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GST in India
GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect
taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was
passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.
In other words,Goods and Service Tax (GST) is levied on the supply of goods and services. Goods
and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied
on every value addition. GST is a single domestic indirect tax law for the entire country.
Before the Goods and Services Tax could be introduced, the structure of indirect tax levy in India
was as follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales,
Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated
GST.
Objectives Of GST
1. To achieve the ideology of ‘One Nation, One Tax’:
GST has replaced multiple indirect taxes, which were existing under the previous tax
regime. The advantage of having one single tax means every state follows the same rate
for a particular product or service. Tax administration is easier with the Central
Government deciding the rates and policies. Common laws can be introduced, such as e-
way bills for goods transport and e-invoicing for transaction reporting. Tax compliance is
also better as taxpayers are not bogged down with multiple return forms and deadlines.
Overall, it’s a unified system of indirect tax compliance.

2. To subsume a majority of the indirect taxes in India:

India had several erstwhile indirect taxes such as service tax, Value Added Tax (VAT),
Central Excise, etc., which used to be levied at multiple supply chain stages. Some taxes
were governed by the states and some by the Centre. There was no unified and
centralised tax on both goods and services. Hence, GST was introduced. Under GST, all the
 major indirect taxes were subsumed into one. It has greatly reduced the compliance
burden on taxpayers and eased tax administration for the government.

3. To eliminate the cascading effect of taxes:

One of the primary objectives of GST was to remove the cascading effect of taxes.
Previously, due to different indirect tax laws, taxpayers could not set off the tax credits of
one tax against the other. For example, the excise duties paid during manufacture could
not be set off against the VAT payable during the sale. This led to a cascading effect of
taxes. Under GST, the tax levy is only on the net value added at each stage of the supply
chain. This has helped eliminate the cascading effect of taxes and contributed to the
seamless flow of input tax credits across both goods and services.

4. To curb tax evasion:

GST laws in India are far more stringent compared to any of the erstwhile indirect tax
laws. Under GST, taxpayers can claim an input tax credit only on invoices uploaded by
their respective suppliers. This way, the chances of claiming input tax credits on fake
invoices are minimal. The introduction of e-invoicing has further reinforced this objective.
Also, due to GST being a nationwide tax and having a centralised surveillance system, the
clampdown on defaulters is quicker and far more efficient. Hence, GST has curbed tax
evasion and minimised tax fraud from taking place to a large extent.

5. To increase the taxpayer base:

GST has helped in widening the tax base in India. Previously, each of the tax laws had a
different threshold limit for registration based on turnover. As GST is a consolidated tax
levied on both goods and services both, it has increased tax-registered businesses.
Besides, the stricter laws surrounding input tax credits have helped bring certain
unorganised sectors under the tax net. For example, the construction industry in India.
components of GST?
There are three taxes applicable under this system: CGST, SGST & IGST.
CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to
Tamil Nadu)
In most cases, the tax structure under the new regime will be as follows:

Transaction New Old Regime Revenue Distribution

Regime
 Sale within the CGST + VAT + Central Revenue will be shared equally
State SGST Excise/Service tax between the Centre and the State

Sale to another IGST Central Sales Tax + There will only be one type of tax
State Excise/Service Tax (central) in case of inter-state sales.
The Centre will then share the IGST
revenue based on the destination
of goods.

