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What is 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.
• Now, let us understand the definition of Goods and Service Tax, as mentioned above,
in detail.
• Multi-stage
• An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.
Let us consider the following stages:
• Purchase of raw materials
• Production or manufacture
• Warehousing of finished goods
• Selling to wholesellers
• Sale of the product to the retailers
• Selling to the end consumers
• A manufacturer who makes biscuits buys flour, sugar and other
material. The value of the inputs increases when the sugar and flour
are mixed and baked into biscuits.
• The manufacturer then sells these biscuits to the warehousing agent
who packs large quantities of biscuits in cartons and labels it. This is
another addition of value to the biscuits. After this, the warehousing
agent sells it to the retailer.
• The retailer packages the biscuits in smaller quantities and invests in
the marketing of the biscuits, thus increasing its value. GST is levied
on these value additions, i.e. the monetary value added at each stage
to achieve the final sale to the end customer.
• Advantages Of GST
• GST has mainly removed the cascading effect on the sale of goods and
services. Removal of the cascading effect has impacted the cost of
goods. Since the GST regime eliminates the tax on tax, the cost of
goods decreases.
• Also, GST is mainly technologically driven. All the activities like
registration, return filing, application for refund and response to
notice needs to be done online on the GST portal, which accelerates
the processes.
• What are the 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 Regime Old Regime Revenue Distribution

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

Sale to another State IGST Central Sales Tax +
Excise/Service Tax
There will only be one
type of tax (central) in
case of inter-state sales.
The Centre will then share
the IGST revenue based
on the destination of
goods.
• Illustration:
• Let us assume that a dealer in Gujarat had sold the goods to a dealer
in Punjab worth Rs. 50,000. The tax rate is 18% comprising of only
IGST.
• In such a case, the dealer has to charge IGST of Rs.9,000. This revenue
will go to Central Government.
• The same dealer sells goods to a consumer in Gujarat worth Rs.
50,000. The GST rate on goods is 12%. This rate comprises CGST at 6%
and SGST at 6%.
• The dealer has to collect Rs.6,000 as Goods and Service Tax, Rs.3,000
will go to the Central Government and Rs.3,000 will go to the Gujarat
government since the sale is within the state.
• Tax Laws before GST
• In the earlier indirect tax regime, there were many indirect taxes levied by
both the state and the centre. States mainly collected taxes in the form of
Value Added Tax (VAT). Every state had a different set of rules and
regulations.
• Inter-state sale of goods was taxed by the centre. CST (Central State Tax)
was applicable in case of inter-state sale of goods. The indirect taxes such
as the entertainment tax, octroi and local tax were levied together by state
and centre. These led to a lot of overlapping of taxes levied by both the
state and the centre.
• For example, when goods were manufactured and sold, excise duty was
charged by the centre. Over and above the excise duty, VAT was also
charged by the state. It led to a tax on tax effect, also known as the
cascading effect of taxes.
• The following is the list of indirect taxes in the pre-GST regime:
• Central Excise Duty
• Duties of Excise
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duty of Customs
• Cess
• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entertainment Tax
• Entry Tax
• Taxes on advertisements
• Taxes on lotteries, betting, and gambling
• CGST, SGST, and IGST have replaced all the above taxes.
• How Has GST Helped in Price Reduction?
• During the pre-GST regime, every purchaser, including the final
consumer paid tax on tax. This condition of tax on tax is known as the
cascading effect of taxes.
• GST has removed the cascading effect. Tax is calculated only on the
value-addition at each stage of the transfer of ownership
• Illustration:
• Based on the above example of the biscuit manufacturer,
let’s take some actual figures to see what happens to the cost
of goods and the taxes, by comparing the earlier GST
regimes.
• Tax calculations in earlier regime:
Action Cost (Rs) Tax rate at 10% (Rs) Invoice Total (Rs)

Manufacturer 1,000 100 1,100

Warehouse adds a 1,400 140 1,540

label and repacks at
Rs.300

Retailer advertises at 2,040 204 2,244

Rs. 500

Total 1,800 444 2,244

• The tax liability was passed on at every stage of the transaction, and
the final liability comes to a rest with the customer. This condition is
known as the cascading effect of taxes, and the value of the item
keeps increasing every time this happens.

