GST or Goods and Services Tax was first introduced in the Budget Speech presented on 28th February 2006. It laid the foundation for a complete reform in India’s indirect tax system. Finally implemented on 1st July 2017 as Goods and Services Tax Act, the indirect taxation system thus went through a chain of amendments since its inception.
With this tax reform, GST replaced multiple indirect taxes that were levied on different goods and services. The Central Board of Indirect Taxes and Customs (CBIC) is the regulatory body governing all changes and amendments regarding this tax.
Before going into GST details, let’s take a quick look at its meaning and what it comprises.
GST – It’s Meaning and Scope
Goods and Services Tax is a destination-based, multi-stage, comprehensive tax levied at each stage of value addition. Having replaced multiple indirect taxes in the country, it has successfully helped the Indian Government achieve its ‘One Nation One Tax’ agenda.
The tax is levied on goods and services sold within India’s domestic boundary for consumption. Implemented by a majority of nations worldwide with respective customisations, the tax has been successful in simplifying the indirect taxation structure of India.
GST is levied on the final market price of goods and services manufactured internally, thereby reflecting the maximum retail price. Customers are required to pay this tax on a purchase of goods or services as an inclusion in their final price. Collected by the seller, it is then required to be paid to the government, thus implying the indirect incidence.
The GST rates on different goods and services are uniformly applied across the country. Goods and services have, however, been categorised under different slab rates for tax payment. While luxury and comfort goods are categorised under higher slabs, necessities have been included in lower and nil slab rates. The main aim of this classification is to ensure uniform distribution of wealth among residents of India.
With this understanding, now let’s have a look at other necessary GST details.
GST and Its Journey – A Look at the Chronology
Back in 2000, the then Prime Minister of India introduced the concept of Goods and Services Tax. He also formed a committee to draft new indirect tax law. It, however, took 17 more years for its implementation. Meanwhile, the bill went multiple introductions, amendments and rescheduling.
Here’s a summation of GST’s chronology, from drafting to final implementation.
2000 – Committee set up by the PM for drafting Goods and Service Tax law for India.
2004 – A task force reported a need to implement this law and improve the indirect tax system in India.
2006 – Goods and Services Tax introduction scheduled on 1st April 2010 by the Finance Minister of India.
2007 – Decision to phase out Central Sales Tax (CST).
Consequently, CST rates reduced to 3% from 4%.
2008 – GST’s dual structure finalised by the EC for separate legislation and levy.
2010 – Postponement of GST introduction due to structural and implementation hurdles. A project launched for the computerisation of commercial taxes.
2011 – Introduction of Constitution Amendment Bill for enabling the Goods and Services Tax Law.
2012 – Discussion regarding the tax initiated by the Standing Committee; stalled due to lack of clarity regarding Clause 279B.
2013 – GST’s report presented by the Standing Committee.
2014 – The Finance Minister of India reintroduces the Goods and Services Tax Bill to the Parliament.
2015 – The Lok Sabha clears the bill, but it is stalled in the Rajya Sabha.
2016 – Goods and Services Tax Network (GSTN) went live. The law’s amended model passed in both the Houses of Parliament and received a nod from the President of India.
2017 – The Cabinet approves four supplementary bills on GST cleared by the Lok Sabha and the Rajya Sabha. The Goods and Services Tax Law was implemented on 1st July 2017.
List of Taxes Subsumed after GST Implementation
Goods & Service Tax was introduced as a comprehensive indirect tax structure. With this introduction, the government aimed to consolidate all indirect taxes levied under one umbrella.
Thus, except customs duty that is levied on import of goods, Goods and Services Tax replaced multiple indirect taxes. This introduction helped overcome the limitations of its previous indirect tax structure regarding implementation and inefficiency in the collection process.
Following is the list of indirect taxes that were subsumed by Goods and Service Tax.
- Indirect taxes imposed by the central government
- Central Sales Tax
- Service Tax
- Central Excise Duty
- Excise Duty (Additional)
- Countervailing Duty or Additional Customs Duty
- Special Additional Customs Duties
- Indirect taxes imposed by the state government
- State VAT
- Entry Tax and Octroi Duty
- Luxury Tax
- Amusement and Entertainment Tax
- Taxes on Advertisements
- Goods and services related to cess and surcharges
- Purchase Tax
- Tax on betting, lottery and gambling.
Understanding the Dual Structure of Goods and Services Tax
Unlike a federal structure where the government collects taxes and distributes it to the states, a dual tax structure allows both the centre and the state to levy and collect taxes.
Goods and Services Tax in India carries this same dual structure, thus having two components, state as well as a central levy. The structure is applicable to all transactions related to goods and services.
Concepts of GST Levy – Multi-Stage, destination-based and Value Added
The comprehensive nature of Goods and Services tax levy takes into account every stage of manufacture whereby value-added to an item is taxable. Plus, a change of destination also attracts GST.
