Goods and Services Tax (GST)
The Goods and Services Tax or GST is a single, indirect tax that integrates all indirect taxes within the Indian economy. The GST Act was passed on 29th March 2017 in the Parliament of India and came into effect on 1st July 2017. The idea behind it was to replace multiple layers of taxation with one tax (GST). It has replaced 17 indirect taxes (9 State-level taxes and 8 Central level taxes) and 23 cesses of the States and Centres that existed earlier, including Central excise duty, Service tax, Value Added Tax (VAT), Luxury Tax, etc. The aim behind implementing the GST Act was ‘One Nation and One Tax’. When GST was implemented, 1300 goods and 500 services were taken into consideration.
GST is a destination-based consumption tax as it is charged at every stage, wherever some value is added to the goods or services, and the supplier of the good or service offsets the charge on its inputs of the previous stages. The charge is offset through the tax credit mechanism. Ultimately, the last dealer passes on the added GST to the consumer of the goods or services. The reason behind charging input credit at every stage of the value chain is to avoid the cascading effect. Cascading effect means charging tax on tax. The Government of India has eliminated the cascading effect with the expectation of reducing the prices of goods or services and benefiting the consumers.
The three types of taxes under GST are:
- Central Goods and Services Tax (CGST): GST levied by the Centre on the Intra-State supply of goods or services.
- State Goods and Services Tax (SGST): GST levied by the State (including Union Territories with legislatures) on the Intra-State supply of goods or services by the State.
- Integrated Goods and Services Tax (IGST): GST collected by the Centre and levied on the Intra-State supply of goods or services. In other terms, IGST is the total of CGST and SGST.
Features of GST
The features of GST are:
1. GST Rates: The States and Centres have mutually decided upon the GST rates levied on goods or services through CGST, SGST, and IGST under the aegis of the GST Council. The four tax slabs under GST are 5% (for consumer durables), 12% (general rate), 18% (general rate), and 28%(luxurious goods). However, the rate of GST for exports and supplies to the Special Economic Zones (SEZs) is 0%.
2. Applicability of GST: The Goods and Services Tax applies to the whole country (India).
3. Consumption-Based Tax: Earlier, the taxes were based on the principle of origin-based taxation. However, the Goods and Services Tax is a destination-based consumption tax, which means that the taxes will be received by the states in which the goods or services have been consumed. As the tax is received by the consumer State, the losses faced by Producer States are compensated by the Centre.
4. Applicable on Supply of Goods and Services: Earlier, the taxes were charged on the basis of tax on the manufacture or sale of goods or on the provision of services; however, the Goods and Services Tax is charged on the basis of Supply of Goods and Services.
5. GST on Imports: The imports of goods and services come under IGST and is treated as Inter-State Supplies. IGST is charged on the imports of goods and services in addition to the applicable customs duties.
6. Payment of GST: The taxpayers can make payment of GST through different modes, like Internet Banking, NEFT (National Electronic Funds Transfer)/RTGS (Real Time Gross Settlement), and debit/credit cards.