What is Goods and Services Tax (GST)?
GST is one indirect tax for the entire country. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017. The GST is an all-in-one tax that subsumes a variety of state taxes (VAT, Entertainment Tax, Luxury Tax, Octroi) and central taxes (CST, Service Tax, Excise Duty). GST is levied on supply of goods or services or both at each stage of supply chain starting from manufacture or import and till the last retail level. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government. This law has replaced many indirect tax laws that previously existed in India. In short, Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
The following is the list of indirect taxes in the pre-GST regime:
- State VAT
- Entry Tax
- Luxury Tax
- Purchase Tax
- Entertainment Tax
- Taxes on advertisements
- Taxes on lotteries, betting, and gambling
- Duties of Excise
- Central Sales Tax
- Central Excise Duty
- Additional Duties of Excise
- Additional Duties of Customs
- Special Additional Duty of Customs
Components of GST:
GST has three tax components; Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), & Integrated Goods and Services Tax (IGST).
1. Central Goods and Services Tax (CGST):
The Central Government levies CGST and is charged on the intra-state supply of products and services. CGST has replaced all the previous Central taxes such as Central Excise Duty, Customs Duty, Service Tax, SAD, CST, etc. It is charged to taxpayers along with SGST. The rate at which CGST is charged is usually the same as the SGST rate, and the revenue collected under CGST is remitted to the Central Government.
2. State Goods and Services Tax (SGST):
The State Government levies SGST and is charged on the sale of products or services within a state. This tax replaces all the previous taxes such as Entry Tax, Value Added Tax, Entertainment Tax, State Sales Tax, Cess, and surcharges. The revenue collected under SGST is remitted to the State Government. Revenue will be shared equally between the Centre Government and the State Government.
3. Integrated Goods and Services Tax (IGST):
IGST is charged on inter-state transactions of products and services. It is also levied on imports. The Central Government collects IGST and distributes it among states. IGST is levied when goods or services are transferred from one state to another. The tax was implemented so that states would only have to deal with the Union Government rather than dealing with each state. The Centre Government will share the IGST revenue based on the destination of goods.
Advantages of GST:
There are a lot of advantages of GST but the main advantage is that GST is 100% technologically driven. It means, all activities like registration, return filing, application for refund and response to notice needs to be done online on the GST Portal. Here are some more advantages are:
- Common procedures for registration of all taxpayers
- Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc.
- A unified common national market for India
- Giving a boost to foreign investment, export and manufacturing activity, generate more employment and thus increase GDP
- Removing cascading tax effects
- Improved environment for compliance as all returns are to be filled online in GST portal
- Help in reducing corruption as the human interface between the taxpayer and the tax administration is zero due to online system
- Increased ease of doing business
- Elimination of double taxation on certain sectors like works contract, software, the hospitality sector
- Final price of goods is expected to be transparent
- Reduction in prices of commodities and goods in the long run due to the reduction in the cascading impact of taxation
- Improve the overall investment climate in the country
- Largely uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighboring States and that between intra and inter-state sales
- Improved Compliance levels of the taxpayers will contribute greatly in improving the revenue collection of the States