The various stages of GST application are discussed below –
- Meaning of multi-stage levy
From production/manufacture to consumption, an item is passed from one link of the supply chain to another until it is finally purchased for consumption. An indirect tax is hence, levied at every stage, to be borne ultimately by a consumer.
The different steps of production of a finalised good and its corresponding sale in the market comprise the following in general.
- Raw material purchase
- Manufacture/production of raw material into finished goods
- Storage of finished goods at the warehouse
- Sale of goods to the wholesaler
- Sale of goods to the retailer
- Sale to an end-user/consumer
GST charged at each link of this chain makes it a multi-stage tax.
- Meaning of destination-based levy
A destination-based levy means the item is to be taxed at a place where it is consumed, and not at its origin. This means that the location where an item is consumed will rightfully collect the tax.
In this context, it is essential to differentiate the concept of ‘supply’ from ‘place of supply’. The decision regarding whether a sale is intrastate or interstate will be taken accordingly.
- Meaning of taxation on value addition
The concept of GST on value addition implies every addition made to an item to make it saleable to the end-user is taxable under this regime. Understand it with the help of an example.
The manufacturing unit of Britannia Industries Limited in Chennai, Tamil Nadu manufactures a variety of biscuits. During the manufacturing process, it goes through the following stages, with value-added at each stage.
- Processing of flour, sugar and other materials into a dough, and baked into biscuits increases the value of the material by making it saleable as units.
- The biscuits are then sent to the warehousing agent for storage and further processing. He then packs the biscuits in sets of 10 for the next stage of the process. It is another value addition as it increases the monetary value of the biscuits, making them saleable.
- Each packed unit is labelled as a product with Britannia’s brand logo. The act of labelling is the next stage of value addition.
- The biscuits are packed in smaller cartons and re-labelled to be transported and sold to the retailer, crossing another stage of value addition.
Thus, for each monetary value added to these stages, making the product saleable, GST is levied thus making it a tax on value addition.
The Components of Goods and Services Tax
Goods and Services Tax comprises three components applicable, basis the centre, the state and integrated levy.
They are –
- CGST – Central Goods and Services Tax is collected by the central government on sales conducted intra-state.
- SGST – State Goods and Services Tax is collected by the state government on the sale of goods and services within a particular state as well.
- IGST – The central government collects Integrated Goods and Services Tax on sales affected inter-state.
Collection of tax is thus undertaken in the following way for intra-state and inter-state transactions.
|GST Levy and Revenue Share||Intra-State Sale||Inter-State Sale|
|Goods and Services Tax||SGST+CGST||IGST|
|Share of Revenue||Revenue collected to be shared between state and central government equally.||Revenue collected by the central government. It will then be shared as per the goods’ destination.|
Here’s an example to help you understand the levy, collection and share of revenue between the state and the central government.
A seller in Maharashtra sells goods worth Rs. 1 lakh to a buyer in the same state. The tax rate applicable to the goods is 12%, comprising 6% of CGST and 6% of SGST. The total GST of Rs. 12,000 collected will be shared between the centre and the state at Rs. 6,000 each as the sale is made intra-state.
The same seller sold goods worth Rs. 50,000 from Maharashtra to Karnataka. The tax rate applicable to these goods was 18%. The seller will thus charge IGST of Rs. 9,000 from the buyer due to it being an inter-state sale. The tax so collected will be submitted to the central government.
Once submitted, the tax will be shared by the central government and state government based on the supply of goods made. For the ease of tax collection, the government has made the entire system for the payment of GST online.
Goods and Services Tax – Applicable Rates
The GST tax structure in India is divided into six rate slabs applicable for various goods and services divided accordingly. Following is the Goods and Services Tax structure in the country.
- Exempted goods (No tax applicable)
- 0.25% rate slab
- 5% rate slab
- 12% rate slab
- 18% rate slab
- 28% rate slab
Goods and services tax at the highest rate slab is further divided into items with cess and items without cess.
An important point to be kept in mind is that all entrepreneurs need to state the HSN code (Harmonized System of Nomenclature), which is a six-digit unique number assigned to respective goods and is accepted worldwide.
According to the CGST rules framed by the Government of India, any company with turnover within Rs. 15 Million is not required to mention the HSN code on invoices during goods supply mandatorily. For companies with a turnover between Rs. 15 Million and Rs. 50 Million, the first two digits of the HSN code must be mentioned. In the case of companies with a turnover above Rs. 50 Million, the first four digits of the HSN code need to be indicated on the invoices when supplying goods.
Using the HSN and GSTIN (unique GST identification number), individuals can file for GST online by visiting the official GST portal.
Below given is a broad classification of goods and services with tax levy at various rate slabs. Exempted goods are not included in this list.
|GST Rates (In %)||Product & Services Classification|
|0.25||Jewellery stones cut and semi-polished|
|5%||Products listed as items of household necessity like spices, sugar, edible oil, coffee, tea, etc. Sweets, life-saving drugs and coals are also included under this rate slab.
