Definition: Goods and Services Tax (GST) is based on the phenomenon of ‘one nation, one tax‘. It is a single tax that is levied on the supply of goods and services. Also, for the imposition of taxes, no difference is made between goods and services. Further, it has been implemented to subsume various indirect taxes, on which tax is levied at different rates, by Central and State Government, previously.
On July 1, 2017, the GST ACT was implemented in India, as a comprehensive, multistage, destination-based tax. Further, every person is charged tax on the output and they are entitled to get Input tax credit, for the tax already paid by them on the input. In other words, that tax is levied on the value addition and the burden of tax is borne by the final consumer only.
Features of Goods and Services Tax (GST)
- Comprehensive Tax: GST is comprehensive in nature because it has substituted various indirect taxes in India, for example, Sales tax, Service Tax, Excise Duty, Entertainment tax, VAT, luxury tax, entry tax, etc.
- Multistage Tax: GST is imposed on each stage of the production process on the value addition made by each party. However, the input tax credit is available to all the parties, except the final consumer of the goods and services,
- Destination based tax: As GST is collected from the point of consumption, i.e. the final consumer, it is a destination-based tax.
- Tax Credit: GST offers an inclusive and continuous chain of the tax credit from the point of view of the producer or service provider. In this way, tax is levied only on the value addition at each stage.
- Tax burden falls on the final consumer: The supplier of goods or service provider can avail input tax credit at each stage, on the GST paid on inputs and set off the credit against the GST payable on the supply. In this way, it is the final consumer who bears the tax burden, on the GST charged by the last supplier in the supply chain.
- Elimination of Cascading Effect: In the previous tax regime, cascading effect, i.e. double taxation was the biggest issue due to which goods are taxed multiple times. But with the emergence of GST, as only the value-added at each stage is taxed, the cascading effect is eliminated completely.
Legal Framework of Goods and Services Tax (GST)
1. Taxable Event under GST: Taxable event simply means an event which when takes place, the tax liability arises. In the case of GST the ‘supply of goods and/or services’ is regarded as the taxable event.
2. Applicable on Supply: In the previous tax regime, the tax was applicable to the sale of goods or provision of services. However, in GST the word ‘supply’ has been used to cover all the forms of supply like sale, transfer, barter, rental, provision, exchange, license, lease and disposal.
3. Nature of Supply: As we discussed earlier, GST is levied on the supply of goods and services. So the nature of supply plays a significant role in ascertaining which form of GST is charged on the transaction. This means that on Intrastate supply CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) will be levied, while on Interstate supply IGST (Integrated Goods and Services Tax) will be levied.
Similarly, when the supply of goods and services is within a Union Territory, UTGST (Union Territory Goods and Services Tax) and CGST will be applicable.
4. Destination Based Tax: GST follows the destination-based consumption taxation principle. As per this principle, GST will be applicable to the point of consumption and not the point of origin, i.e. the goods and services will be taxed if they are consumed within the country. Due to this principle, exports are exempted from GST, while imports are subject to it.
Let us understand this with an example: Suppose goods are manufactured in Rajasthan but sold in Maharashtra, in such a case IGST will be applicable, wherein the certain proportion of tax will be kept by the Central Government, and the remaining proportion will be provided to State Government (Maharashtra) where the goods have been consumed.
5. Dual GST: India follows a dual GST model, wherein both state and the central government imposes GST on the supply of goods and services concurrently. In India GST comprises of:
|CGST||Imposed and collected by Central Government on intrastate supplies.|
|SGST||Imposed and collected by State Government or Union Territories with legislative assembly, i.e. Delhi, Pondicherry and Jammu and Kashmir on intrastate supplies.|
|UTGST||Imposed and collected by Union Territories without Legislative Assemblies on intrastate supplies.|
|IGST||Imposed and collected by the central government on all interstate supply of goods and services. It is the sum total of CGST and SGST/UTGST.|
6. Classification of Goods and Services: In goods and services tax a Harmonised System of Nomenclature (HSN) is used for the classification of goods and services. In this way, these are divided into five different types of slabs or say tax rates, for the collection of taxes: 0%, 5%, 12%, 18% and 28%, depending upon the needs of a person.
7. Registration: It is necessary to obtain registration by every supplier of goods and services, from the state or union territory where the supplier provides taxable supply when the aggregate turnover in the financial year is greater than the limit specified in this regard. Moreover, suppliers involved in the e-commerce business and those who are engaged in interstate sales also required registration under GST.
Further, the threshold limit varies from one State/UT to another, depending upon the supply, i.e. whether the supplier is engaged in the supply of goods only, or services only or both.
8. Payment of Tax: Supplier can opt any of the two modes for making GST Payment:
- Electronic Payment Mode
- Over the Counter payment
What is not covered under GST?
The following items are excluded from the purview of GST.
- Alcohol for human consumption: The State Government has the power to impose tax on Alcohol.
- Petroleum Products: The date from which GST will be imposed on five petroleum products, i.e. crude oil, diesel, petrol, natural gas and ATF, will be decided by the GST council.
- Tobacco: Excise duty is levied on the manufacturing of tobacco-based items like cigarettes, bidi, and other chewing tobacco products at different rates. However, additional cess is imposed on the tobacco-related products under GST.
- Electricity: The State Government has the power to impose tax on Electricity.
The Bottom Line
The implementation of GST has come out as a revolutionary change in the economy. It has created a unified market and also increased investment and employment. GST has simplified the overall tax structure, which facilitated ease of doing business.