on Manufacturers, Distributors and Retailers
The main problems for the manufacturing and retail sector in India under the previous taxation system were as follows:
- Low Exports
- High Infrastructure spending
- Multiple Indirect Taxes increased administrative costs
- Unregistered business and tax evasion
The introduction of the GST System will impact businesses in the manufacturing sector by boosting competitiveness and performance of the businesses. All businesses will have to register themselves in order to carry out any kind of operations in the country. This will lead to lesser tax evasion at a larger scale and it will ultimately help these organizations in the long run because the government will be able to provide better schemes and benefits to these organizations. In addition to this, the compliance burden on these type of organizations will decrease dramatically and the government will be able to keep a look at and track progress and quality of work of these in a more efficient way
GST Impact on Service Providers
Under the old taxation system, there were close to 14.5 lakh service tax assessees in our country. Surprisingly, only the top 50 of these assessees paid more than 50% of the tax collected all over the nation. This clearly indicated that there was an issue in which the service sector was being taxed and monitored under the previous system. Only 50 out of 13 lakh bearing the brunt of the tax of the whole country means there was a tax burden on these firms.
The introduction of GST means that unregistered businesses have to now register and file GST returns and show their revenue and pay up taxes. It will reduce the burden of taxation from some firms and distribute proportionately.
In addition to this, all PAN India businesses which are already working in an unified manner will have to register themselves in each individual state in which their operations are spread out.
GST Impact on Startups
GST with it’s increased limits for the registration, as well as, DIY (Do-it-Yourself) Compliance Model, tax credit on purchases along with a free flow of Goods and Services, the GST regime has instantly become a startup-friendly taxation system. Previously, every other state had different VAT taxation laws which gave rise to a lot of confusion for companies who were trying to establish a PAN India Presence and especially for the e-commerce sector.
GST changed this system by bringing uniformity to the taxation system across all the states.
What is GST Return?
Every person registered under the GST Act has to periodically furnish the details of sales and purchases along with tax collected and paid thereon, respectively, by filing online returns. Before filing the return, payment of tax due is compulsory otherwise such return will be invalid.
Here is a summary of all the GST Returns
|Return Form||Particulars||Frequency||Due Date|
|GSTR 1||Outward Supplies of taxable goods and services||Monthly||10th, Next Month|
|GSTR 2||Input tax credit claiming taxable goods and services||Monthly||15th, Next Month|
|GSTR 3||Monthly return on the basis of final details of outward and inward supplies along with payment of tax amount||Monthly||20th, Next Month|
|GSTR 3B||Simple returns for the time period Jul 2017- Mar 2018||Monthly||20th, Next month|
|GSTR 4||Return for compounding taxable person||Quarterly||18th, month after the quarter|
|GSTR 5||Returns for Non-Resident foreign taxable person||Monthly||20th, Next Month|
|GSTR 6||Returns for Input Service Distributor||Monthly||13th, Next Month|
|GSTR 7||Authorities Deducting tax at source||Monthly||10th, Next Month|
|GSTR 8||Supplies details effected through E-commerce operators and tax amount paid||Monthly||10th, Next Month|
|GSTR 9||Annual Return||Annual||31st December, Next Financial Year|
|GSTR 9A||Annual return for a compounding taxable person||Annual||31st December, next financial year|
|GSTR 9C||Reconciliation of Input Tax Credit and Certification||TBA||TBA|
|GSTR 10||Final Return||Once. Upon cancellation or surrender of registration||No later than 3 months from cancellation or cancellation order whichever is later|
|GSTR 11||UIN with inward supplies claiming a refund||Monthly||28th of the month following the month for which statement is filed|
NOTE: Due dates are subject to change as per notifications issued by the GST Council.
So we hope, with this all-in-one comprehensive guide we have given you some clarity towards the revolutionary taxation system in India called the Goods and Services Tax or GST. GST has been met with a very warm response across all the country at his it has simplified many procedures and compliances.
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