Services under this rate are newspaper printing, vessel transport from overseas, fuel-less motor cab renting, AC contract transport services, air transport for pilgrimage, tour operation services, aircraft leasing, ad space in print media, etc.
|12%||The rate slab mostly comprises processed food along with computers and accessories.
Services include rail transportation of goods in container via a third party, air travel (exclusive of the economy class), restaurant services (exclusive of liquor license, AC/heating services, etc.), per day accommodation renting between Rs. 1,000 and Rs. 2,500, building construction for sale, temporary IP rights, hotel accommodation with transaction value between Rs. 1,001 and Rs. 7,500, etc.
|18%||The 18% slab rate consists of items like industrial and capital goods along with hair oil, toothpaste, soaps, etc.
Services include restaurant services with liquor license/AC/heating, decoration and catering services outdoor, per day accommodation renting between Rs. 2,500 and Rs. 5,000, hotel accommodation with transaction value over Rs.7,500, entertainments like a circus, folk dance, etc., works contract supply, etc.
|28%||The highest rate slab comprises items of luxury like cars, high-end bikes, consumer durables, etc. along with items like aerated drinks and cigarettes.
It covers services like amusement facilities, entertainment events, services of AC 5-star hotels, sporting events, gambling, services of race club, etc.
With these GST details, you must also know that a few goods and commodities have been re-classified under the slab rates listed below as of 1st October 2019.
- Nil rates – Making of plates and cups using leaves, bark and flowers, dried tamarind.
- 1.50% rate – Diamond job work.
- 5% rate – Catering services outdoor excluding ITC, marine fuel, wet grinders (along with stone grinders), specified commodities for petroleum operations falling under Hydrocarbon Exploration Licensing Policy.
- 12% rate – Railway wagon coach supplies without ITC refund, other job work, polyethene packaging bags (woven/non-woven), and slide fasteners.
- 18% rate – Almond milk.
- 28% rate – Caffeinated beverages.
Additionally, the new cess has also been introduced on a few items.
- 1% – Petrol-operated motor vehicles with a capacity of 10 to 13 passengers.
- 3% – Diesel-operated motor vehicles with a capacity of 10 to 13 passengers.
- 12% – Caffeinated beverages.
Also, sellers can enjoy an exemption for the following –
- FAO supplies for specified projects in the country.
- FIFA-specified supplies for the Under-17 Football World Cup in India for women.
- Import of specified goods for defence not made indigenously up to the year 2024.
- Platinum/silver supply made by Diamond India Ltd. for export.
- Platinum/silver import by Diamond India Ltd.
Composition Scheme under GST
The composition scheme under GST eases the process of indirect tax payment for small taxpayers. As per the CBIC, companies with an annual turnover within Rs. 1 Crore can opt for the scheme to pay their taxes. For North-Eastern states, the turnover limit is Rs. 75 Lakh. Registration under the scheme is, however, voluntary.
The rates applicable under the composition scheme include the following.
|Business Type||Rate of CGST||Rate of SGST||Total GST Rate|
|Goods traders and manufacturers||0.5%||0.5%||1%|
|Restaurants that do not serve alcohol||2.5%||2.5%||5%|
You must, however, also meet a set of conditions to avail the scheme. A taxpayer needs to file GST CMP-02 when opting for the scheme. They can do so at the GST online portal.
The Concept of Input Tax Credit (ITC) under GST
An Input Tax credit means that when a business person or a trader is paying tax on output, he/she can reduce the tax already paid on input (purchase).
For example, in the case of a manufacturer selling the final product, the output tax stands at Rs. 450. However, he already paid Rs. 300 as input tax while purchasing the product. He can thus receive an ITC of Rs. 300 on the final product and needs to pay only the difference of Rs. 150, i.e., Rs. 450 – Rs. 300 to the government as Goods and Service Tax.
ITC can be claimed only by businesses registered under the Goods and Services Tax Act. Also, all respective suppliers must be registered under the act for you to be eligible to avail ITC.
Hence, go for Goods & Service Tax registration if you are eligible and not yet registered. Also, file Goods and Services Tax Return and pay your taxes within the due date to avoid any inconvenience.
FAQs on Goods and Services Tax
- What are GSTN and GSTIN?
GSTN or Goods and Services Tax Network is a structural framework within which the tax regulations are implemented. GSTIN is a 15-digit unique identification number provided to a business after it completes GST registration.
- Can a person not register under the Goods and Services Tax Act claim ITC?
No, you need to register business under this act to enjoy the ITC claim.
- What are the return filing requirements of a business opting for a composition scheme?
A business opting for composition scheme needs to file quarterly returns on the 18th of the following month after each quarter ends through GSTR-4. They also need to file annual GST return on 31st December of following financial year through GSTR-9A.
- Can a dealer under a composition scheme avail ITC?
No, a dealer opting for a composition scheme is not eligible to avail ITC.
- Does a non-resident taxable person need to register for GST?
Yes, every taxable person, including a non-resident taxable person needs to register for GST.