Basics OF GST

Introduction

The goods and services tax (GST) is a tax on goods and services sold
domestically for consumption. The tax is included in the final price and paid by
consumers at point of sale and passed to the government by the seller. The
GST is a common tax used by the majority of countries globally .

Take apparel manufacturing as an example and 10% as the GST applicable. The
manufacturer buys raw material worth INR 500 that is inclusive of the GST of
INR 50 (10% of 500). He then adds his own value of INR 50 to the materials
during the manufacturing process. This brings the gross value of the product to
INR 550

With GST, taxes of the State and Central Government have been
merged. This has removed the cascading effect of taxes, reducing
the burden on the buyer and the seller. So even if it may look like
one big chunk of tax to be paid, you pay lesser hidden taxes

GST is a single tax on the supply of goods and services, right from the manufacturer
to the consumer. Credits of input taxes paid at each stage will be available in the
subsequent stage of value addition, which makes GST essentially a tax only on value
addition at each stage.

 Goods and Service Tax (GST) is applicable in India from 1st July 2017.
 Before 1st July 2017, service tax applies to services and vat, excise duty, etc. apply to goods.
 After 1st July 2017,  GST applies to trading and manufacturing of goods as well as on providing
services.
 GST is not applicable to alcohol, crude petroleum, motor spirit, diesel, aviation turbine fuel
and natural gas. VAT, CST and excise duty is still applicable to them.

*List of taxes which are applicable before GST and is no longer applicable.

Central Indirect Taxes – Central Excise Duty, Additional Excise Duties, Service Tax, Additional
Customs Duty (CVD), Special Additional Customs Duty, Central Surcharges and Cess

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State Indirect Taxes – VAT/Sales Tax, Entertainment Tax, Central Sales Tax, Octroi and Entry Tax,
Purchase Tax, Luxury Tax, Tax on Lottery, State Cesses and Surcharges

Basic customs duty and anti-dumping duty is also applicable in addition to GST in case of import of
goods.

Businesses Who Are Liable To Collect GST

The persons who are required to get compulsorily register in GST is provided in GST act. All such
persons are required to collect GST from their customers and pay to the government.

A person can also register voluntarily under GST and he is also required to collect GST after
registration. All provisions of the GST Act is also applicable to him.

Services On Which GST Is Not Applicable

GST is not applicable to certain services such as

 Salary and wages

 Electricity

 Interest

 Government Fees (such as MCA fees, land registration fees etc.)

What Are 3 Types Of GST – CGST, SGST AND IGST?

The GST system in India contains three types of GST. They are

 Central GST (CGST) – levied by central government

 State GST (SGST) – levied by a state government

 Integrated GST (IGST) – levied by the Central government on an inter-state supply of goods
and services
On a sale of goods/service either IGST is to be charged or SGST & CGST both to be charged. If the
business is in union territory, then UTGST will apply in place of SGST. The difference is only in name;
the concept is the same.

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 Transaction Type of GST Example
Type Applicable

Intra-state (i.e. CGST + SGST A dealer in Delhi makes a sale to another dealer in Delhi.
sale within the GST rate is 18%, so CGST of 9% and SGST of 9% will be
same state) applicable.

Inter-state (i.e IGST A dealer in Mumbai makes a sale to a dealer in Delhi. GST
sale outside rate is 5%, so 5% IGST will be applicable.
state)

Applicability of different types of tax

Inter-State Sales Or Intra-State Sales

When the location of the supplier and place of supply is the same state/union territory, then it is
considered as Intra-state sales, if they are different then it is considered as inter-state sales.

Now the question arises: What is a place of supply?

In general, a place of supply in case of goods is the location of goods at the time at which the
movement of goods terminates for delivery to the recipient. For example – A person in Gujarat sells
the goods to a person in Rajasthan and therefore handover to the transport company to deliver in
Rajasthan. Therefore, the place of supply is Rajasthan and it is an inter-state sales.
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Place of supply in case of services will be the location of the recipient if he is a registered person. If
the recipient is not a registered person, then the place of supply will be the location of the recipient
where the address on record exists otherwise it will be the location of the supplier.

