Goods and Services Tax (GST) Explained
Goods and Services Tax (GST) is a unified, destination-based indirect tax implemented in India on July 1, 2017. It was designed to simplify the tax system by replacing multiple indirect taxes and creating a streamlined taxation framework.
What is GST in India?
Goods and Services Tax (GST) in India, introduced through the 101st Constitutional Amendment Act, is a comprehensive, destination-based tax system that replaced multiple indirect taxes. Launched on July 1, 2017, GST was designed to eliminate tax cascading, simplify taxation, and promote a unified national market.
Introduced on July 1, 2017, GST organizes goods and services into various tax brackets while excluding specific items like petroleum products and alcohol. It employs HSN codes for classification and requires e-invoicing to ensure compliance and accuracy in transactions. The GST system allows businesses to claim input tax credits (ITC), undergo audits, and fulfill compliance requirements through periodic return filings, all monitored by the GST Council.
This taxation structure was developed to simplify India’s tax framework by replacing multiple central and state taxes, thereby creating a unified and efficient market for goods and services across the nation.
Father of GST & Implementation Date
In India, the title of ‘Father of GST’ is often attributed to former Prime Minister Atal Bihari Vajpayee. His government played a pivotal role in laying the groundwork for the Goods and Services Tax (GST) by establishing a task force in 2000, under the leadership of Dr. Vijay Kelkar, to design a comprehensive and efficient GST system. While the implementation of GST took time, his vision and efforts were crucial in shaping its eventual rollout.
GST was officially implemented on July 1, 2017, after years of planning, deliberations, and consensus-building between the central and state governments.
Objectives of GST in India
1. Simplification of Tax Structure: Replace multiple indirect taxes with a single unified tax to simplify compliance and administration.
2. Reduction of Tax Evasion: Enhance compliance through technology and digital systems, making it harder to evade taxes.
3. Economic Growth: Lower production costs and increase competitiveness by eliminating the cascading tax effect, boosting demand and consumption.
4. Uniform Taxation: Create a uniform tax system across India, removing barriers to interstate trade and promoting ease of doing business.
5. Increase in Government Revenue: Broaden the tax base, encourage more businesses to comply, and increase government revenue through better compliance.
Impact of GST on the Indian Economy
1. Ease of Doing Business: GST has streamlined tax compliance and created a unified system, making it easier for businesses to operate across states.
2. Reduction in Cascading Effect: By consolidating multiple indirect taxes into a single tax, GST has eliminated the cascading tax effect, lowering the overall tax burden on goods and services.
3. Increased Tax Revenue: GST has expanded the tax base and improved compliance, leading to higher tax revenue for both the central and state governments.
4. Economic Integration: By removing barriers to interstate trade, GST has created a common national market, fostering economic integration and growth.
5. Consumer Benefits: The reduction in the tax burden has resulted in lower prices for many goods and services, benefiting consumers through enhanced purchasing power.
GST Rate Slabs in India (2024)
The Goods and Services Tax (GST) rate structure in India is divided into different slabs to suit various goods and services. As of 2024, the GST rate slabs are as follows:
1. 0% GST
● Items of essential consumption, such as unbranded food grains, fresh vegetables, and milk.
2. 5% GST
● Mass consumption and essential goods, including edible oil, sugar, spices, tea, and coffee.
3. 12% GST
● Processed food, computers, frozen vegetables, fruit juices, and medicines.
4. 18% GST
● Standard goods and services, including capital goods, industrial intermediaries, and daily-use items like toothpaste, soap, and hair oil.
5. 28% GST
● Luxury goods, demerit goods, and items like automobiles, cement, and air conditioners.
Goods Excluded from GST
Certain goods are not subject to GST and are either taxed separately or exempted. Key exclusions from the GST framework include:
1. Petroleum Products
● Petroleum crude, diesel, natural gas, and aviation turbine fuel (ATF) are not covered under GST and are taxed separately by both central and state governments.
2. Alcohol for Human Consumption
● Alcoholic beverages are outside the purview of GST and are instead taxed by state governments.
3. Electricity
● The supply of electricity is exempt from GST.