FEATURES OF GST
1. Single indirect tax in GST
GST has been introduced as a single, unified tax reform that has eliminated other indirect centre
and state taxes, like Central Value Added Tax, Special Additional Duty of Customs, Service Tax,
and VAT and converted them into a single tax. The elimination of these taxes has not only made
compliance easier for businesses but has also helped make many goods and services more
affordable for consumers.
2. Input Tax Credit System in GST
One of the most prominent GST features is the input tax credit. If a manufacturer or service
provider has already paid input tax on a purchase, the same can be deducted from their total
output tax liability. The input and output invoices must match to take advantage of the tax credit.
This helps remove the cascading tax effect or the traditional 'tax-on-tax' regime. Moreover, it also
helps in reducing tax evasion.
3. GST composition scheme
SMEs with an annual turnover of up to Rs. 1 crore or Rs. 75 lakh in specified states can also
voluntarily opt for the composition scheme. With this scheme, businesses can pay a fixed GST
rate of 1% on their turnover. However, such businesses can then not use the input tax credit
benefit. A business must select whether to use the composition scheme or the input tax credit
feature.
4. Four-tier tax structure in GST
GST has a 4-tier tax structure of 5%, 12%, 18%, and 28%. All goods and services can only be taxed
as per this tax structure. Many essential commodities, such as food items, do not have any GST.
Improved transparency and cheaper goods and services are two of the biggest advantages of this
4-tier structure.

GST has revolutionised how businesses pay taxes by streamlining the complex web of taxes into a
comprehensive multi-stage system that includes all the components in the supply chain and
supports businesses at each step of value addition.
Disadvantages of GST
1. Increased costs due to software purchase:
Businesses have to track GST updates regularly. They must ensure that their accounting or
ERP software gets updated in real time for GST legal and portal updates. Else, they can go
for a GST compliance solution to ensure continuous compliance. But both the options
involve money to be invested and needs time commitment for training employees so that
there is efficient utilisation of the new GST software.
Clear has a ready-to-use, enterprise-grade GST solution- ClearGST software. Ensure
compliance with latest GST laws and rules through AI-powered reconciliations, insightful
reports, end-to-end GST return filing, automated Table-4 reporting in GSTR-3B and much
more!

2. Not being GST-compliant can attract penalties:

Many small businesses in India are adapting GST changes with every passing month.
When the law was first introduced, they had learn to issue GST-complaint invoices, be
compliant with digital record-keeping, and of course, file timely returns. This means that
the GST-complaint invoice issued should have had mandatory details such as GSTIN, place
of supply, HSN codes, and others.
These same invoices can be easily imported through various options for accurate return
filing through the ClearGST platform.

3. GST brought about a rise in operational costs:

GST changed the way taxes are paid and returns are filed. Businesses needed to employ
tax professionals who had expertise to stay GST-complaint. This gradually increased costs
for small businesses as they had to bear the additional cost of hiring experts.
Also, businesses needed to train their employees in GST compliance, further increasing
their overhead expenses. A plug-and-play, SaaS-based solution such as ClearGST allowed
taxpayers to ensure compliance at reasonable cost.

4. GST came into effect in the middle of the financial year:

Initially, as GST was implemented on the 1st of July 2017, businesses followed the old tax
structure for the first 3 months (April, May, and June), and GST for the rest of the financial
year 2017-18.
Businesses found it hard to get adjusted to the GST regime, and some of them ran these
tax systems parallelly, resulting in confusion and compliance issues.

5. Adapting to a complete online taxation system:

Unlike earlier, businesses are had to switch from pen and paper invoicing and filing to
online return filing and making payments. This was tough for some smaller businesses to
adapt to.
The process for GST return filing on ClearGST is easy to follow. Business owners need to
only upload their invoices through easy-import options, and the software will populate
the return forms automatically with the information from the invoices for an error-free
 end-to-end filing. Any errors in invoices will be clearly identified by the software in real-
time, thus increasing efficiency and timeliness.

6. SMEs have a higher tax burden:

Smaller businesses, especially in the manufacturing sector have faced difficulties under
GST. Earlier, only businesses whose turnover exceeded Rs.1.5 crore had to pay excise duty.
But now any business whose turnover exceeds Rs.20 lakh have to pay GST.
However, SMEs with a turnover upto Rs.75 lakh can opt for the composition scheme and
pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The catch though
is these businesses will then not be able to claim any input tax credit. The decision to
choose between higher taxes or the composition scheme (and thereby no ITC) continues
to be a tough one for many SMEs.
Procedure For Registration of GST in India?
The following is the checklist of documents required for obtaining GST registration:

