What Is GST About?

GST is Goods and Services Tax. In India this is an indirect tax that has been made applicable all through the country. Earlier State and Central government were levying multiple cascading taxes. These taxes are now replaced by the GST Council governed GST. The Finance Minister of India is the Chairman of the GST Council. To revolutionize the way people pay and do their taxes, GST was launched on 1st July 2017 in India. As far as taxation policies are concerned, a huge overhaul was necessary and structure of current taxes needed a reformation.

On every value addition, this destination-based, multi-stage and comprehensive tax called GST is being levied.  Right from the manufacturing stage, to the production stage to the final sale, a product has to go through a number of processes. The first stage is purchasing raw materials, the second stage is manufacturing or production, the next stage is keeping materials in warehouses, then sale of goods to the retailer and then comes the last stage where the end consumer purchases goods from the seller. Life cycle of the product ends at this stage.

The new GST is a multi-stage tax which is now being levied at each of these stages. Value of the product increases right from the time raw materials are processed to convert into the product, then the manufacture sells it to the warehousing agent who then tags and labels the item. The warehousing agent then sells the item to the retailer who then does the packaging, invests in marketing of the product this increasing value of the product. This is called Value Addition. It is on such value additions that GST is being levied. At each stage, the added monetary worth, achieves final sale to the end buyer.

What Are Final GST Rate Slabs?

The all-powerful GST Council has decided upon a four-tier GST tax structure of 5 percent, 12 percent, 18 percent and 28 percent on goods. The GST tax structure will also attract in addition a cess on luxury and de-merit items. On all essential items, the GST rates are lower while for de-merit goods and luxury goods, the GST is higher.

Food and essential items constituting almost half of the consumer inflation basket will be taxed but at zero rate with a view to keep the inflation under check. Products used commonly will be taxed at a lowest rate of 5 percent. Under the GST regime there are also the other two standard rates of 12 percent and 18 percent.

It was at the GST Council meeting held over two days that decisions regarding the GST rates were announced by Arun Jaitley, the Finance Minister. He states that currently certain items are being taxed at 30-31 percent inclusive of excise duty as well as VAT. It is on such items that the tax slab will be applicable.

Over and above the highest tax rate, an additional cess will also be levied on items like aerated drinks, tobacco and luxury cars. A good amount of revenue pool would be created with the help of clean energy cess and collection from cess levied on luxury items which would be utilized for in providing compensation to states across the country that face revenue loss during the first five years on implementation of GST. After completion of 5 year, the cess would be lapsable, stated the Finance Minister.

It must be noted that in June, the GST Council was planning on a slight modification to 6 percent, 12 percent, 18 percent and 26 percent slab, as part of the four-tier structure, but then decided to modify the same, to the current GST tax structure implemented in the country.

What Are CGST, SGST And IGST?

IGST is the component of GST. In the case of trade between states, the Central government will levy the IGST and will apply all items including services and goods. Input tax credit of IGST can be used by a dealer against IGST, CGST or SGST. Different kinds of taxes that were levied so far will now be replaced by the GST thus bring all taxes under one common umbrella. Compliance will become easier due to GST.

Various taxes that are being replaced include Service Tax, Central Excise Duty, SAD – Special Additional Duty of Customs and Additional Duties of Customs which is known as CVD commonly. All these taxes were levied as well as collected by the Centre.

Various taxes levied and collected by the State have been the Central Sales Tax, taxes on gambling, betting and on lotteries, State VAT and the Entertainment and Amusement Tax except when local bodies levy them. These are the State Taxes are being replaced by GST.

What is the reason for getting the three taxes, SGST, CGST and IGST?

The power to collect tax and levy tax had been assigned to both the Centre and the States, in India which is a federal nation. As per the Constitution, both the government levels have to perform distinct responsibilities for which resources need to be raised. When a dual GST is in place it will help in keeping in requirement of fiscal federalism of the Constitution.

GST will be levied simultaneously by the States and the Centre.  Tax payers can take the benefit of taking credit against each other now with the implementation of the three taxes, thus ensuring ‘One Nation One Tax’.

CGST is the GST with the Centre is levying on the intra-state supply of services and goods. SGST is the GST levied on inter-state supply of services and goods, between states. The Centre will collect the IGST that is the Integrated GST, on supply of goods and services taking place inter-state.

GST is nothing but a tax that is consumption based. The state that consumes the goods or services, should receive the GST tax, and not the state where manufacturing of goods takes place. To make sure that the input tax credit seamlessly flows from one state to the other state, the IGST has been designed. The process has been simplified, in way that tax amounts can be settled by one state with the Centre government. The need to settle tax amounts with other states has thus been eliminated with the introduction of IGST.

What Are The Taxes That GST Replaces?

In India there have been a number of State and Central indirect taxes like state excise, CENVAT, customs, excise, VAT, etc. All these taxes are eliminated, with the introduction of the GST or the Goods and Services Tax from July 1, 2017. This is an indirect, single uniform tax that will treat India as one market.  The tax will be levied on all services and goods that are not only produced within the nation but also all those services and goods that are imported from other countries.

A lot of taxes that existed in India including Service Tax, Central Excise, the State VAT and other indirect taxes. The State and Central government in India have been managing various taxes differently till now. The Central level has managed customs duties, service tax and Central excise duty. At the state level, taxes like lottery taxes, VAT – Value Added Tax, luxury tax and entertainment tax have been managed. With the GST, which is a one single point of taxation, all kinds of taxes will be replaced.

The GST will be a comprehensive and broad based tax that is now levied on services and goods. At each and every stage of production and distribution chain, this tax will be made applicable, thus providing the benefit of ITC – Input Tax Credit that was being remitted at other stages. The tax is levied at the stage of final consumption which means GST is based on a taxation system that is purely destination based.  GST is expected to encourage promotion of exports, broaden the tax based, ensure reduction in compliance costs and foster a common market all across the nation.

Both State and Central tax administration will levy the dual GST tax on the same base. Once GST is introduced, all compliances and multiple transactions would come down to a much lower level or be removed. The Indian economy will benefit greatly. Any particular product, all across the country will have one single price. Prices of products will fall with introduction of GST. Further, the tax system will not only be a simplified one, but will also help companies by lowering their capital.