GST Invoice
1. Invoice Number:: A unique serial number for identifying the invoice, ensuring proper tracking and record-keeping.
2. Date:The date of issue of the invoice, which helps determine payment deadlines and the filing period.
3. Recipient Details:Name, address, and GSTIN (Goods and Services Tax Identification Number) of the recipient, if they are registered under GST.
4. Details of Products/Services:
● A comprehensive explanation of the supplied goods or services.
● HSN/SAC codes: These are used to categorize goods (HSN) and services (SAC) for taxation purposes.
● Quantity and unit cost: These details are required to compute the total taxable amount.
5. Taxable Value:The value of the goods or services supplied, excluding any GST charges.
6. GST Rates and Amounts:
● The applicable GST rates (CGST, SGST/UTGST, or IGST) for the goods or services supplied.
● The GST amount calculated based on the taxable value and the relevant GST rates.
7. Total Amount:The final total to be paid by the buyer, which includes the taxable value and the applicable GST amounts.
8. Signature:The authorized signature of the supplier or person issuing the invoice, confirming the authenticity of the document.
E-Way Bill in GST
E-Way Bill under GST
The E-Way Bill is an electronic document mandated for transporting goods valued over ₹50,000 under the Goods and Services Tax (GST) framework. It is designed to track the movement of goods and ensure compliance with GST regulations. The system streamlines the transportation process, reduces the risk of tax evasion, and promotes transparency in the movement of goods.
E-Way Bill: Purpose, Components, and Validity
Purpose: The primary aim of the E-Way Bill is to monitor the movement of goods and ensure adherence to GST regulations during transit. It helps in maintaining transparency and ensures that goods in transit are properly accounted for under the GST framework.
Components: The E-Way Bill includes crucial details to ensure proper documentation of the transportation:
1. Supplier (Consignor) Information
2. Recipient (Consignee) Information
3. Details of Goods (description, quantity, value, and HSN code)
4. Transporter Information (vehicle number, transporter ID, etc.)
Validity: The validity of the E-Way Bill depends on the distance traveled by the goods:
1. For journeys within 100 km, the E-Way Bill is valid for one day.
2. For every additional 100 km or part of it, the validity is extended by one more day.
This system plays a crucial role in ensuring the smooth flow of goods while keeping the tax process in check.
The E-Way Bill system ensures that goods in transit are tracked, and it helps authorities verify whether the proper taxes are being paid, reducing the possibility of tax evasion.
GSTIN (Goods and Services Tax Identification Number)
A GSTIN, or Goods and Services Tax Identification Number, is a 15-digit unique code allocated to all taxpayers registered under the GST framework in India. This number serves as a critical identifier for businesses and entities engaged in GST-related processes, such as tax payments, filing returns, and claiming Input Tax Credit (ITC).
Structure of GSTIN:
1. First Two Digits: Represent the state code as per the Indian states’ list (e.g., 27 for Maharashtra, 29 for Karnataka).
2. Next Ten Digits: Represent the Permanent Account Number (PAN) of the taxpayer.
3. 13th Digit: Denotes the number of registrations within the state. It indicates whether the taxpayer has multiple business locations or registrations in a particular state.
4. 14th Digit: Always fixed as ‘Z’.
5. 15th Digit: A check code used to validate the GSTIN.
Importance of GSTIN:
● Mandatory Registration: It is required for businesses with an annual turnover exceeding ₹40 lakhs (₹20 lakhs for special category states).
● Tax Compliance: GSTIN is essential for issuing tax invoices, filing GST returns, and claiming Input Tax Credit (ITC).
● Cross-State Transactions: It enables the smooth movement of goods across states and ensures businesses comply with GST laws.
● Unique Identification: Ensures that the taxpayer is accurately identified within the GST system, helping in better tracking and management of tax filings.
Components of GST in India
1. CGST (Central Goods and Services Tax): Levied by the central government on intra-state transactions.
2. SGST (State Goods and Services Tax): Levied by the state government on intra-state transactions.
3. IGST (Integrated Goods and Services Tax): Levied by the central government on inter-state transactions and imports.
4. UTGST (Union Territory Goods and Services Tax): Levied by union territories on intra-union territory transactions.
5. Compensation Cess: Levied on specific goods to compensate states for any revenue loss post-GST implementation.
These components simplify the tax structure and ensure a smooth tax process across different levels of government.