Proof of Constitution of Business (Any One) Certificate of Incorporation

Passport size photo of the applicant Passport size photo of Promoter/Partner

Photo of the Authorised Signatory Photo

Proof of Appointment of Authorised Letter of Authorisation

Signatory (Any One)

Copy of Resolution passed by BoD/ Managing

Committee and Acceptance letter

Proof of Principal Place of business (Any Electricity Bill

One)

Legal ownership document

Municipal Khata Copy

Property Tax Receipt

Proof of Details of Bank Accounts (Any One) The first page of Pass Book

Bank Statement

Cancelled Cheque

Step-by-step Guide explaining GST Registration Process Online

The GST Registration process is a simple 2-stage process. The registration form comprises 2 parts
– A and B:

Part A of the GST registration form includes basic information of the applicant and helps
generate Temporary Reference Number (TRN), which is valid for 15 days. This TRN can be then
used to fill out Part B of the form.

Successful submission of GST registration form Part B generates an Application Reference

Number (ARN). Subsequently, a tax official validates the GST Registration application. Once
approved, GST Number and GST Registration Certificate are issued.

Step 1: Visit the GST Government website.

Step 2: Click Services > Registration > New Registration option.

Step 3: The following application form for registration under GST will be displayed. It is divided
into two parts, Part A and Part B. The following “New Registration” page is displayed in Part A.
Fill out the details in Part A of the form and click on “Proceed”.
Step 4: On the subsequent OTP Verification page, enter the OTP you received on your mobile
number and that on your email address. Please note that this OTP is valid only for only 10
minutes.

Step 5: Once you verify the application, Part A of the GST registration form is completed.
Subsequently the system automatically generates and displays a Temporary Reference Number
(TRN). This TRN which is required for completion of registration under GST is valid for only 15
days.

Note: You will receive the TRN acknowledgment information on your e-mail address as well as
on your mobile number.

Step 6: Fill out Part B of the form. You can open Part B of the GST registration form by clicking on
the “My Saved Applications” tab. Enter the TRN generated and the captcha text as shown on the
screen below.

Step 7: Once you click “Proceed”, the following verification page will be displayed. Enter the OTP
received on your registered mobile number and e-mail id.

Step 8: Subsequently, the My Saved Applications page is displayed. Under the Action column,
click the Edit icon.

Step 9: On the subsequent screen, the GST registration application form with the following tabs
will be displayed. You need to select each tab and enter the relevant details. The following are
the key tabs in the application form for GST registration:
  Business Details
 Promoter/Partners
 Authorized Signatory
 Authorized Representative
 Principal Place of Business
 Goods and Services
 Bank Accounts
 State Specific Information
 Verification

Step 10: After successful verification of your GST application for registration, you will receive an
acknowledgement within 15 minutes on your registered e-mail address and mobile phone
number. Moreover, an Application Reference Number (ARN) receipt is sent on your e-mail
address and mobile phone number.
What is Reverse Charge Mechanism?
Typically, the supplier of goods or services pays the tax on supply. Under the reverse charge
mechanism, the recipient of goods or services becomes liable to pay the tax, i.e., the
chargeability gets reversed.
The objective of shifting the burden of GST payments to the recipient is to widen the scope of
levy of tax on various unorganized sectors, to exempt specific classes of suppliers, and to tax the
import of services (since the supplier is based outside India).

When is Reverse Charge Applicable?