How To Calculate GST?

GST can be calculated simply by multiplying the Taxable amount by GST rate. If CGST & SGST/UTGST
is to be applied then CGST and SGST both amounts are half of the total GST amount.

GST = Taxable Amount  x  GST Rate

If you have the amount which is already including the GST then you can calculate the GST excluding
amount by below formula

GST excluding amount = GST including amount/(1+ GST rate/100)

For example, GST including amount is Rs. 525 and GST rate is 5%.

GST excluding amount = 525/(1+5/100) = 525/1.05 = 500

GST is calculated on the transaction amount and not on the MRP.

Calculation Of GST Amount Payable To Government

A registered person needs to pay the difference of GST on sales and GST on purchases made in a
month. The purchase may be of goods, services or capital goods.

Capital goods are those goods which you had NOT purchased for the purpose of reselling. For
example – Furniture in your shop, machine for production etc.

For example, A person made intra-state sales of Rs. 1 lakh in January and collected CGST of Rs. 2,500
and SGST of Rs. 2,500 at the rate of 5%. In the same month, he had made purchases of Rs. 80,000
and paid CGST and SGST of Rs. 2,000 each at a rate of 5%. He had also paid a bill of internet of Rs.
1,000 plus GST of Rs. 180.

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Rs. 4,180 is allowed as a deduction from the Gross tax payable of Rs. 5,000. And therefore a net of Rs.
820 is payable to the government.

Deduction of GST paid on the purchase of goods, services or capital goods is called input tax credit.
There are certain limitations and restrictions on taking the input tax credit.

GST Rates

GST rates are as under

 0% (necessity items like milk, wheat flour)

 0.25% (rough diamonds)

 3%  (gold, silver etc.)

 5% - Items of mass consumption

 12% - 18% - bulk of the goods will be taxed

 28% - luxury cars aerated drinks, tobacco products ( will have cess on GST)
Most of the goods fall in the category of 5%, 12% and 18%, while most of the services fall in the
category of 18%. GST of 28% is applicable on some items like cement, car, tobacco. There is also a
Cess which is applicable only on a handful of goods like car, tobacco, pan masala.

There are also goods/services on which GST is applicable at NIL rate or which are exempted. Read our
article regarding Difference between NIL rate, 0% GST rate and exempted goods/services.

Advantages/Benefits Of GST

The main benefits of GST are

 Single indirect tax for the whole of India

 Input tax credit can be taken for taxes paid in another state

 Easy transfer of goods from one state to another

 Easy compliance

 Removal of cascading(double tax)

 Uniformity of tax rates and structures

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  Simple and easy to administer

 Relief in overall tax burden

GST and its implication

After the introduction of GST, numerous sectors received some negative as well as positive effects.

The implementation of the tax was for the long-term advantage. There were very few sectors to
benefit from GST in the short term. The long-term advantage requires the patience. Where one area
in the nation faces a positive impact, the other area receives a different impact. It is vital to know how
and to whom is the 

The Impact of GST on Different Sectors of The Economy

GST aims at bringing about a revolution by way of efficient logistic management warehouse
rationalization, higher volume of transaction and free flow of goods from one state to another. The
overall scenario is like tangible goods are going to be cheaper while services would be dearer.
Eg : Prices of mobiles will decrease but call & data charges will increase

Impact of GST on Retailers, Distributor, and Manufacturing Sector

Impact of GST on Agricultural Sector
Impact of GST on Textile Sector
Impact of GST on IT Sector
Impact of GST on Banking Sector
Impact of GST on Hotel and Tourism
Impact of GST on Entertainment Industry
Impact of GST on Automobile Sector
Impact of GST on Export-Import Sector
Impact of GST on Education Sector
Impact of GST on Real Estate
Impact of GST on Energy Sector
Impact of GST on Iron and Steel
Impact of GST on Service Sector