GST Registration and Process
1. Application: Businesses must apply for GST registration online via the GST portal, submitting required documents such as PAN, Aadhaar, business address proof, and bank details.
2. Verification: The application is reviewed by GST authorities. Upon approval, the business is issued a GSTIN (Goods and Services Tax Identification Number).
3. Filing Returns: Registered businesses are required to file monthly or quarterly GST returns, depending on turnover, outlining sales, purchases, and tax liabilities.
4. Compliance: GST-registered businesses must issue tax invoices, collect GST from customers, and maintain accurate records, ensuring adherence to GST regulations.
GST Return Filing
GST return filing is essential for businesses to report sales, purchases, and taxes paid, ensuring compliance with India’s Goods and Services Tax system. Businesses must file returns regularly to avoid penalties and ensure smooth operations.
Main Return Form (GST RET-1):
● GST RET-1 is the primary return form that consolidates details of:
● Sales and supplies made
● Input tax credit (ITC) claimed
● Tax payments and interest due
● Most businesses file this form monthly, except for small taxpayers.
New GST Returns System:
The new system aims to simplify the filing process and improve compliance with key changes:
● Annexures:
● GST ANX-1 (Outward Supplies): Details of sales, reverse charge supplies, and imports, reported invoice-wise in real-time.
● GST ANX-2 (Inward Supplies): Contains details of inward supplies auto-drafted from suppliers’ GST ANX-1.
● ITC Claiming: Input Tax Credit can only be claimed based on the invoices uploaded by suppliers in GST ANX-1.
This new system streamlines the return filing process, enhances accuracy, and helps businesses claim ITC more efficiently.
GST Filing Due Dates
The due dates for filing GST returns depend on the type of taxpayer and the type of return being filed. Here’s a breakdown:
1. Monthly Filing:
● GSTR-1: By the 11th of the following month.
● GSTR-3B: By the 20th of the following month.
● GSTR-7 (for TDS return): By the 10th of the following month.
2. Quarterly Filing:
● GSTR-4 (for composition scheme dealers, QRMP scheme): By the 18th of the following quarter.
3. Annual Filing:
● GSTR-9 (annual return): By 31st December of the subsequent financial year.
Compliances Under GST
Businesses operating under the Goods and Services Tax (GST) regime must comply with several requirements to ensure proper adherence to tax laws. Key compliances include:
1. GST Registration
● Mandatory for businesses whose annual turnover exceeds specified thresholds.
2. Filing of GST Returns
● Regular filing of returns like GSTR-1 (outward supplies), GSTR-3B (summary return), and GSTR-9 (annual return), based on turnover.
3. Payment of Tax
● Timely payment of GST liabilities arising from the sale of goods and services.
4. Maintaining Records
● Proper documentation of invoices, bills of supply, and other GST-related documents.
5. GST Audit
● For businesses with turnover above a prescribed limit, an annual audit of accounts by a Chartered Accountant or Cost Accountant is required.
6. Compliance with E-Invoicing
● Businesses with turnover exceeding certain thresholds must issue invoices electronically as per the e-invoicing system.
Types of Supply Under GST
Under the Goods and Services Tax (GST) regime in India, supplies are classified into various categories based on factors such as tax applicability, the nature of goods or services, and other considerations. Here’s a breakdown:
1. Time, Place, and Value of Supply Under GST
• Time of Supply: Determines when GST liability arises for goods or services. This is based on the earliest of the following:
● Invoice date
● Payment date
● Completion date of supply
● Place of Supply: Determines whether the supply is intra-state or inter-state, which impacts whether CGST/SGST (for intra-state) or IGST (for inter-state) applies.
● Value of Supply: The transaction value is considered for GST purposes, excluding GST, discounts, subsidies, and any other taxes.
2. Exempt Supply
● Definition: Goods or services that are completely exempt from GST. No tax is levied on these supplies.
● Examples:
● Educational services provided by educational institutions
● Healthcare services by clinical establishments
3. Zero-Rated Supply
● Definition: Goods or services that are taxable but at a zero rate of GST. Businesses can claim input tax credit (ITC) for inputs/services used to make zero-rated supplies.
