All You Need to Know About GST Along With Its Types
It has been half a decade now since GST was formally introduced. Initially, it created quite an uproar in the Indian economy. Everyone was clueless about it. But that was because it broke an age-old tradition. There were numerous state taxes earlier because of varying state legislation. The simple meaning of GST was to introduce one single indirect tax for the whole nation. This was an alien concept for the country.
Now the nation is thriving on the One Country – One Tax model. It is a globally accepted model that already exists in 160 countries around the world.
Businesses now appreciate the simplicity that it brought to the economy.
What is the meaning of GST?
GST stands for Goods and Service Tax. Its official introduction was on 1st July 2017. GST is primarily an indirect tax. Just like excise duty. This means that the government doesn’t levy it directly. The business owner who makes a sale of goods or services does.
It brings together 17 taxes at various levels under one umbrella. GST brings India at par with the global economy with unified tax standards. Inside the country, too, the tax standards are uniform.
As of now, India has five slabs for GST collection. They are 0%, 5%, 12%, 18%, and 28%. Some goods, like alcohol, petroleum, etc., are exempt from GST.
Salient Features of GST
GST is levied at every stage of the supply chain. Right from the procurement of raw materials to retail sales.
- Destination Based:
The place of final consumption levies the tax. Suppose the goods were manufactured in Bihar. They were finally sold in the state of West Bengal. The tax revenue will go to the state of West Bengal. This structure makes the nature of GST destination based.
The benefits of GST
The initial reaction wasn’t positive, because people were unable to understand the dynamics of this new form of tax. But all critics now heap praise on this major tax reform.
There is no doubt that GST simplifies the tax structure.
Let us look at the benefits that GST has to offer.
- It cuts down on the tax cascading effect. This brings down the net cost of goods.
- Thanks to the Digital India Campaign, you can register for GST with ease. The online process of tax filing is much simpler. So, there is ease of compliance as well. Revenue collection also becomes more efficient.
- It improves the efficiency of the supply chain w.r.t logistics. This leads to an increase in demand for Indian products in the global market.
- Even unorganized sectors can be regulated.
The introduction of GST was a monumental event. Handling several indirect taxes was cumbersome. Hence, it had a massive positive impact on the Indian economy.
Who needs to register for GST?
The GST Act, 2017 mentions the businesses that fall under its purview. The following businesses have to register for GST:
- Any business with an annual income of not less than ₹40 lacs (for goods)
- Any business with an annual income of not less than ₹20 lacs (for services)
- For the North Eastern States, the slab is not less than ₹10 lacs.
- Any business registered under the previous VAT regime.
Types of GST
In India, there are 3 types of GST. These are:
- CGST: Central Goods and Service Tax
- SGST: State Goods and Service Tax
- IGST: Integrated Goods and Service Tax
The difference is the levying authority and the place of sale.
So let us begin with each type of GST.
- Central Goods and Service Tax: This tax is levied on the intrastate movement of goods. This means that the transaction is taking place within the same state. Its value is half of the total GST collected on movement within the state. For instance, goods produced in Haryana are sold within the state. The seller will collect both CGST and SGST. The CGST will be paid to the central government. SGST, on the other hand, will be paid to the state government.
For example, the total GST on medicines within the state is 5%. Then the central government will collect 2.5% CGST from the seller. Central excise duty is the best example of such a tax.
- State Goods and Service Tax: This tax is also levied on the intrastate movement of goods. The state government where the transaction took place collects the tax. SGST clubs together previous taxes like purchase tax, VAT, etc.
In the above example, the total GST on medicines was 5%. So, the Haryana government will also collect a 2.5% SGST on the transaction. For the Union Territories, Union Territory GST (UTGST) replaces SGST. However, there is a difference between SGST and UTGST. Unlike SGST, the central government is responsible for collecting UTGST.
- Integrated Goods and Service Tax: This type of GST is levied on the interstate movement of goods. This means that the transaction is taking place between two states. IGST is also levied on the import/export of goods. As per the IGST Act of 2017, the central government collects IGST.
For example, a seller in Rajasthan sells goods to a buyer in Goa. On this transaction, IGST will be collected. Initially, the central government will collect the tax. It will later allocate half of the tax to the Goan government. This is because GST is a destination-based tax. Hence, the consumer state, i.e., Goa, will get half of the tax revenue.
Who is liable to pay the different types of GST?
- All businesses are registered with a valid GST Identification Number (GSTIN).
- E-commerce operators are registered with a valid GSTIN.
- Individuals registered under GST with the liability to deduct tax at source (TDS).
GST is a transparent and corruption-free taxation system. It removed the confusion of the previous tax structure. Thanks to GST, Indian businesses can freely trade with foreign markets. The types and amounts of GST applicable are explained above.
The Indian Government’s GST portal makes it easy to register and pay GST. Register your new eligible business now to take benefits of GST. To know more about GST, visit Piramal Finance. This online platform is what you need to learn everything about relevant developments in the world of finance. Check out the website to read blogs with useful information about money and to learn more about personal loans, credit cards, and managing money.
Also Read: Complete Guide on How to File GST Return Online in India
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