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1. Impact of GST on Retailers, Distributor, and Manufacturing Sector
Goods & Services Tax has boosted performance and competitiveness in India's retailers, distributors
and manufacturing sectors. Declining exports and high expenses are only a portion of the worries of
this sector. Various Indirect Taxes in place earlier increased expenses for distributors and
manufacturers. With Goods & Services Tax system set up, the troubles of the older indirect tax
system has vanished and this sector will develop much better.

2. Impact of GST on Agricultural Sector

The impact of GST on the agricultural sector or the effect of GST on agriculture is positive. The
agricultural sector is a significant sector to the overall Indian Gross Domestic Product. It covers
around 16% of the Indian Gross Domestic Product.

One of the significant issues looked at by the agricultural sector is the transportation of agricultural
items across states all over India.

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Transportation may be the most likely issue for the agricultural sector with regard to Goods &
Services Tax. Goods & Services Tax may help India in forming its first National Market for agricultural
items.

3. Impact of GST on Textile Sector

GST has shown a positive effect upon readymade and textile pieces of garments, as one of the GST
benefit sectors. This new system is beneficial to them. Some of the advantages which GST gave to the
textile sector are:

The Input Tax Credit or ITC framework or chain.

Input Tax Credit or ITC is currently available on the capital goods.
The cost for the transporting is currently lower in contrast with the past tax system.

4. Impact of GST on the IT Sector

Although the Goods & Services Tax rate for services has increased to 18%, compared with the older
system the Information Technology Sector is one of the GST benefit sectors. Different factors like the
accessibility of Input Tax Credit or ITC will cut down the operating expenses and, consequently,
expand the Information Technology sector's general productivity.

The main areas of the GST impact on IT sector are below:

The simpler Tax Rate Administration

Removal of Cascading(double tax) Effect of Taxes
Business Restructuring
E-commerce
Opportunities in creating software for GST

5. Impact of GST on Banking Sector

With the introduction of GST, the banking sector has turned out to be more costly. Before, the tax
rate of the services for the banking sector was 15%. However, after the implementation of GST, the
tax rate has been increased on all the banking areas to 18%. These are a few effects of GST on the
banking sector:

Each separate part of Banks should have separate registration

Place of supply identification
Reliance upon CGST and SGST
The transactions between banks aren't free
Input Tax Credit or ITC in GST

6. Impact of GST on Hotel and Tourism

Income generated from the tourism and hotel industry forms an important part of the Indian
economy. They help in expanding the GDP of India. This is the reason each State Government
continues advancing the travel industry of their state by different schemes. The rate of GST varies for
the inns as a result of the tariffs.

Goods & Services Tax rates for hotels are dependent on room tariff with impact from 1st October
2019.

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If the tariffs range below Rs. 1,000, then there will be no GST.
If the tariff ranges between Rs. 1,000 to Rs. 7,500, then 12% GST will be levied.
If the tariff is more than Rs. 7,500, then 18% GST will be levied.
GST brought a single tax rate compared to the multiple taxes under the previous system. This has
made it easier for the industry and provides clarity to customer as well. So say that the hotel and
tourism industry is one of the sectors to benefit from GST

7. Impact of GST on the Entertainment Industry

The entertainment industry is one of the GST benefit sectors.Before the implementation of GST, the
entertainment sector had many taxes. They are not restricted to one tax or duty. They included the
state tax, central tax and tax by the local authorities. However, when GST came into motion, they
moved into just one tax.

GST was running between 18% to 28%. The tax rate depended upon the sort of Entertainment
services provided.