● Examples:
● Exports of goods and services
● Supplies to Special Economic Zone (SEZ) units or developers
4. Taxable Supply
● Definition: Goods or services that are subject to GST at applicable rates. ITC can be claimed on the inputs or input services used to make taxable supplies.
● Examples:
● Sale of goods
● Provision of services within India
5. Mixed Supply
● Definition: A combination of two or more individual supplies of goods or services, which are naturally bundled together and supplied as a package.
● Tax Treatment: The GST rate of the principal supply (the item with the highest value) is applied to the entire mixed supply.
● Examples:
● A package consisting of goods (e.g., a television) and services (e.g., installation services), where the value of goods is significantly higher than the value of services.
Understanding these classifications helps businesses determine the correct GST treatment for different types of supplies and ensures compliance with tax regulations in India.
GST Payment & Refunds
GST Payment
GST payment refers to the difference between the tax collected from customers (output tax) and the tax paid on purchases (input tax). This difference is remitted to the government.
● Output Tax: The GST charged on sales made to customers.
● Input Tax: The GST paid on business-related purchases.
● GST Liability: Businesses must pay the difference between the output tax collected and input tax paid to the government.
GST Refunds
If a business’s input tax credit (ITC) exceeds its GST liability, it is eligible to claim a refund from the government.
● Input Tax Credit (ITC): The credit businesses receive for the GST paid on their purchases. This credit can be used to offset GST liabilities on sales.
● Refund Scenario: If the input tax credit is greater than the GST owed, businesses can claim a refund for the excess ITC.
GST Calculation & Formula
There are two common scenarios for calculating GST:
1. When the price includes GST (inclusive price)
2. When the price excludes GST (exclusive price)
● Finding the GST Amount (Inclusive Price)
If the total price of a good or service includes GST, and you want to calculate the GST amount, use the following formula:
Formula:
GST Amount=Total Price×GST Rate100+GST Rate\text{GST Amount} = \frac{\text{Total Price} \times \text{GST Rate}}{100 + \text{GST Rate}}GST Amount=100+GST RateTotal Price×GST Rate
GST Amount=500×12/100=₹60
Calculate Total Price (Including GST)
Formula:
Total Price=Net Price+GST Amount\text{Total Price} = \text{Net Price} + \text{GST Amount}Total Price=Net Price+GST Amount Total Price=₹500+₹60=₹560\text{Total Price} = ₹500 + ₹60 = ₹560Total Price=₹500+₹60=₹560
● Calculate Total Price (Including GST)
Formula:
Total Price=Net Price+GST Amount\text{Total Price} = \text{Net Price} + \text{GST Amount}Total Price=Net Price+GST Amount Total Price=₹500+₹60=₹560\text{Total Price} = ₹500 + ₹60 = ₹560Total Price=₹500+₹60=₹560
Result:
Step 2: Calculate GST Amount
Formula:
GST Amount=Total Price−Net Price\text{GST Amount} = \text{Total Price} – \text{Net Price}GST Amount=Total Price−Net Price GST Amount=₹1500−₹1271.19=₹228.81\text{GST Amount} = ₹1500 – ₹1271.19 = ₹228.81GST Amount=₹1500−₹1271.19=₹228.81
GST Cancellation and Revocation
GST Cancellation:
● Voluntary Cancellation: Taxpayers can cancel their GST registration if they cease operations or no longer meet the turnover threshold.
● Cancellation by Authorities: Can occur due to non-compliance (e.g., failure to file returns, non-payment of taxes, or providing false information).
2. GST Revocation:
● Eligibility: Taxpayers can apply for revocation of GST cancellation within 30 days of the cancellation order.
● Conditions for Revocation: Requires filing all pending returns and paying outstanding taxes. If the cancellation was due to a mistake or genuine issue, the registration can be reinstated.
Challenges in GST Implementation in India
1. Complexity:The GST system involves multiple tax rates, diverse compliance requirements, and the need for technological integration, making it challenging for businesses to navigate effectively.
