All about GST and its benefits

Introduction to How GST works?

India’s tax system has always been an indirect system. To bring about complete reform to this, GST was introduced on 26th February of 2002 in the Budget Speech and finally implemented on 1st of July, 2017.

The Central Board of Indirect Taxes and Customs or CBIC has since then, regulated multiple amendments made to the Goods and Service tax which acted as a replacement for numerous indirect taxes which, then, were levied on various goods and services.

Which taxes did GST replace?

Publicised under ‘One Nation, One Tax’, GST sought to replace taxes like:

• the excise duty,
• countervailing duty,
• service tax,
• VAT,
• octroi,
• entry tax,
• luxury tax,

and all other central and state taxes.

GST In India

GST was implemented in India on 1st July 2017 by honourable Prime Minister Narendra Modi to eradicate indirect taxation and hidden charges across the country. Let's understand what do you mean by GST, and how does it affect the common man.

1. It is levied on the supply of goods and services, and its aim was to provide a tax regime that was single and simplified and which aligned with the tax framework of other Major countries.
2. The purpose of the Goods and Service tax was to streamline all the taxes and make business more efficient.
3. Implemented with the support of the industry, the GST aimed to establish a multi-stage, comprehensive and destination-based taxation system.

4. Unlike under a Federal Structure, that allows only the Centre to collect taxes and then distribute it to the States, the GST has a Dual Structure.

5. It has two components: the State levy and the Centre levy which is applicable for all matters of goods and services.

6. There is one law and uniform CGST rate across all States and the Centre.

7. The tax, however, had to be divided into proper components for easier transactions.

8. GST explained in terms of the collection of funds, includes the study of its components and how they function.

Types of GST

Based on the State, the Centre and the Integrated imposition, GST in India is divided into 4 types. This ensures that the Indian market is united and businesses benefit from the tax system, which was now less complicated. The 4 types of GST are:

The Central Goods and Services Tax (CGST):

1. The CGST is collected by the Centre as levied on Intra-State transactions of Goods and services.
2. Under this, the goods and services are taxed according to their basic market price. The CGST replaced all central taxes like State Tax, CST, SAD.

The State Goods and Services Tax (SGST):

1. The SGST is collected by the State govt. The state may claim revenue on all the transactions of goods and services that take place within that state.
2. However, for goods, they must be manufactured and dealt in within the territories of the state itself.
3. The SGST replaced all State taxes like Sales Tax, Entertainment Tax, VAT, Entry Tax.

The Integrated Goods and Services Tax (IGST):

1. Under IGST, the integrated tax of all goods and service transactions that take place inter-state, is collected by the Centre.
2. It is also levied on imported Goods for distribution and movement of services from State to State.

The Union Territory Goods and Services Tax (UTGST):

1. The UTGST, applicable in  Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands, and Chandigarh are collected by the Centre.
2. It is imposed on supply or transactions of goods and services, intra-UT.

What Kind of Tax Is GST?

• The implementation of the Goods and Service Tax in In India has had drastic effects on the economy. Under GST, multiple taxes have been absorbed into one.
• Calculating GST is easy, and thus, the complex calculation of taxes has also been simplified.

How to do GST Calculation?

• The formula for the calculation of GST is:  GST Amount = ( Original Cost * GST% ) / 100,  Net Price = Original Cost + GST Amount.
• For example, for goods and service sold at say, Rs. 100, and the GST rate of 18% is applied, the payable amount is 100 + (100* 18/100), which is Rs, 118.

This gives us a hint that the implementation of GST has come with a lot of benefits for manufacturers, traders, State and Central Governments and customers. Let us take a deeper look at them.

Advantages of GST

• With the imposition of the GST, the price of goods and services have reduced so has the tax burden on the final customers.
• This has opened up new great scope for competition and an increase in production.
• A simplified and uniform tax-regime is achieved, and the reduction in the cost of production post-GST has encouraged more competition in international markets and boosted exports.

