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GST: Goods and Service Tax

GST: Goods and Service Tax

The Goods and services tax is an indirect tax that has substituted several taxes in India, such as excise duty, VAT, services tax, and others. Specifically, the Goods and services tax is imposed on the supply of goods and services. GST is a complete, multi-phase; objective build tax charged on all the economic and value addition.

  • On 29th March 2017, the Goods and service tax act was passed in the parliament of India and was executed from 1st July 2017.
  • Prior to the execution of the Goods and service tax in India, the tax that was imposed in India was designed in the following way:
  • Under the GST rule, the tax is charged at each position of sale.
  • Central GST and State GST are levied during the sale occurring within the state, and the integrated GST is levied during the inter-state sales.

Multi-stage of Products

The products are passed from multiple handovers during their supply patterns beginning from producer till the final sale to the customer.

Following are the phases:

GST: Goods and Service Tax
  • Purchasing of basic or raw stuff.
  • Manufacturing of the product.
  • Packaging and depository of the final product.
  • Selling off the product to the jobber or the wholesalers.
  • Sale of the product to the reseller.
  • Selling the product to the customer.

The Goods and services tax is imposed on all the phases as mentioned above; it creates a multi-stage tax.

Value Addition

GST: Goods and Service Tax

A producer of the cupcake company buys flour, sugar, and many other raw kinds of stuff for the manufacturing of the cupcake. The input amount rises when the sugar and flour are blended, and the cupcakes are prepared.

The producer then sells all the cupcakes to the warehousing agent for the packaging of a large number of cupcakes in the cartons and labelling all the products. This is another valuable addition to the cupcakes. After this, the warehousing agent sells the product to the reseller.

The retailer makes the packets of the cupcakes in smaller sizes and invests in the merchandising of the cupcakes, subsequently elevating their value. Goods and services tax is imposed on these value additions, i.e., the financial value added at every phase to attain the end sale to the consumer.

Destination- Based

Let's consider the product manufactured in Kerala and sold to the final customer in New Delhi. Because the Goods and services tax is charged at the place of consumption, the complete tax proceeds will go to New Delhi and not Kerala.

Goals of GST

In this section of the article, we will discuss all the major goals of implementing 'Goods and Service Tax' in India. We will discuss all the goals also so that we can understand them in a much better way.

Following are all the major goals of implementing GST in India:

1. To attain ideas of 'One Nation, One Tax'- Goods and services tax has substituted various pre-existing indirect taxes. The benefit of possessing one single tax implies that every state will pay the same amount for any particular product or system.

  • The tax directing is convenient with the Central Government determining the charges and strategies.
  • Customary laws can be established like e-way bills for better transport and e-invoicing for proceedings detail.
  • Tax conformance is also finer as the taxpayers aren't decelerated due to several return configurations and time limits.
  • In general, it is an allied method of indirect tax adherence.

2. To include most of the indirect taxes in India- India had various preceding indirect taxes such as service tax, value-added tax, central excise, and many more that were imposed at several supply chain stages, and some taxes were directed by the state, and some by the centre and no combined and centralized tax on goods and services were there. Therefore, GST was initiated. Under GST, all prime taxes were included in a single tax. This eventually decreased the conformity pressure on taxpayers and made tax management easier for the government.

3. To reduce the domino effect of taxes- This was one of the basic aims of goods and services tax. Before, because of the multiple indirect tax rules, taxpayers were unable to set out the tax benefits of one tax against another one. For instance, the excise duties compensated while production couldn't be set off against the value-added tax unpaid over the marketing, which led to a ripple effect of taxes.

  • Under goods and services tax, the levies are only on the final value added at every particular phase of the supply chain.
  • Due to this, the cascading sequence of taxes decreased and benefitted the harmonious manner of input tax credits over both goods and services.

4. To restrain tax avoidance- GST laws in India are way stricter ascompared to any of the previous indirect tax rules:

  • Under GST, taxpayers can lay claim to input tax credits exclusively on bills installed by their own particular distributors. This eventually reduced the possibilities of claiming input tax benefits on forgery bills.
  • The initiation of e-invoicing furthermore strengthens this intention.
  • As GST is a countrywide tax and has a centralized monitoring strategy, the limitations on tax dodgers are faster and much more structured.
  • Thus, GST has controlled tax dodging and lower tax forgery to a larger extent.

5. To raise the taxpayer base- The introduction of GST has contributed to growing the tax base in India. Earlier, all the tax rules possessed different start bound for enrolment to depend on income.

