What is GST?

(Goods and Services Tax)

The full form of GST is Goods and Services Tax. It was first introduced in the Budget Speech presented on

28th February 2006. It laid the foundation for a complete reform of India’s indirect tax system. Finally

implemented on 1st July 2017 as the 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.

History of GST and GST Information

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 through multiple

introductions, amendments and rescheduling.

 2000-Committee set up by the PM for drafting goods and services 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 were reduced to 3% from 4%.
 2008 – GST’s dual structure was 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 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 Houses of Parliament and received a nod from the President of India.
 2017- The Cabinet approves four supplementary bills on 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

Good 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 for customs duty that is levied on the 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

Objectives of GST
The key objectives of GST are-

‘One Nation, One Tax’

GST took the place of many indirect taxes that existed before. It was introduced with a core
motive and policy called the ‘One Nation, One Tax’. It was introduced as so to provide set tax
rates for a service/product that every state would follow. It even simplified administering taxes
and compliances.

To Subsume Indirect Taxes in India

To create a centralised and unified tax system on goods and services, GST was introduced in
India. Under its laws, the majority of indirect taxes were subsumed into one to simplify
administration.

To Restrain Tax Evasion

Prior to the introduction of GST, the tax evasion rate was very high. In order to curb evasion and
create a centralised tax surveillance system, GST was introduced in India. It has effectively
contributed to reducing the number of tax defaulters.

Types of GST and GST Rules

GST can be divided into four sections based on the kind of transaction it involves. Before a
business can determine its GST liability, assessing the following table about the Components of
GST is essential.

Components of Goods and Services Tax

What does it mean?

State Goods and Services Tax (SGST)

SGST refers to the tax payable on the sale of services and products within a state.

It replaces previous taxes, including Value Added Tax, Entry Tax, State Sales Tax, Entertainment
Tax, surcharges and cesses.

Central Goods and Services Tax (CGST)

The tax levied on the supply of intra-state products is CGST. The Central Government charges this
tax.

CGST replaced many taxes levied by the Centre, including Service Tax, Central Excise Duty, CST,
SAD, Customs Duty, etc.

Union Territory Goods and Services Tax (UTGST)

Taxes applicable to the sale of products and services in Union Territories, such as Andaman and
Nicobar, Daman and Diu, Chandigarh, Dadra, etc.
Integrated Goods and Services Tax (IGST)

The sale of inter-state products and services leads to taxation. This is IGST. Basically, when
businesses transfer services and products from one state to another, they need to pay this form
of GST.

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.

Intra-State Sale

Goods and Services Tax

Share of Revenue

Understanding the Dual Structure of Goods and Services Tax

Unlike a federal structure where the government collects taxes and distributes them 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 the 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 materials 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 flour, sugar and other materials into a dough and baking 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
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 0.5%

Manufacturers

Restaurants that do not

serve alcohol.

You must, however, also meet a set of conditions to avail of the scheme. A taxpayer needs to file
GST CMP-02 when opting for the scheme. They can do so at the GST online portal.

Concept of Input Tax Credit (ITC) under GST in India

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 of ITC.

Hence, go for Goods & Service Tax registration if you are eligible and not yet registered. Also, file
a Goods and Services Tax Return and pay your taxes within the due date to avoid any
inconvenience