An Ultimate Guide to Goods and Services Tax (GST)

An Ultimate Guide to Goods and Services Tax (GST)

MEANING

Goods and Services Tax is an indirect tax. Before getting into the depth of the much talked about GST, let us talk a little about direct and indirect tax.              

Direct tax and indirect tax

Direct tax is the tax charged by the government and paid directly by the taxpayer to the government.

Whereas

Indirect tax is a tax that is charged by the government on the goods and services. The taxpayer does not directly pay it to the government; only indirectly by spending on the products and services, which is why it is called an indirect tax.

GOODS AND SERVICES TAX

GST

 Goods and services tax is a value-added indirect form of tax that is charged by the government on the goods supplied by the manufacturers, purchased by the consumers and on the services availed by them.

It is charged on the value-added on the goods at the time of production.

The charge is collected directly from the manufactures of the products (goods) and the service providers. At the time of the purchase of the finished products or after using the services, the consumers are charged, which makes it an indirect tax to them.

When was it implemented?

It was implemented in India on 1st July 2017.

What is the Purpose behind GST?

  • To eliminate several indirect taxes that existed previously like VAT, Service Tax and merge them all into one which would eliminate confusion.
  • To make it less complicated for the manufacturers, suppliers and consumers.
  • To make a standardized tax system in the country.
  • To eliminate tax evasion.
  • To remove the cascading effect of tax which means the tax paid on tax.

Concept of Reverse Charge

Reverse charge is when tax is charged on the buyer of the goods instead of the suppliers with regards to certain categories of supply.

GST Returns

A GST Return is a document that contains all the details of income that a taxpayer is supposed to file and submit to the tax authorities. The tax authorities then calculate the person’s tax liability.

How to file for GST Returns online?

  • Visit the website
  • Complete registration after which a 15-digit identification number will be issued.
  • The next step is to upload invoices. Then, an invoice reference number will be issued for each invoice.
  • After uploading invoices, outward return, inward return, and cumulative monthly return have to be filed.
  • Outward supply returns need to be filed in GSTR-1 on or before the 10th every month.
  • The outward supplies returns will be provided by the supplier to the recipient in the GSTR-2A.
  • The recipient then needs to verify all the details of inward supplies of goods and services in GSTR-2 form.
  • The supplier has the right to accept or reject the details that the recipient provides in the inward supplies in the GSTR-1 A form.

GST Council

The GST Council includes a group of people that are responsible for all the decisions with regards to GST.

At present, it includes 33 members, including the State Finance Ministers. The head of the council is the Union Finance Minister.

Facts about GST

  1. Some of the taxes that were replaced with the introduction of GST –
  • Central Excise Duty
  • Excise Duties
  • Additional Excise Duties
  • Additional Custom Duties
  • Special Additional Custom Duties
  • Cess
  • VAT
  • Entry Tax
  • Central Sales Tax
  • Purchase Tax
  • Luxury Tax
  • Entertainment Tax
  • Octroi
  • Taxes on lotteries, betting, and gambling
  • Advertisement tax
  1. Assam was the first state that implemented GST.
  2. The parliament approved the GST bill on 8th September 2016.
  3. The 5 tax rates of GST are: 0%, 5%, 12% 18% and 28%.

 

GST Law

The GST Law includes

  • Central Goods and Services Tax Act, 2017 which comprises of Central Goods and Services Tax (Extension to Jammu and Kashmir) Act, 2017,
  • State Goods and Services Tax Act, 2017 as reported by respective States,
  • Union Territory Goods and Services Tax Act, 2017,
  • Integrated Goods and Services Tax Act, 2017 which comprises of Integrated Goods and Services Tax (Extension to Jammu and Kashmir Act, 2017)
  • Goods and Services Tax (Compensation to States) Act, 2017 (CGST, SGST, UTGST, IGST and CESS respectively at the GST portal)
  • Rules, Notifications, Amendments and Circulars issued under the respective Acts.

 GST Tax Rates

Currently, five different rates are applicable to various products as well as services.

0.25% Cut and semi-polished stones
5% Household items such as edible oil, sugar, tea, spices and coffee. Products like coal, sweets are also included in this slab.

This rate is also charged on medical supplies.

12% Computers and processed food
18% Soaps, hair oil, toothpaste, capital goods.

This rate is charged on loans and advances.

28% This includes all the luxury items and electronic items. For instance, Cars, Air Conditioner, Refrigerator, premium cars, Cigarettes and aerated drinks. This tax rate also applies to water parks, theme parks etc.

 

Goods and Services Tax Identification Number (GSTIN)

GSTIN is the unique identification number that is allotted to every business.

Goods & Services Tax – Categories

GST is divided into many parts because of the diversity in terms of the two major sectors both public & private and the companies that fall into both – from Multinational Companies (MNC’s) to small businesses and startups.