  • As GST is an integrated tax imposed on both goods and services, it elevated the tax- registered businesses.
  • Apart from the rigid rules enclosing input tax credits have helped out to lay certain disorganized precincts underneath the tax net just like the manufacturing industries in India.

6. Networked proceedings for the facility of doing business- Before, taxpayers suffered through much destitution while dealing with multiple tax officials under each tax rule. Other than this, while return filing was online, major assessments and paybacks processes occur offline.

  • In recent times GST procedures are mostly done online. Nowadays, everything is become easier with a single click, from enrolment to return filing to repay to e-way invoice generation.
  • It helped to the entire ease of executing business in India and convenient taxpayers' abidance to a remarkably. The government is also planning to initiate a centralized portal shortly for all indirect tax consent, for example, e-billing and GST repay filing.

7. Upgraded logistics and distribution arrangements- The unified tax system decreased the necessity of numerous documentations for the distribution of products. Goods and services tax has minimized shipment cycle times, upgraded supply series and reverse time, leading to the stockroom junction encompassed by several advantages.

  • Through the e-way invoice system under GST, the eviction of the interstate border is most advantageous to the region in refining conveyance and location efficacy.
  • Eventually, it helps in reducing the elevated logistics and warehousing expenses.

8. To encourage competitive pricing and enlarge utilization- GST has increased the consumption and indirect tax proceeds. Because of the domino effect of taxes under the earlier reign, the cost of products in India was greater in comparison with global markets.

  • In between states, the lower value-added tax rates in certain states open on to variance of deals in these states.
  • The consistent GST rates have helped to entire competitive pricing nationwide and on the international front.
  • This increased the expenditure and led to greater proceeds which I'd another crucial target attained.

Merits of GST

As we can see that, removing of cascading effect from the sales of goods and services is done by GST. GST has many advantages over the old tax regime, and due to its multi-sector merits, it was implemented over the old tax system in India. After cascading effect on sales of goods and services was removed, it has impacted the costs of goods. This is because GST eliminated the tax on already mentioned taxes; costs of Goods have decreased through it.

Other than this, GST is also technologically driven mainly. GST accelerated many processes regarding technology-driven goods and services by providing a single window for activities like registration, application for a refund, response to the notice, and return filing on its portal.

Following are the main highlighted merits of implementing GST over the old tax regime in India:

  • Goods and services tax has decreased the domino effect on the sale of products and services
  • Elevated start for GST enrolment
  • Composition scheme for a small start-up
  • Easier networked provisions for GST conformity
  • Moderately reduced compliance under GST
  • Determined treatment for e-commerce undertakings
  • Elevated efficacy in logistics and,
  • Managing the disordered section.

Components of GST

There are three types of taxes pertinent under the GST system, which are as follows:

  1. CGST (Central Goods and Service Tax)- The tax that is collected by the Central Government on the sale between the state itself (intrastate).
  2. SGST (State Goods and Service Tax)- The tax that is collected by the state government on the deal within the state itself (intrastate). For example, the proceedings and deals inside Gujarat. It may also be noted that SGST and UTGST are the same terms, but many people are different as UTGST (Union Territory Goods and Service Tax) is charged in UTs.
  3. IGST (Integrated Goods and Service Tax)- The tax that is collected by the Central Government for the sales taking place between two different states (interstate).

Under the GST law, all the three components of the GST that are mentioned above will be collected by the central government only (but it will depend upon that the transaction is inter-state or intra-state). We also have to note that GST is a destination-based tax in which the amount of tax is received by the state in which the product is supplied, not from the state where good is originated.

To better understand the structure and implementation of all the different components of GST (as mentioned above), look at the following table structure:

S. No. Transaction Details Old Tax Regime New GST Regime Distribution of Revenue
1. Sales of Good and Service within a State VAT + Service tax or Central Excise CGST + SGST Now, for every transaction done inside a state, the revenue will be distributed equally between the state and the centre.
2. Sales of Good and Service from one state to another state Central Sales Tax + Excise or Service Tax GUEST Now, after the implementation of IGST, there is only one type of tax for intra-state sales, and the centre will share the amount from tax collected on the destination of sales.

Before GST: Tax laws in India before GST

In the earlier regime of indirect taxes in India, there were many types of indirect taxes that were levied by both the state (where the transaction has happened) and the centre. Mainly taxes that were previously collected by states were in the form of VAT (Value Added Tax). Previously, every state in India had a different set of rules and regulations for collecting taxes on various goods and services.

Before GST was implemented, the inter-state tax was collected by the centre in the form of Central State Tax (CST). Other than this, many indirect taxes such as local tax, octroi tax, and entertainment tax were charged together by centre and state. These multiple taxes were led to a lot of overlapping between the taxes charged by state and centre. There were many taxes that were charged by both state and the centre due to this overlapping in the taxes.