Things inside the 18% GST:

Movie Tickets
Television and DTH services
Theatre
Circus
Things inside the 28% GST:
Sporting event
Racing
Movie events and festivals
Amusement parks
Casinos

8. Impact of GST on Automobile Sector

Following Goods & Services Tax implementation, a wide range of taxes like Excise Duties, VAT, Sales
Tax, and Road Tax cleared a path for a unified Goods & Services Tax. This brought an increase in
automobile deals. Numerous huge automobile brands experienced record growth in the year 2018
and 2019. Customers believed it to be the ideal chance to buy vehicles. Thus, the automobile is
another of the GST benefit sectors.

9. Impact of GST on Export-Import Sector

Before implementing the GST, Import and Export were administered by the Customs Duty, Excise
Duty, Value Added Tax, and Service Tax. All these taxes were put together as one at the point when
GST was presented. Yet, the BCD or Basic Customs Duty keeps on eating away at the import bills.
IGST includes all the taxes which were administering the imports of goods and services before the
Goods & Services Tax. Those taxes were:

CVD or Countervailing Duty

SAD or Special Additional Duty
At the point when IGST was applied, then:

The exports became zero-rated as per section 16 of the Integrated Goods and Services Tax Act or
IGST Act, 2017.
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The State Government and the Central Government share the duty.
10. Impact of GST on the Education Sector
Whenever there is a conversation over the development and growth of a country, the main thing
thought about is the strength of that country's education sector. The education sector is one of the
GST benefit sectors. The education of people has a significant part in the strength of a nation.

The government has therefore tried to keep education-related institutions excluded from the duties
or taxes, in the new Goods & Services Tax system. These include the services given by any
educational association to its staff, faculty and students.

11. Impact of GST on Real Estate

This sector has seen a good growth in recent years and has been a vast business area. It is an industry
that is generally reliant on tax rates. Goods & Services Tax on real estate has brought more
productive activities, and numerous new brands have come up. Subsequently, these brands have
been able to help the economy of the nation enormously. Therefore this too, has been one of the
sectors to benefit from GST.

12. Impact of GST on Energy Sector

The energy sector is one of the essential enterprises in any economy since power is critical for each
business activity. However leaving this sector being outside the scope of Goods & Services Tax will
affect the remaining economy. It disallows a sector of the benefits hoped to be accomplished by the
introduction of Goods & Services Tax.

Eventually, the Goods & Services Tax impact is likely going to be levelled out by falling costs. We
needn't waste time with the assistance of lowering taxes to enable economic growth. Therefore
currently the energy sector isn’t one of the sectors to benefit from GST.

13. Impact of GST on Iron and Steel

Three sorts of taxes were applied on the manufacturing of iron & steel. Those duties were: -

2% CST or Central Sales Tax

5% VAT or Value Added Tax
12.5% Excise Duty
When we see, there is an aggregate of 19.5% net duty that is forced upon iron & steel in the older
system. Under GST most of the items manufactured fall in the 12% and 18% category, while a few
items fall under the 28% category. So we can see that the iron and steel industry is one of the sectors
to benefit from GST.

14. Impact of GST on Service Sector

It is no news that the introduction of the GST will represent some significant benefits and a couple of
weaknesses to the service sector.

Many service sectors had a lot of changes as they adjusted to the presentation of this new tax
system. We can be sure that a considerable lot of them are glad given the changes. You can believe
that this new tax collection framework will likewise influence individuals all in all and not just
businesses. All things considered, there has been a positive GST impact on the service sector .

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The positive GST impact on the service sector are:

No double taxation
Easier taxation for repairs and maintenance
Access to inputs held in stock
Fewer costs to service providers
It will bring equality in all states
The cost of inputs is likely to drop

Conclusion
The Goods & Services Tax is a milestone in India's Indirect Tax system that addresses multiple issues
together. It has brought a smoother structure to prevent double taxation. The Goods & Services Tax
is destination-based tax charged at the point of consumption. Introduction of GST may have helped
only some sectors to benefit from GST in the short term. But the long term advantages are many for
all the sectors.

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