The Goods and Services Tax, abbreviated as GST, is a comprehensive indirect tax levied on the consumption, purchase, sale, and manufacture of goods and services in India. The GST is a single tax that has been implemented on the supply of goods and services from the supplier to the ultimate consumer.
GST was brought into operation on 1 July 2017. The debate of implementation of GST dates back to 2009 when the first discussion paper was released in November 2009 after consultations took place between the Empowered Committee of State Finance Ministers and the Central Government. But it was only in December 2014, during the 16th Lok Sabha that the GST had been given a concrete structure, followed by the passing of the GST bill in May 2015 by the Lok Sabha. In 2016, the bill received approval from the President of India and was later enacted as a Constitution Act in the same year.
Features of GST
- The GST tax will be imposed on the ‘supply of goods and services from the supplier to the consumer, replacing the practice of levying taxes on the manufacture or sale of goods and services.
- Under GST, the exemption limit applies to both CGST and SGST is Rs. 20 lakh. However, for certain northeastern states, the exemption limit is Rs. 10 lakh.
- Small taxpayers are having an annual turnover of Rs. 50 lakh will have the option to pay taxes at a flat rate without credits. This is also known as the compounding option.
- Under GST, all exports will be zero-rated.
Forms of GST
With a single tax system across the country, the following taxes have been absorbed by GST:
1. Central Government
- Central Excise Duty
- Duties of Excise (Medicinal and Toilet Preparations)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Cess and Surcharge
- Additional Duties of Excise (Textiles and Textile Products)
- Additional Duties of Excise (Goods of Special Importance)
- Additional Duties of Customs (CVD)
2. State Government
- Central Sales Tax
- State VAT
- Purchase Tax
- Entry Tax (All Forms)
- Luxury Tax
- Entertainment Tax (except those levied by local bodies)
- Tax on Advertisements
- State Cesses and Surcharges
- Tax on betting, gambling, and lotteries
Broadly, GST can be classified into two types- Central GST (CGST) and State GST (SGST). The CGST is levied by the Central Government while the SGST is levied by states. For union territories, the Union Territory GST (UTGST) is levied. The Central Government also levies the Integrated GST (IGST), which is applicable to the interstate movement of goods and services to ensure that the credit chain is not disrupted.
Tax Slabs Under GST
There are five tax slabs under GST. Let us understand them one by one.
- 0% (No Tax Slab)- Goods such as fruits and vegetables, fresh meat, jute, eggs, chicken, fish, natural honey, gram flour (besan), flour, salt, bread, rusk, printed books, handloom, Bones and horn cores, newspapers, bangles, and sindoor, have been exempted from GST, that is, no tax is levied on these products.
- 5% Tax Slab- Goods and services priced below Rs. 1000 would invite 5% GST. Such products include packaged food items, skimmed milk, branded paneer, tea, coffee, frozen vegetables, dry fruits such as cashew and raisin, postage or revenue stamps, kerosene, coal, gas, medicines, lifeboats, and insulin.
- 12% Tax Slab- A 12% GST will be levied on products costing more than Rs. 1000 and includes apparel, cheese, ghee, butter, frozen meat and related products, fruit juices, packaged dry fruits, Ayurvedic medicines, namkeen, stationery, sewing machine, umbrella, ketchup and sauces, cutlery, spectacles, fertilisers, diagnostic kits, and board games.
- 18% Tax Slab- The 18% tax slab includes the most number of goods and services under this as it includes products like footwear priced greater than Rs. 500, biscuits, sanitary products, bakery products, preserved vegetables, soups, jams, spreads, speakers, ice-cream, CCTV cameras, printers, steel products, cornflakes, ready to eat foods, mineral water, and aluminium foil.
- 28% Tax Slab- The 28% tax slab is considered to be levied on luxury goods and services, and is applicable to products like chewing gum, savoury snacks such as wafers, shaving cream, deodorants, shampoo, sunscreen, hair dyes, water geyser, ceramic tiles, weighing machine, washing machine, vacuum cleaner, vending machine, automobiles, and five-star hotels.
Advantages of GST
GST has benefitted the taxation system in India in many ways. Let us take a look at some of the advantages of GST.
1. Simple and hassle-free procedure
The process of filing for the GST tax is quite simple and easy to understand. The entire procedure, right from registration to the filing of taxes has been made completely online, helping startups and small scale enterprises. They are saved from the hassle of running from pillar to post to register and file for various types of taxes.
2. Reduction in the number of compliances
Before GST, there were several forms of taxes, such as value-added tax (VAT), sales tax, excise duty, service tax, and so on. Each of these taxes had its own returns and compliances. As a result, registering and filing returns for manufacturers and suppliers was quite inconvenient, as they had to understand which taxes they had to pay and file separate returns for each of them. With GST, however, the number of returns that need to be filed has come down, as most of these taxes have been absorbed under it. Hence, sellers and manufacturers only have to file for around 11 returns, out of which 4 are basic returns.
3. Regulation of the unorganised sector
According to studies, 93 per cent of India’s workforce is engaged in the unorganised sector. Before GST, certain parts of the economy in the country, such as construction and textiles, were unorganised and unregulated. With the implementation of GST, provisions have been made for online compliances and payments, and the availability of input credit only when the supplier has accepted the amount. As a result, accountability and regulation have been brought to industries that were earlier considered to be a part of the unorganised sector.
4. Increased threshold for registration
During the pre-GST era, any enterprise with an annual turnover of more than Rs. 5 lakh was liable to pay VAT. However, under the GST regime, the threshold for filing the GST tax has been increased to Rs. 20 lakh, exempting several small and medium-scale enterprises from paying taxes.
Disadvantages of GST
Although GST has brought a slew of positive changes to India’s taxation system, it has several drawbacks. Let us take a look at them one by one.
1. Increased tax burden on SMEs
Small and medium-scale enterprises (SMEs), particularly those in the manufacturing sector, have been facing GST’s brunt since its introduction. Before GST, only those businesses whose annual turnover was greater than Rs. 1.5 crore had to pay excise duty. However, since the implementation of GST, any business with a yearly turnover of Rs. 20 lakh and above has to pay GST.
2. GST compliances
Small and medium scale enterprises that have not registered under GST yet need to quickly learn its nuances so as to prevent any hassles or legal proceedings. This is a complex and lengthy process, as businesses need to align their activities following the GST rules and regulations.
3. Rise in operational costs
Besides learning how to become GST-compliant, businesses will now need to employ tax professionals to register and file for taxes and returns. Moreover, enterprises will also need to train their employees on preparing GST-compliant invoices and filing timely returns and maintaining digital records of transactions, leading to a rise in operational costs.
4. Increase in expenditure
Other than operational costs, businesses will also need to invest in GST-compliant software or update their existing ones. Both the options will lead to huge expenditures, as businesses have to get accustomed to new accounting software and ensure their employees are familiar with the software to ensure efficient utilisation of future billings.
Is GST good or bad?
GST has made filing of taxes process much smoother and convenient, but several drawbacks exist. It is too early to conclude if GST is a boon or a bane for the Indian economy. Hence, it would be prudent to wait and understand how the economy unfolds under the GST regime.
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