Goods and Service Tax Concepts - What is GST | taxes removed by GST | GST rates | GST Calculation

Goods and Service Tax Concepts 

Hello Friends,

So, today we are understanding about Goods and Service Tax (GST). Let's start-

What is GST?

The full form of GST is - Goods and Services Tax. It has to be paid for purchasing goods or using services. A tax GST has been brought in its place by removing many existing types of taxes (Excise Duty, VAT, Entry Tax, Service Tax etc.) In India it has been implemented from 1st July 2017.

What was the flaw in the earlier tax system?

Before July 2017, the tax system which was applicable in the country and the states, businessmen had to go through various types of taxes. For example, as soon as the goods came out of the factory, first of all, excise duty had to be paid on it. Additional Excise Duty was levied separately on many goods. If the same goods are being sent from one state to another, then entry tax was charged as soon as they entered the state.

While selling the goods, Sales Tax or VAT had to be paid. In many cases, Purchase Tax was also levied. If any goods fall under the category of luxury, then luxury tax had to be paid separately. If that goods were being provided in a hotel or restaurant etc. then service tax had to be paid separately.

Thus we see that, from the factory to the reach of the consumer, a goods or service had to pass through many types of duties or taxes. An attempt has been made to save the businessmen from this web of taxes by implementing GST.

Why was there a need to implement GST?

In the old rules related to tax in the Indian Constitution, the Central Government had the right to levy tax on the production/manufacturing of goods and services. Whereas, the right to levy tax on the sale of goods was given to the State Governments.

Everyone made taxes according to their own and fixed the categories. In this affair, many taxes were imposed on each item. Sometimes the situation of tax on tax has also been created. For small traders, dealing with their rules and regulations was a very difficult task.

To remove these discrepancies, GST has been brought in the form of a unified law which can be applicable on both goods and services. And, which can be applied from production to sale.

To eliminate the separate screw of production and sale, only one basis of GST was fixed, Supply. For this, changes were made in the tax laws and the process of constitution amendment was adopted in the Parliament.

Major Features of GST

In order to correct the shortcomings of the old tax system in the country, the government implemented GST. The main features of this new tax system implemented from July 2017 are as follows-

1. Tax on consumption rather than production

In the GST system, tax is collected when a goods or service is sold. The final price of the goods or services also includes the GST tax prescribed thereon. The seller who supplies the goods or services collects it from the consumer. Later it is deposited in the account of the government. This means that the responsibility of recovery of GST lies on the provider of the goods or services. With a good or service, GST has to be paid every time there is a buying and selling process.

 

2. Tax refund through input credit system

There is a process of buying and selling of an item from the time it is produced till it reaches the end consumer. Now since, in the GST system, every purchase and sale has to be taxed. As such, the commodity must become very expensive by the time it reaches the final consumer. But this doesn't happen. Because Input Credit System is applicable in this. In this system, there is also a system to get back the tax wherever the tax has been deposited before the tax is imposed at the last stage.

If you are not the final or actual consumer and you have deposited GST in any earlier stage, then you get Credits instead. You can use these credits to pay GST to the government.

While filing GST return every month, you can get your GST adjusted through Tax Credit System. What is this Tax Credit System, we have explained it separately below with an example.

3. Tax will not be levied on tax

In the tax system which was applicable before GST, many different taxes were levied not only on one commodity, but in many cases, taxes were also levied on the tax. This used to happen because many items fell into two or more categories. Now this problem is over. Because now the GST is to be finally paid to the consumer. In the meantime, if someone has to pay GST, then his money gets adjusted from the tax credit system.

4. Fully Online System

The information of all the transactions in the GST system has to be kept updated online. The receipt for each transaction will be with both the supply taker and the supplier. Both will be able to get Tax Credit with the help of their respective receipts. If the deals are not matched then online itself will get caught in the mess. The chain of payment of tax will not be broken due to the above-mentioned business being responsible for collecting GST at every stage. Because no businessman would like to harm his credit.

5. No arbitrariness on tax rate

In the earlier tax system. State governments used to voluntarily levy tax on the goods sold here. Its rate was also fixed according to its own accord. Now that won't happen. The GST Council has been formed for any change in the rate of GST. The Union Finance Minister will be the chairman of this council. Finance ministers of all the states will also be its members.

On any decision of the GST Council, the Center will have one-third of the power to vote, and two-thirds of the power to be with the state governments. Voting power of each state will be equal. For any decision of the council to be approved, it will need three-fourths of the votes of the council.

How GST is beneficial for every section?

With the implementation of GST system, transparency and accountability has increased in the tax system. This has facilitated the government on one hand, while on the other hand, it will also be beneficial for the businessmen and consumers. Let us understand how-

Benefits for common people

Various types of taxes on goods have been got rid of. Due to the abolition of tax on tax, there is no unnecessary increase in the cost of goods. Due to this, it is a position of advantage for the general consumer.