Section 9(3), 9(4) and 9(5) of Central GST and State GST Acts govern the reverse charge scenarios
for intrastate transactions. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST Act govern the
reverse charge scenarios for inter-state transactions. Let’s have a detailed discussion regarding
these scenarios:
A. Supply of certain goods and services specified by the CBIC (Central Board of Indirect Taxes
and Customs)
As per the powers conferred in section 9(3) of CGST Acts, the CBIC has issued a list of goods and
services on which reverse charge is applicable.
Supply of Goods Under RCM

Description of Recipient of
S.No Supplier of Goods
Supply of goods Goods

Cashew nuts,
Any registered
1. not shelled or Agriculturist
person
peeled

Any person who

manufactures silk yarn
Any registered
2. Silk yarn from raw silk or silk
person
worm cocoons for
supply of silk yarn

Supply of Services Under RCM

Description of Supply Recipient of

S. No Supplier of Goods
of Service Service

Any service supplied

by any person who is
located in a non- Any person located
Any person
taxable in the taxable
located in a
1. territory to any territory other
non-taxable
person than non-taxable
territory
other than non- online recipient.
taxable
online recipient

2. GTA Services Goods Any factory,

Transport society, cooperative society,
 registered person,
Agency
body corporate,
(GTA) who
partnership firm,
has not paid
casual taxable
integrated
person;
tax at the
located in the
rate of 12%
taxable territory

An
individual
advocate
Any business entity
Legal Services by including
3. located in the
advocate a senior
taxable territory
advocate
or firm of
advocates

B. Supply from an unregistered dealer to a registered dealer

Section 9(4) of the CGST Act states that if a vendor is not registered under GST supplies goods to
a person registered under GST, then reverse charge would apply. This means that the GST will
have to be paid directly by the receiver instead of the supplier. The registered buyer who has to
pay GST under reverse charge has to do self-invoicing for the purchases made.
In intra-state purchases, CGST and SGST have to be paid under reverse charge mechanism (RCM)
by the purchaser. Also, in the case of inter-state purchases, the buyer has to pay the IGST. The
government notifies the list of goods or services on which this provision gets attracted from time
to time.
C. Supply of services through an e-commerce operator
All types of businesses can use e-commerce operators as an aggregator to sell products or
provide services. Section 9(5) of the CGST Act states that if a service provider uses an e-
commerce operator to provide specified services, the reverse charge will apply to the e-
commerce operator and he will be liable to pay GST. This section covers the services such as:
Transportation services to passengers by a radio-taxi, motor cab, maxi cab and motorcycle. For
example – Ola, Uber.
Registration Rules Under RCM
Section 24 of the CGST Act, 2017 states that a person liable to pay GST under the reverse charge
mechanism have to compulsorily register under GST. The threshold limits of Rs.20 lakh or Rs.40
lakh, as the case may be, will not apply to them.
Who Should Pay GST Under RCM?
The recipient of goods/services should pay GST under RCM. However, as per the provisions of
GST law, the person supplying the goods must mention in the tax invoice whether tax is payable
under RCM.
The following points should be kept in mind while making GST payments under RCM:

 The recipient of goods or services can avail of the ITC on the tax amount paid under RCM
only if such goods or services are used for business or furtherance of business.
 A composition dealer should pay tax at the normal rates and not the composition rates
while discharging liability under RCM. Also, they are ineligible to claim any input tax credit
of tax paid.
 GST compensation cess can apply to the tax payable or paid under the RCM.

GST Council
The Government of India (GoI) introduced the GST Council to modify, regulate and reconcile the
goods and services tax in India. The Council replace all the existing multiple taxation process and
introduce new taxation methods to ease the taxation process for the taxpayers. The Council shall
also monitor all the taxation process to provide support to the respective departments and to
avoid the fraudulent process.
Members
The GST Council consists of the following members:

1. The Union Finance Minister (as Chairman).

2. The Union Minister of State in-charge of Revenue or Finance.
3. The Minister in charge of Finance or Taxation or any other Minister, nominated by each
State Government.

Decision Making
The GST Council will make recommendations on:

 GST shall include taxes, cesses, and surcharges;

 Goods and services which possibly will be subject to, or exempt from GST;
The threshold maximum value of turnover for the function of GST;
 Rates of GST;
 GST laws, principles of levy, apportionment of IGST and principles associated with place
of supply;
 Special provisions with respect to the eight northeastern states, Himachal Pradesh,
Jammu and Kashmir, and Uttarakhand; and other associated matters.
 Other matters pertaining to the implementation and regulation of GST in India.