2. Transition Issues:The shift from the previous tax regime to GST created difficulties, as businesses had to adapt to new rules, processes, and documentation standards.
3. Compliance Burden:Businesses face a significant compliance burden with frequent return filings, maintaining accurate records for input tax credit (ITC), and meeting e-invoicing requirements, especially for small businesses.
4. IT Infrastructure:The GST Network (GSTN) portal has faced criticisms for technical glitches, slow processing times, and usability issues, leading to inefficiencies in GST registration, filing returns, and other procedures.
Despite these challenges, the government continues to address issues through reforms and improvements, aiming to simplify the GST framework and improve ease of doing business.
Inspection, Search, Seizure, and Arrest under GST
Under the GST Act, authorities are empowered with various provisions to ensure compliance and prevent tax evasion:
1. Inspection Power (Section 60): Authorized officers can inspect business premises if they suspect non-compliance or tax evasion.
2. Search and Seizure: Officers can search business premises and seize goods or documents if they believe they are involved in evasion or illegal activities.
3. Document Seizure: When documents are seized, the person can make copies or extracts in the presence of an authorized officer.
4. Inspection of Goods in Movement (Section 61): Officers can check documentation for goods in transit to ensure GST compliance.
5. Arrest Power (Section 62): Officers can arrest individuals suspected of GST offenses, with the requirement to inform them of the charges and present them to a magistrate.
6. Summoning Power (Section 63): Officers can summon individuals to provide evidence or documents for GST inquiries.
7. Access to Business Premises (Section 64): Officers can access and inspect business premises and records to verify compliance.
8. Assistance (Section 65): Various government officials are mandated to assist GST officers in enforcement activities.
These powers help ensure the effective implementation of GST, combat tax evasion, and maintain compliance through inspection, search, seizure, and arrest when necessary.
Criticism of GST in India
Since its introduction, the Goods and Services Tax (GST) in India has faced several criticisms:
1. Multiple Tax Slabs: The presence of multiple tax slabs (such as 5%, 12%, 18%, and 28%) has been criticized for adding complexity to the tax structure, making compliance and administration more difficult. Critics argue that reducing the number of slabs would simplify the system.
2. Compliance Complexity: The compliance requirements under GST, such as filing multiple returns, understanding input tax credit (ITC) rules, and complying with e-invoicing mandates, have created significant challenges for businesses, especially small and medium enterprises (SMEs).
3. Economic Impact: Some sectors, particularly small businesses and traders, have reported negative impacts on their profitability due to the additional tax burden. The overall effect on certain industries has raised concerns about GST’s economic impact, particularly on the informal economy.
4. IT Challenges: The GSTN portal has faced technical glitches and operational issues, affecting filing deadlines, causing delays, and creating compliance hurdles for taxpayers.
These challenges have led to calls for GST reform and improvements in its implementation to make it more business-friendly and efficient.
GST Law in India
The Goods and Services Tax (GST) law in India is a comprehensive framework designed to streamline the country’s indirect taxation system. The main components of the GST law include:
1. Central Goods and Services Tax Act (CGST), 2017:Governs the levy and collection of taxes on intra-state supplies (within the same state) of goods and services by the central government.
2. State Goods and Services Tax Act (SGST), 2017:Enacted by individual states and Union Territories to levy and collect taxes on intra-state supplies within their respective jurisdictions.
3. Union Territory Goods and Services Tax Act (UTGST), 2017:Similar to SGST but specifically applicable to Union Territories that do not have their own legislatures (e.g., Delhi, Puducherry).
4. Integrated Goods and Services Tax Act (IGST), 2017:Deals with the taxation of inter-state supplies of goods and services (i.e., supplies that cross state borders).Also covers taxation on imports and exports, ensuring seamless taxation for cross-border transactions.
5. Goods and Services Tax (Compensation to States) Act, 2017:Provides compensation to states for any revenue losses they may face due to the implementation of GST.Aims to protect states from potential financial setbacks during the transition to GST.
6. Rules, Notifications, Amendments, and Circulars:These are issued by the central and state governments, providing clarity on the interpretation and application of GST provisions.They address procedural aspects, tax rates, exemptions, compliance requirements, and other updates necessary for effective implementation.