• Tax calculations in current regime:

Action Cost (Rs) Tax rate Tax Invoice
at 10% liability Total (Rs)
(Rs) to be
deposite
d (Rs)
Manufacturer 1,000 100 100 1,100
Warehouse adds label and repacks at Rs. 300 1,300 130 30 1,430
Retailer advertises at Rs. 500 1,800 180 50 1,980
Total 1,800 180 1,980
• In the case of Goods and Services Tax, there is a way to claim the
credit for tax paid in acquiring input. The individual who has already
paid a tax can claim credit for this tax when he submits his GST
returns.
• In the end, every time an individual is able to claims 
the input tax credit, the sale price is reduced and the cost price for
the buyer is reduced because of lower tax liability. The final value of
the biscuits is therefore reduced from Rs.2,244 to Rs.1,980, thus
reducing the tax burden on the final customer.
• What are the New Compliances Under GST?
• Apart from online filing of the GST returns, the GST regime has
introduced several new systems along with it.
• e-Way Bills
• GST introduced a centralised system of waybills by the introduction of
“E-way bills”. This system was launched on 1st April 2018 for inter-state
movement of goods and on 15th April 2018 for intra-state movement of
goods in a staggered manner.
• Under the e-way bill system, manufacturers, traders and transporters
can generate e-way bills for the goods transported from the place of its
origin to its destination on a common portal with ease. Tax authorities
are also benefited as this system has reduced time at check -posts and
helps reduce tax evasion.
• E-invoicing
• Recently, the e-invoicing system has been launched on a trial basis starting from
January 2020 and applicable from October 2020. This system requires large
businesses with an annual aggregate turnover of more than Rs.100 crore to
comply with some requirements.
• They must obtain a unique invoice reference number for every business-to-
business invoice by uploading on the GSTN’s portal known as the invoice
registration portal. The portal verifies the correctness and genuineness of the
invoice. Thereafter, it authorises using the digital signature along with a QR code.
• E-invoicing allows interoperability of invoices and helps reduce data entry errors.
It is designed to pass the invoice information directly from the IRP to the GST
portal and the e-way bill portal. It will, therefore, eliminate the requirement for
manual data entry while filing ANX-1/GST returns and for the generation of part-A
of the e-way bills.
• GST - Goods and Services Tax in India
• GST is basically a multi-stage tax system which is comprehensive in
nature and is levied on the supply of goods and services. The main
aim of this taxation system is to curb the cascading effect of other
indirect taxes. GST stands for Goods and Services Tax.
• GST Rates
• The GST Council has assignedGST rates to different goods and
services. While some products can be purchased without any GST,
there are others that come at 5% GST, 12% GST, 18% GST, and 28%
GST
• GST Registration through GST Portal
• Mentioned below are the steps for GST Registration procedure through the official GST
portal for taxpayers:
• Keep your GSTIN and your registered mobile number on hand.
• Visit ewaybill.nic.in.
• If you are first-time taxpayer, you will have to click on ‘E-way bill registration’ to register.
• You will then have to enter your GSTIN number and hit ‘Go’ to submit your request.
• You will then be redirected to a new screen where certain details such as the name of the
applicant, the Trade name, the mobile number and address of the applicant will be auto-
populated. You will then have to select ‘Send OTP’ and enter the OTP you receive on your
registered mobile number and verify the same.
• Once the OTP is verified, you will have to provide your preferred User ID through which
you can operate your account.
• You will then have to create a password for your account after which your registration on
the GST portal will be complete.
• GST Returns
• A GST Returns is basically a document that contains information regarding the income that a
taxpayer must file with the authorities. This information is used to compute the taxpayer’s tax
liability. Under the Goods and Services Tax, registered dealers must file their GST returns with details
regarding their purchases, sales, input tax credit and output GST. Businesses are expected to file 2
monthly returns as well as an annual return.
• GST Calculator
• Calculating the amount that needs to be paid as GST when filing your returns can be quite tedious. A
number of aspects and factors must be taken into consideration, such as ITC, exempted supplies,
reverse charge, etc. Failure to pay the entire GST amount can see you slapped with an 18% interest
on the shortfall, thereby making it necessary to ensure that you pay the right amount towards GST.
• The GST Calculator makes it relatively simple for taxpayers to calculate the amount that needs to be
paid as GST. You will have to enter all the required details such as the month for which you are
calculating GST, the due date for filing returns for the particular month, the actual date on which the
returns are filed, the tax liability for the month, the purchases that attract Reverse Charge
Mechanism, the opening balance of your cash ledger as well as your credit ledger and the eligible
ITC.
• Here is an example showing how you can calculate your GST liability:
