In India, the Goods and Services Tax (GST) was introduced in 2017 to replace multiple indirect taxes imposed by the central and state governments. This tax reform aimed to streamline the taxation system and create a unified market by removing the cascading effect of taxes. In this article, we’ll delve into the meaning and full form of GST, its components, advantages, and disadvantages, and answer frequently asked questions related to GST.
What is GST?
GST is an indirect tax levied on the supply of goods and services in India. It is a comprehensive, destination-based tax that applies to all stages of the supply chain, from manufacturer to consumer. GST is levied at the point of consumption and is collected by businesses on behalf of the government. The tax revenue is then shared between the central and state governments based on their respective rates and jurisdiction.
GST Full Form
The full form of GST is Goods and Services Tax. The GST council, which is the governing body for GST in India, has classified GST into four categories:
- Central Goods and Services Tax (CGST)
- State Goods and Services Tax (SGST)
- Integrated Goods and Services Tax (IGST)
- Union Territory Goods and Services Tax (UTGST)
How does GST work?
Under GST, businesses must register for GST and obtain a unique GST identification number. They must then collect GST from their customers and remit it to the government on a monthly or quarterly basis, depending on their turnover.
Businesses can claim input tax credit (ITC) for the GST paid on their purchases, which reduces their overall tax liability. The GST system is largely automated, with businesses required to file returns and make payments online.
Components of GST
There are three components of GST:
- CGST: This is levied by the central government on the intra-state supply of goods and services.
- SGST/UTGST: This is levied by the state governments/union territories on the intra-state supply of goods and services.
- IGST: This is levied by the central government on the inter-state supply of goods and services. IGST is then shared between the central and state governments based on their respective rates and jurisdiction.
Advantages of GST
The introduction of GST has several advantages, such as:
- Streamlining of taxation system: GST has replaced multiple indirect taxes, making the taxation system simpler and more uniform.
- Elimination of cascading effect: GST has eliminated the cascading effect of taxes, which was prevalent in the earlier system. This has reduced the tax burden on businesses and made goods and services more affordable for consumers.
- Promotion of ease of doing business: GST has made it easier for businesses to operate across state borders by creating a single market.
- Increased tax revenue: GST has increased tax revenue for the government by widening the tax base and reducing tax evasion.
Disadvantages of GST
Despite its advantages, GST has a few disadvantages, such as:
- Initial implementation challenges: The initial implementation of GST was marred by technical glitches and confusion among businesses.
- Increased compliance burden: GST has increased the compliance burden for businesses, as they must file returns and maintain records on a regular basis.
- Impact on small businesses: Small businesses, especially those in the unorganized sector, have found it challenging to comply with the requirements of GST, which has resulted in some businesses shutting down or downsizing their operations.
GST Rates in India
GST rates in India are divided into four categories:
- 0% – Tax-exempt goods and services
- 5% – Basic necessities such as food items and healthcare services
- 12% and 18% – Standard rates for most goods and services
- 28% – Luxury items and demerit goods such as tobacco and alcohol
Businesses with an annual turnover of more than Rs. 20 lakh must register for GST. In some cases, such as for businesses engaged in inter-state trade or e-commerce, registration is mandatory regardless of their turnover.
Businesses can register for GST online by providing their details and documents such as PAN card, Aadhaar card, and bank account details.
GST Return Filing
Businesses must file GST returns on a monthly or quarterly basis, depending on their turnover. They must file GSTR-1, which contains details of outward supplies, GSTR-2, which contains details of inward supplies, and GSTR-3, which contains the final tax liability. Businesses must also file an annual return in the form of GSTR-9.
Businesses must comply with several requirements under GST, such as maintaining proper records and books of accounts, issuing invoices in a prescribed format, and displaying their GST registration number on their invoices and business premises. Non-compliance can result in penalties and fines.
Businesses with an annual turnover of more than Rs. 2 crore must undergo a GST audit by a qualified chartered accountant or cost accountant. The auditor must verify the accuracy of the books of accounts and compliance with GST laws and regulations.
GST vs. VAT
VAT (Value Added Tax) is a tax on the value added at each stage of production and distribution, while GST is a comprehensive tax that applies to all stages of the supply chain. GST has replaced VAT and several other indirect taxes, making the taxation system simpler and more uniform.
GST vs. Service Tax
Service tax was a tax on the provision of services, while GST applies to both goods and services. GST has replaced service tax and several other indirect taxes, creating a single market for goods and services.
GST Bill and Amendments
The GST bill was introduced in the Lok Sabha in 2014 and passed in 2017. Since then, several amendments have been made to the GST laws to address implementation challenges and to simplify compliance requirements.
GST is a significant tax reform that has streamlined the taxation system in India and created a single market for goods and services.
While there have been implementation challenges and compliance requirements, GST has several advantages such as eliminating the cascading effect of taxes and increasing tax revenue.
As businesses continue to adapt to the new system, GST is expected to drive economic growth and development in India.