  • CGST (Central Goods & Service Tax)
  • SGST (State Goods & Services Tax)
  • UGST (State Goods & Services Tax
  • IGST (Integrated Goods & Services Tax)

 

The similarity between Central Goods & Service Tax & State Goods & Services Tax

Both CGST and SGST are applicable for intra-state (within the states) supply of goods and services.

CENTRAL GOODS AND SERVICES TAX 

CGST

CGST is charged on the supply of goods and services that take place from one city to another (within states transactions).

The central government looks after and manages CGST and is governed by the CGST Act. The tax amount from the Central GST is collected by the central government.

The maximum limit of tax that can be charged is 14%.

Example: Company A, located in Greater Kailash supplies goods to Company B, located in Vasant Kunj. This is an intra-state transaction because both the cities are located in South Delhi.

Thus,

in this case, the supplier will be charged CGST.

Central Goods and Services Tax Act

CGST runs according to the CGST Act.

 Some features of the Act

  • Tax levied on all the supplies of goods or services or both that takes place within the states;
  • Elimination of the tax liability if the businesses claim ‘Input Tax Credit’. Input Tax Credit (ITC) is a tax that is paid by the businesses at the time of purchase of goods or services or both. The businesses can request a tax credit depending on the GST that they pay;
  • Provides self-evaluation of the taxes that is payable by the registered person who is registered under GST;
  • Provides audit conduct of registered persons in order to verify the agreement with the provisions of the Act;
  • Provides for recovery of arrears of tax using various modes including detaining and sale of goods, movable and immovable property of defaulting taxable person;
  • Lastly, the Act provides for powers of inspection, search, abduction and arrest to the officers.

Amendments made in the CGST Act

 As of 2019, some modifications were made in the CGST Act;

  • Introduction of Composition Scheme – Section 10

This scheme is introduced specifically for small business owners. Its can also be beneficial to the suppliers of goods and services who earn profits of up to Rs 50 Lakhs.

The result: Small businesses have lost customers within the 2 years of GST according to the news on economic times.

  • Registration – Section 22

The minimum limit for registration has increased from Rs 20 lakhs to Rs 40 lakhs. This is beneficial for the small businesses as they do not have to register under GST unless they have profits that exceed Rs 40 Lakhs.

  • Registration process – Section 25

The registration process now requires Adhaar card authentication without which the registration will not be accepted.

  • Payments to the suppliers – Section 31 A

As per this section, it is mandatory that the suppliers give an option to their customers to make payments through the electronic medium.

  • Furnishing returns – Section 39

According to this section, the taxpayers should provide their returns on a quarterly basis instead of monthly.

  • Payments of interests and taxes – Section 49

This section is introduced because of the issues faced by the taxpayers while making payments for tax, interest, penalties and fees.

These payments are supposed to be made electronically through the electronic cash ledger. The ledger consists of major heads or categories like integrated tax, state tax, union territory tax and central tax. Any payment that was wrongly done under the wrong category could not be transferred to the correct one, and that amount had to be paid again due to which the taxpayers lost a lot of money.

Without the introduction of this section, the payments can now be transferred to the correct category.

STATE GOODS AND SERVICES TAX 

SGST

SGST is also charged on the supply of goods and services that take place from one city to another (intra-state) and the tax amount from State GST is collected by the state government.

Features of SGST Act

  • It is charged by different states on the bill of all transactions of goods and services made for a consideration.
  • It would be paid to the accounts of the concerned state.
  • Exceptions would be exempted goods and services and goods kept out of GST and transactions that fall under the minimum limits.
  • Basic features of law such as charge ability, taxable event, measure, valuation, the classification would be uniform across these Statutes / States as far as practicable.

Calculation of SGST and CGST

Both CGST and SGST are calculated depending on the state or country where the goods are produced and supplied.

For example, if the goods are produced and supplied in Uttar Pradesh, then SGST will be charged on the finished product by the UP government.

Along with SGST, CGST will also be charged by the central government.

 

What is E- WAY BILL?

E-Way bill is the short form of electronic way bill. It is a unique bill or document that is generated for certain movement of goods from one place to another. The products have to be of value more than Rs 50000.

 

IMPLICATIONS

Understanding the after effects

Its been 2 years since GST was introduced in the country and it is an absolute requirement to evaluate its effects and witness what it has done to the country.

Challenges faced by business owners due to GST

  • Small businesses and enterprises have lost a huge number of customers.
  • The suppliers are also not ready to do business with them if they are not registered with GST because those businesses will not be able to give them an input tax credit.

Challenges faced by consumers

  • The consumers have to pay more for a product or a service after the introduction of GST, which is why they tend to buy only the necessary products and indulge less in other activities.

Conclusion

GST was introduced to bring out a positive change in the Indian economy, especially for the businesses, but it looks like it has affected the SME’S (Small and Medium Enterprises) in a more negative way.  Also, some of the sectors have hit hard because of the exorbitant high tax rates.

The MNC’S are the ones that are benefitted by GST.

For the customers, the concern is of buying extra amounts without any special benefit to them.