articulars Amount
Overall value of interstate sales Rs.20 lakh
Overall value of intrastate sales Rs.25 lakh
Advance received Rs.8 lakh
SGST Rs.25 lakh x 9% = Rs.2.25 lakh
CGST Rs.25 lakh x 9% = Rs.2.25 lakh
Rs.20 lakh x 18% = Rs.3.6 lakh Rs.8 lakh x
IGST
18% = Rs.1.44 lakh Total = Rs.5.04 lakh
• GST Certificate
• A GST Certificate is an official document which is issued by the
concerned authorities for a business which has been enrolled under
the GST system. Any business with an annual turnover of Rs.20 lakh or
more and certain special businesses are required to be registered
under this system. The GST registration certificate is issued in Form
GST REG-06. If you are a registered taxpayer under this system, you
can download the GST Certificate from the official GST Portal. The
certificate is not issued physically. It is available in digital format only.
GST Certificate contains GSTIN, Legal Name, Trade Name, Constitution
of Business, Address, Date of liability, Period of Validity, Types of
Registration, Particulars of Approving Authority, Signature, Details of
the Approving GST officer and Date of issue of certificate.
• Types of GST
• Based on the kind of transaction, there are four types of GST, viz. Central Goods and Services Tax (CGST), State Goods
and Services Tax (SGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST).
• Central Goods and Services Tax
• CGST is charged on the intra state supply of products and services. The Central Government levies CGST and it is
governed by the Central Goods and Services Tax Act. CGST has effectively replaced all the previous Central taxes such as
Central Excise Duty, Customs Duty, Service Tax, SAD, CST, etc. It is charged to taxpayers along with SGST. The rate at
which CGST is charged is usually the same as the SGST rate, and the revenue collected under CGST is remitted to the
Central Government.
• State Goods and Services Tax
• SGST, like CGST, is charged on the sale of products or services within a state. The State Government is responsible for the
levy of SGST. This tax replaces all the previous taxes such as Entry Tax, Value Added Tax, Entertainment Tax, State Sales
Tax, cesses, and surcharges. The revenue collected under SGST is remitted to the State Government.
• Integrated Goods and Services Tax
• IGST is charged on inter-state transactions of products and services. It is also levied on imports. The Central Government
collects IGST and distributes it among states. IGST is levied when goods or services are transferred from one state to
another. The tax was implemented so that states would only have to deal with the Union Government rather than
dealing with each state.
• Union Territory Goods and Services Tax
• UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and
Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is levied along with
CGST.
• Benefits of GST
• The following are the benefits of the Goods and Services Tax:
• Elimination of the cascading tax effect
• Following the implementation of the Goods and Services Tax, all the taxes
have been brought under a single umbrella. What this essentially means is
that the cascading tax effect has been eliminated. For instance, before the
GST law was introduced, if a consultant offered his services for an amount of
Rs.40,000 and levied a service tax of 14% (Rs.5,600), and then purchased
office supplies worth Rs.15,000 and paid VAT at 5% (Rs.750), his total outflow
would be Rs.5,600 + Rs.750 = Rs.6,350.
• Following the implementation of GST, the GST rate applicable to the service
would be 18%. If the service was offered for Rs.40,000, the GST on it would be
Rs.7,200. The Rs.750 spent on office supplies would be deductible, which
makes the total outflow Rs.7,200 – Rs.750 = Rs.6,450.
• Higher threshold
• In the previous tax structure when VAT was charged, businesses that generated turnovers in excess of Rs.5 lakh
were liable to pay VAT. It is also important to note that service providers who generated a turnover of up to
Rs.10 lakh were exempt from Service Tax. However, the threshold for registration under GST is Rs.20 lakh, which
means that many small service providers and traders need not register.
• Simple procedure
• The whole GST process, starting from registration and ending with filing returns, is done online. It is a simple
procedure that can be followed even by individuals with minimal technical know-how. Registering under GST is
especially simple because there is no need to run around for multiple registrations like Service Tax, Excise Duty,
VAT, etc.
• Composition scheme
• Small businesses that earn turnovers between Rs.20 lakh and Rs.75 lakh can benefit under the new tax regime
as the Composition Scheme can help in lowering their taxes. The compliance as well as tax burden on small
businesses has significantly reduced thanks to the implementation of GST.
• Fewer complications
• The previous tax regime had Service Tax and Value Added Tax, and each of these taxes had their own
compliances and returns. For instance, Excise Duty return filing had to be done on a monthly basis, while Service
Tax return filing had to be done on a monthly basis for companies and LLPs, and on a quarterly basis for
partnerships and proprietorships. Value Added Tax was different in different states, which resulted in
inconsistencies across the country. The implementation of GST has ensured that all businesses pay a uniform tax