A few detailed benefits of GST are:

1. It has brought about Uniformity and Simplicity in the tax regime of India.
2. The hassle and the imposition of multiple taxes have been removed and gathered under one umbrella.
3. With the VATs and the cascading effect of other series of complicated taxes, the prices of goods and services ended up quite high.
4. With GST, the prices have lowered and, in the long run, could reduce still.
5. Small business or service providers who have turnover lower than Rs. 20,00,000, and less than 10,00,000 in the Northern States in India, are exempted from GST.
6. This not only sets them free from long taxation procedures but also is of massive help.
7. With turnovers up to 75,00,000, companies pay only  1% tax.
8. It frees manufacturers and traders from difficulties in complying with excise, service tax, VAT and minimises transactions of goods without receipts and corruption.
9. It establishes a simple, strict system and brings about accountability.
10. With a Uniform distribution scheme of funds collected via GST, there is massive scope for the development of rural or underdeveloped pockets in various parts of the Indian Economy.
11. With the levying of GST, the chances of Tax Evasion is minimised to zero.
12. It is expected to boost the GDP in India to about 80% in the near future.
13. GST eliminated border tax and resolved discrepancies at check-posts.
14. This cut logistics cost to an expected 20% drop for non-bulky goods.
15. The uniformity allowed centralised GST registration. This also allows businesses to get GST registration online.
16. Filing of quarterly tax returns also can be done using simple mechanisms online, which reduces the burden of hiring tax-experts for small businesses.
17. Competitiveness has received a tremendous boost and India is moving towards a Common National Market.
18. It is easier for the Centre and State to administer the taxation process and yield more effective revenues.

GST Slabs In India

For various goods and services,  the GST has been divided into five slabs applicable accordingly.

The GST Tax slabs are designed to put essential items on a lower rate of payable tax and luxury items, on a higher rate. The slabs are:

Exempted GST rate slab:

7% of goods and services fall in this category. This is mainly for essential or regular items like vegetables, milk, bandaids, cereals, eggs, printed books, newspapers, handloom, hotels with tariff below 1000 INR etc.

5% GST rate slab:

14% of goods and services fall in this category. This is mainly for packaged foods, cream, milk powder, frozen vegetables, spices, coffee, revenue stamps, fertilisers, rail and economy class tickets, fish, kerosine, apparel and footwear below 1000 INR and 500 INR respectively, etc.

12% GST rate slab:

17% of goods and services fall in this category. This is mainly for packaged meat, ketchup, fruit juices, cellphones, diagnostic kits, sewing machines, indoor games, spectacles, business class tickets, non-AC-restaurants, apparels over 1000 INR etc.

18% GST rate slab:

42% of goods and services fall in this category. This is mainly for preserved foods, mineral water, camera, speakers and other parts of a computer, notebooks, steel products, luxury hotels, branded garments, IT service, footwear over 500 INR etc.

28% GST rate slab:

19% of goods and services fall in this category. This is mainly for bidis, edibles like chocolates, hair products, automobiles, machines, betting, luxury hotels, movie tickets more than 1000 INR etc.

Also read:
Foreign Direct Investment(FDI) 101: A Complete Guide
What is the FMCG Sector & how it works?

FAQs

Q. How are imports taxed under GST?

A. The CVD and SAD have been removed, and IGST is levied on all imports into India. States gain their share from the funds, unlike under the previous status.

Q. What are GSTN and GSTIN?

A. Goods and Services Tax Network is a framework which sets the structure and oversees the implementation of tax regulations. On completing the GST registration, the unique 15- digit identification number allocated to a business in the GSTIN.

Q. How are GST rates decided?

A. The Union Finance Minister heads the GST council. This council has 33 members which include the Finance Ministers of the States. This council decides the rates of GST.

Q. How to get GST number?

A. STEP 1- Visit the official GST Portal- https://www.gst.gov.in/

STEP 2- Click on Services, then Registration > New Registration

STEP 4- Enter all your official documents and details like PAN number, contact information, and email address.

STEP 5- Click Proceed.

Q. How to calculate GST?

A. To add GST:

GST Amount = (Original Cost x GST%)/100

Net Price = Original Cost + GST Amount

To remove GST:

GST Amount = Original Cost – [Original Cost x {100/(100+GST%)}]

Net Price = Original Cost – GST Amount.

Q. How to file GST?

A. STEP 1- Visit the official GST Portal- https://www.gst.gov.in/

STEP 2- Click on the Services Tab.

STEP 3- Then open Registration> New Registration

STEP 4- Add your details and receive your GST invoice in your mail.

Q. How much is GST on gold?

A. The GST on gold in India is-

For Customs Duty 10% is charged on imported gold.

3% GST on gold price used in jewellery.

5% GST on additional charges.