Example: Earlier, when goods were manufactured and sold in a state, the states were charging Value Added Tax on them. Over VAT, the centre was also charging excise duty on it. This led to the tax on tax effect or cascading effect on various goods and services that we have discussed earlier.

Following is the list of old tax regimes or list of various types of indirect taxes that were charged earlier before the implementation of GST in India:

  • State VAT
  • Taxes on lotteries, betting, and gambling
  • Central Excise Duty
  • Central Sales Tax
  • Additional Duties of Excise
  • Entertainment Tax
  • Duties of Excise
  • Taxes on advertisements
  • Special Additional Duty of Customs
  • Luxury Tax
  • Additional Duties of Customs
  • Entry Tax
  • Purchase Tax
  • Cess

Now, after GST was implemented all over India, all the above-listed taxes were replaced by SGST, CGST, and IGST.

Note: Utilisation of 'Form C' after implementation of GST-regime:

As we have discussed that GST implementation has replaced all the above-listed taxes that were earlier levied by centre or state or by both. But there are still some kinds of taxes or service charges that are charged by the centre or state in the form of 'Form C' utilization.

Certain taxes which are still prevalent even after the implementation of GST-regime are charged in inter-state purchases made or transactions done, at a concessional rate of 2% by the utilization and issuing of 'Form C.'

This method of charging tax is also applicable to certain goods that don't fall under GST-regime of charging tax, are as follows:

  1. Aviation turbine fuel
  2. High-speed diesel
  3. Petroleum crude
  4. Alcoholic liquor for human consumption
  5. Natural gas and,
  6. Motor spirit (that is commonly called petrol).

Other than this, the Utilisation of Form C is charging a concession rate of 2% is only applicable for the following inter-state transactions:

  • Use in certain specific sectors such as mining, the telecommunication network, the distribution or generation of electricity, and also in any other power sectors.
  • Resale of above-listed goods and services.
  • Manufacturing or processing of above-listed goods and services.

New compliances under GST

As we have learned that we can fill online for the GST returns on many goods and services in the previous sections of this article. Also, apart from that, there are several new compliances that are introduced with the implementation of the GST-regime tax system. In this section, we will discuss the following new compliances that were introduced with the implementation of the GST tax system in India:


In India, the E-invoicing system for every transaction of goods and services was introduced with the GST implementation, and it became applicable from the 1st of October, 2020. This E-invoicing system became applicable to all the businesses that have an annual aggregated turnover of more than Rs. 5000000000 (Rs. 500 Crore) for any preceding financial years starting from the fiscal year 2018.

Note: From January 1st, 2021, an amendment was made in this system, and E-invoicing was further extended to all the businesses that have an annual aggregated turnover of more than Rs. 100 Crore.

Following is the working of the E-invoicing system under the GST regime:

  • All the businesses that are falling under the compliance of generating E-invoicing have to obtain a unique invoice number for every invoice generated.
  • These businesses can generate unique invoice numbers by uploading them on the online GST's invoice registration portal for every business-to-business transaction.
  • The online GST portal verifies the genuineness and correctness of the invoice generated by the business.
  • Also, after that, the online GST portal verifies using the digital signature given along with a QR code on the E-invoice generated.

Following are the highlighted points of the compliance of E-invoicing under the GST regime:

  • E-invoicing under the GST regime allows consumers for interoperability of invoices made.
  • E-invoicing also helped the retailers by reducing the data entry errors in the bills.
  • An E-invoicing system is designed to pass the information regarding invoices directly to the online GST portal or the e-way bill portal from the IRP.
  • E-invoicing system also eliminates the requirements for manual entry of data for filling the GSTR-1.
  • An E-invoicing system also helps in the generation of e-way bills too.

E-way bills

With the implementation of the GST regime in India, the 'E-way bills' system was also introduced, which was a centralized system of waybills. E-way bills system was introduced on 1st of April, 2018 for transactions of goods and services done under the inter-state. 2 weeks later, on 15th of April, 2018, for transactions of goods and services done under the intra-state in a stagged manner.

Following are the highlighted points of the compliance of E-way bills system under GST-regime implementation in India:

  • E-way bills system also benefitted the tax authorities as this system has reduced the time taken at various check-posts.
  • E-way bills system also reduced the evasion of tax, and thus it helped the tax authorities.
  • Under the e-way bill's system from manufacturers to traders to transporters, all can generate e-way bills for the goods transported from the origin place to the destination using a common online platform with ease.

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