for the supply of goods and services.
• E-Commerce operators no longer suffer from differential treatment
• Prior to the implementation of the Goods and Services Tax, there was no proper definition for
the supply of good via an e-commerce portal. There were multiple VAT laws. For instance,
deliveries though online portals such as Amazon and Flipkart to states like Uttar Pradesh
required the filing of a VAT declaration. The registration number of the vehicle that was
delivering the product would also have to be mentioned, and tax authorities had the power
to seize products in case proper documents were not produced.
• GST has effectively done away with such confusing compliances and differential treatments.
The e-commerce sector now has clearly defined provisions that make it easier to engage in
the supply of products across states.
• Regulation of the unorganised sector
• Before GST was implemented, some of the industries such as textile and construction were
highly unorganised and unregulated. The implementation of GST has seen the inclusion of
provisions for online payments and compliances. Even the availing of input credit has been
clearly defined to avoid confusion, thus bringing in regulation and accountability to these
sectors.
• Tax Laws Before the Implementation of GST
• The main of implementing the GST was to implement a much simpler tax structure in the country. The concept of
Goods and Services Tax was to implement the concept of one tax across all parts of the country.
• There was a lot of speculation at the time of implementation as some of the previous tax systems did not work
out as well as it was anticipated. Listed below are some of the important difference between GST and tax system
that was followed prior to the implementation of GST:
• The tax system before the GST had separate rates for different services. There was a separate rate for service tax
and excise duty. With the implementation of GST, there is uniform SGST across all the states and one common
CGST rate.
• Central Sales Tax (CST) and a number of indirect taxes were levied in the previous tax structure. After the
implementation of GST, the entire concept of CST was eliminated. A new concept of IGST was introduced to
replace the previous system.
• There were a number of indirect taxes that were levied by both the centre and the state. This resulted in the
collection of tax by both the centre and the state. This concept of tax levied on tax is called as the cascading effect
of taxes. The implementation of GST negated the overlapping of taxes collected by the centre and the state.
• In the previous tax rules, there was a separate tax levied both at the time of consumption and production. With
the implementation of GST, tax will be levied only at the final point of consumption and not during different parts
of manufacturing and selling a product. This has helped bring some transparency to the tax collection process.
• History of GST in India
• The Goods and Services Tax was implemented in India on July 1, 2017. However, the process of
implementing the new tax regime commenced a long time ago. In 2000, Atal Bihari Vajpayee,
then Prime Minister of India, set up a committee to draft the GST law. In 2004, a task force
came to the conclusion that the new tax structure should be implemented to enhance the tax
regime at the time.
• In 2006, P. Chidambaram, Former Finance Minister of India, proposed the introduction of GST
on 1st April 2010 and the Constitution Amendment Bill was passed in 2011 to enable the
introduction of the GST law. In 2012, the Standing Committee started discussions regarding GST,
and tabled its report on GST a year later. In 2014, the new Finance Minister at the time, Arun
Jaitley, reintroduced the GST Bill in Parliament, and the bill was passed in Lok Sabha in 2015.
However, the implementation of the law was delayed as it was not passed in Rajya Sabha.
• GSTN went live in 2016, and the amended model GST law was passed in both the Lok Sabha as
well as the Rajya Sabha. The President of India also gave assent to the law in 2016. In 2017 the
passing of 4 supplementary GST Bills in Lok Sabha as well as the approval of the same by the
Cabinet. Rajya Sabha then passed 4 supplementary GST Bills and the new tax regime was
implemented on 1st July 2017.
• What is GSTN?
• The GSTN or Goods and Services Tax Network is responsible for
managing the IT system in regard to the GST Portal. It is a non-profit,
non-government organisation and is the database for the official GST
Portal.
• The current structure of the GST Network can be summed up as
follows:
• Central Government – 24.5%
• State Governments and EC – 24.5%
• LIC Housing Finance Ltd. - 11%
• 01ICICI Bank, HDFC, NSE Strategic Investment Co., and HDFC Bank –
10% each.
• Features of GSTN
• The salient features of the GST Network can be listed as follows:
• Keeping the information of all the taxpayers safe and secure.
• Maintaining confidentiality of the taxpayers’ information.
• It is a trusted National Information Utility (NIU).
• Functions of GSTN
• The main functions of the GST Network or GSTN can be summed up as follows:
• It is responsible for handling the invoices
• It is responsible for handling the regstrations
• It is responsible for handling the payments and refunds (if any)
• It is responsible for handling different types of returns.