Knowledge Base

GST in India

The Goods and Services Tax (GST) in India is considered as one of the biggest reforms in indirect taxation. It has been made effective pan India from 01st July, 2017, and is based on the principle of destination-based consumption taxation.

GST in India – History
The Goods and Service Tax Council (GSTC) was formed by the government of India to ensure that there was a single unified tax structure across the country. The GSTC comprises of the Union Finance Minister, the Minister of State (Revenue) and the State Finance Ministers. It is this council that decides on the GST rate, exemption and thresholds, taxes to be subsumed and other matters.

GST subsumes the following taxes prevalent in India:

  • Central Excise Duty
  • Duties of Excise (Medicinal and Toilet Preparations)
  • Additional Duties of Customs (CVD)
  • Special Additional Duty of Customs(SAD)
  • Service Tax
  • State Value Added Tax (VAT)
  • Central Sales Tax (CST)
  • Entry Tax
  • Purchase Tax
  • Luxury Tax
  • Taxes on lotteries, betting and gambling

Moreover, the implementation of such a tax was introduced as a set-off relief mechanism for the seamless flow of input credit across the chain. You can read about the background of GST here
A robust IT infrastructure is one of the most important aspects of GST. The input credit is an important component of GST and it is difficult to monitor it in the absence of fully developed computerized system and IT infrastructure. Luckily, India is in a very good position to provide such infrastructure, thanks mainly to the percolation of high speed internet connectivity. Cities like Pune, Mumbai, Chennai, Bengaluru and other major commercial hubs of Pune, where most of the GST consultants are located, are fortunate to have an excellent connectivity, so uploading returns is not a problem.

The Structure of GST in India
In the context of India, it is important to note that both the state and the centre need to benefit from GST. With this aim in mind, the GSTC introduced a dual GST mode that distributed powers to both Centre and States to levy the tax concurrently.

Accordingly, the current GST structure comprises of the following components:
1. Central GST (CGST)
CGST is levied by the Central Government of India on the intra-state supply of goods and services. The transaction value is defined as the price actually paid or payable for the said supply of goods or services.

2. State GST (SGST)
GST imposed by specific State governments on the intra-State trade and services or trade within the state is called SGST(State-GST). Here the revenues are earned by the State govt. due to SGST as the transaction occurred within the state.

3. Union Territory GST (UGST)
In case of Union territories such as Chandigarh, instead of State govt. the GST is collected by the Central administration and is referred to as UGST

4. Integrated GST (IGST)
IGST would be collected by the central government on the inter-state transactions of goods and services. Centre would levy IGST (CGST plus SGST) on all inter-state transactions of taxable goods and services.

With dual GST, it is naturally a matter of concern which component of GST is applicable to whom and when.

To determine this, it is first important to ascertain the location of the supplier of the goods/ services and the consumer. Location defines whether a combination of SGST and CGST will be applicable or only IGST.

Let us say there is an auto component manufacturer in Pune, and he wants to send the goods to Mumbai. Since both Pune and Mumbai are located in Maharashtra, both SGST and CGST will be applicable. It will be equally distributed between the central government and the state government.
Now take another example. Let’s say this same auto component manufacturer from Pune wants to dispatch goods to Ahmedabad. Since Pune is in Maharahstra and Ahmedabad is in Gujarat, this is an interstate transaction, and only the IGST component of the GST will be applicable. It is pertinent to note here that it does not create any difference for the consumer as the combined rate of SGST and CGST is always equal to the IGST rate. In other words, GST ensures smooth flow of taxes between the state and the centre without complicating the tax rates for the parties involved.

Who Should Pay GST?
By its very definition, it is clear that any person who is supplying goods or services is liable to pay GST. However, to spare the small suppliers and consumers, the government f India has also set up the basic exemption limit for small suppliers of goods and services. These limits vary from state to state, and may change from time to time. It is suggested that you talk to your GST consultant to know whether GST is applicable to you or not.

Now let us see who all are liable to pay GST. The following categories of persons will be liable to pay GST:

  • Supplier making supplies above basic threshold Limit
  • Persons already registered under an earlier law which are subsuming under GST
  • E-Commerce operators registered under GST and through whom certain categories of notified supplies are made.
  • Persons registered under GST and required to deduct Tax (TDS)
  • E-Commerce Operators registered under GST and required to collect tax (TCS)

Note that this list is not at all extensive. For a better clarity, it is advisable to contact your GST consultant.

Any business or entity that has registered for GST will be assigned a unique Goods and Services Tax Identification Number (GSTIN). This GSTIN will be used for the purpose of filing returns.

Benefits of GST Implementation

  • GST is comprehensive: GST will subsume all of the current indirect taxes. Plus, by bringing in a unified taxation system, across the country, it will ensure that there is no more arbitrariness in tax rates.
  • GST is Multi-stage: GST is levied each stage in the supply chain, where a transaction takes place.
  • Value-addition: This is the process of addition to the value of a product/ service at each stage of its production, exclusive of initial costs. Under GST, the tax is levied only on the value added. This is done through Destination-based consumption: Unlike the current indirect taxes, GST will be collected at the point of consumption. The taxing authority with appropriate jurisdiction in the place where the goods/ services are finally consumed will collect the tax

There may be pros and cons of GST, but GST is here to stay in India. Depending upon which state your business is, there might be different limits on whether you need to pay GST, but most businesses need to pay it. In the long run, GST will make life a whole lot easier for accountants and tax consultants, as it subsumes many earlier tax components. Since GST needs to be filed on a regular basis, it is best to let a professional GST consultant do the job.