The rates of tax have been kept low on the most important things for life. With this, things that are more useful to the common people will be available cheaply. There will be relief for the poor and low-income people.

With more and more part of the business coming under the purview of GST, the income of the government will increase. This can be used to improve the facilities of common people like education, health, transportation.

Benefits for businessmen

Due to the different structure of taxes in each state, it was not easy for the goods traders to understand it. Different types of octroi used to increase the burden separately. Tax officials and employees also took the wrong advantage of the intricacies of the rules. Now traders will not have to go through these hassles. Business will be easier and faster. This will, ultimately, increase the quantum of benefits as well.

In the GST system, all the business related documents are online. With this, facts will not be presented in a twisted manner. In case of any mistake or loss of document, it will be possible to rectify it online. Unnecessary of businessmen, there will be no need to make rounds of offices.

To promote small scale industries and entrepreneurs, the central and state governments give concessions. To take advantage of this, even big businessmen used to show their big enterprise by doing it in many small parts. In the GST system, this will not be required. Companies will be able to make more cheap and competitive goods. Goods can be made to compete in the international market.

For government and administration

In the earlier system, a large part of the market was underground. In many places in the chain from production to sale of goods, work was not shown at all. The government could not even get tax on them. Now such people who are left out in GST will also be added to this chain of tax. The income of the government will increase.

It will be necessary to reconcile the purchase and sale receipts at each stage. Only then the businessmen will be able to get the benefit of the Tax Credit deposited in the earlier stages. Since in this chain it will be necessary to bill everyone and present their receipt later. Therefore the market will be fully accounted and the black market will be controlled.

In the earlier tax system, the same item was available in different states at different prices. Some people took advantage of this and started smuggling cheap goods from nearby states. Now due to the same tax in the whole country, the prices of goods will be same. This will curb smuggling.

Due to the reduction in the number of taxes, the burden on the officers and employees of the Center and the state will be reduced. With all the details related to registration and tax payment online, monitoring will be very easy. Recovery cost will come down. The work of tax administration and management will become very easy for the governments.

Which taxes were removed by GST?

More than three dozen indirect taxes levied on goods and services in the country and states have now been included under GST. Here we are giving a list of the taxes which have been included in it.

·        Central Taxes Replaced By GST
·         State Taxes Replaced By GST (State Taxes which have been replaced by GST)
·         Central Excise Duty
·         Duties of Excise (medical and Toilet preparations)
·         Additional Duties of Excise on Goods of special importance
·         Additional Duties of Excise (Textiles and textile products)
·         Custom Duty Duties of Customs (CVD)
·         Special Additional Duty of Customs-SAD
·         Service Tax
·         Cess and Surcharges
·         (VAT) State VAT
·         (Central Sales Tax) Central Sales tax
·         Purchase Tax
·         Luxury Tax
·         All types of Entry Tax
·         Entertainment tax which was levied in addition to the local bodies
·         Taxes on advertisements
·         Taxes on lotteries, betting and gambling
·         Cess and Surcharge State cesses and surcharges

GST is charged under four names.

Although GST is a single tax, it is taken under four different names-

Central Goods and Services Tax (CGST)

If a transaction is taking place between two parties (businessmen) of the same state, then CGST has to be paid as the share of the central government.

State Goods and Services Tax (SGST)

If a transaction is taking place between two parties (businessmen) of the same state, then SGST has to be paid as the share of that state government.

Union Territory Goods and Services Tax (UTGST/UGST)

If a transaction (transaction) is taking place between two parties (businessmen) of a Union Territory (UT), then UTGST has to be paid as a share of that Union Territory. This is also called UTGST.

Integrated Goods and Services Tax (IGST)

If a transaction is taking place between businessmen of two different states, then the share of both the Central Government and the State Government together has to be paid as IGST. It is deposited with the central government alone. Later, on behalf of the central government, the state government's share of the tax is remitted. The share in IGST goes to the state to which the supply is sent.

GST Rates | Rates of GST

Efforts have been made to make GST more and more just by levying minimum tax on essential commodities and maximum tax on luxury and less important items. Whereas zero tax has been fixed on raw materials like grains and fresh vegetables etc. Similarly, education and health facilities have been kept out of the purview of tax. The GST Council has approved a total of five slabs of GST for different types of goods. These are-

00% GST: On goods and services essential to life, such as cereals, salt, fresh vegetables, etc.

05% GST: On goods and services common to life, such as sugar, oil, spices, tea, coffee, fertilizers etc.

12% GST: On goods and services used in everyday life, such as snacks, toothpaste, umbrellas, medicines, etc.

18% GST: Items used by people leading a moderate lifestyle such as detergent, chocolate, mineral water, ice cream, shampoo, refrigerator etc.

28% GST: On goods and services that fall in the luxury and harmful category, such as - pan masala, automobiles, accommodation in five star hotels, etc.