Together, these laws and regulations ensure that the GST framework operates smoothly, promoting a unified tax system that simplifies taxation and facilitates business operations across India.
Latest Update- 22 June 2024 from the 53rd GST Council Meeting
The 53rd GST Council Meeting took place on 22 June 2024 in New Delhi, chaired by Union Finance Minister Nirmala Sitharaman. The meeting brought forward several significant updates aimed at simplifying and improving the Goods and Services Tax (GST) system. Below are the key highlights:
Key Highlights:
1. Introduction of GSTR-1A:GSTR-1A will now allow taxpayers to amend their returns within the same tax period, making it easier to correct discrepancies in their filings and improve compliance.
2. Reduction of Threshold for B2C Interstate Supplies:The threshold for reporting B2C (Business-to-Consumer) interstate supplies has been reduced from ₹2.5 lakh to ₹1 lakh. This change is aimed at increasing transparency and ensuring better tracking of smaller interstate transactions.
3. Extension of GSTR-4 Due Date:The due date for filing GSTR-4 (for taxpayers under the composition scheme) has been extended to 30 June, effective from FY 2024-25. This extension provides businesses with additional time to file their returns.
4. Reduction in TCS Rate for E-Commerce Operators:The Tax Collected at Source (TCS) rate for electronic commerce operators has been reduced to 0.5%, which simplifies the tax burden on e-commerce platforms and their users.
5. Mandatory Filing of GSTR-7:The filing of GSTR-7, which relates to Tax Deducted at Source (TDS), is now mandatory even if there are nil TDS deductions. This move ensures consistency and accuracy in TDS-related filings.
6. Exemption from Filing GSTR-9/9A for Small Taxpayers:Taxpayers with an annual turnover of up to ₹2 crore for FY 2023-24 will be exempt from filing GSTR-9 (Annual Return) or GSTR-9A (for composition taxpayers).
7. Amendments to Key GST Provisions:Amendments were made to Sections 16(4), 73, 74, and 112 to provide more flexibility and clarity in compliance procedures. These changes aim to address issues related to timely return filing and tax payments.
8. Introduction of Section 11A for Non-Levy or Short Levy of GST:Section 11A has been introduced to regularize cases of non-levy or short levy of GST, providing a mechanism for taxpayers to rectify errors and avoid penalties.
9. Biometric-Based Aadhaar Authentication for GST Registration:A nationwide rollout of biometric-based Aadhaar authentication for GST registration has been announced. This will strengthen security and streamline the verification process for new GST registrants, reducing fraud and ensuring a more robust registration system.
These reforms aim to make the GST system more streamlined, ensuring better tax administration, transparency, and ease of doing business in India.
FAQ
GST stands for Goods and Services Tax, a unified tax system implemented to simplify indirect taxation in India.
A cess in GST refers to an additional tax levied on certain goods or services over and above the regular GST rates. It is typically imposed to meet specific purposes, such as compensation to states or to fund development programs.
Yes, if you voluntarily register for GST, issuing tax invoices and collecting tax is mandatory. Even if your turnover is below the threshold, compliance with invoicing and collection requirements is necessary for legal compliance and maintaining transparency.
No, Input Tax Credit (ITC) cannot be availed against a 5% GST liability in most cases. ITC is generally available for higher tax rates, and a 5% tax rate does not provide the eligibility to claim ITC on purchases.
If your GSTIN was cancelled and you didn’t file the final return, immediately file the pending return to avoid penalties and compliance issues. Non-compliance can lead to legal repercussions.
The GST Annual Return is a summary of a taxpayer’s financial activities during the fiscal year, including details of sales, purchases, taxes paid, and other transactions under GST. It provides a comprehensive overview of a business’s GST-related activities for the year.
The full form of SAC Code is Service Accounting Code, which is used to classify services under GST. It helps in simplifying the tax compliance process for service providers.
Yes, a salaried person can apply for GST registration if they are also engaged in business activities. If their aggregate turnover exceeds the prescribed threshold, registration becomes mandatory.
An E-way Bill is a document required for the transportation of goods valued above a specified amount. It ensures tax compliance and contains essential details about the consignment, helping facilitate the smooth movement of goods between states.