What is GST? – A guide to the goods and services tax

GST, or ‘Goods and Service Tax‘ refers to a value-added tax which is levied on many goods and services sold for domestic usage in the country. Even though the customers buying these items pay the tax, the company remits these taxes directly to the government. GST is a source of revenue for the government.

What is GST

GST India is a destination tax, which means that the entire taxed amount goes to the government at the point of consumption, regardless of where the product might be manufactured. Another thing about GST is that it is a multi-stage tax, which means that it is levied at every stage of manufacturing as the material changes hands at unfinished stages.

GST also has an income tax slab system, which means that the tax rates vary according to the organisation and the target market. Another advantage of GST is that it eliminated the cascading effect in taxation. Usually, there were taxes on the tax amount, which resulted in the prices for good soaring up unbounded. Since this is eliminated, the cost of many everyday products decreases too. The entire GST system is tech-driven, too. All of the pertaining activities like registration, return filing and applying for refund are done through the online GST Portal.

The History of GST

GST, or Goods and Service tax came into effect from the 1st of July, 2017. The work behind GST India had already started close to two decades ago, under the Vajpayee government.

In the year 2000, PM Vajpayee formed a committee to make an early draft of the GST Law. After four years of research, this task force concluded that the current tax structure is not good enough, so GST must be implemented for improvement. In 2006, the Finance Minister proposed to the nation that GST should be introduced from April 2010. The process of phasing out the existing tax systems started a year later when the CST rates were reduced. The EC finalised the dual GST structure to have separate levy and legislation, in 2008.

In 2011, the Constitution Amendment Bill which allowed GST Law was passed. However, the Standing Committee stalled the tax structure over clause 279B in 2012, before filing the report of GST a year later. The Bill was reintroduced to the Parliament by the Finance Minister another year later, and the Lok Sabha passed it in 2015. In 2016, the GST website goes live, and an amended model of the law was passed in both houses. Both the houses passed four supplementary bills with GST information in 2017, and the GST software was also available the same year. This led us to 1st July 2017, when GST was finally launched.

GST Bill

The GST Bill India reformed the country’s taxation system when it was passed in the Indian Parliament on March 29, 2017, and became the Goods and Service Tax Act on July 1, 2017.

Latest news on GST Bill

The 27th GST Council was held on May 4, 2018, which approved that the GST Network be made a government-owned holding. There were many more changes, but no GST rates were revised.

What is GST Bill?

The Bill was placed in the Indian Parliament in an effort to unify the taxes that apply to Indian consumers and supplier alike. The GST Council was entrusted with the governance of GST.

GST Council set to ease refund procedures for exporters in Jan meet – Moneycontrol.com

 

About GST Bill

The Bill became the Goods & Services Tax Law in India. The Bill resulted in one indirect tax that is comprehensive, multi-stage, and destination-based.

There are 3 taxes applicable under GST, collected by the:

  • Central Government (CGST) on an intra-state sale (E.g., Within West Bengal)
  • State Government (SGST) on an intra-state sale (E.g., Within West Bengal).
  • Central Government (IGST) for inter-state sale (E.g., West Bengal to Orissa).

GST calculator

You can use handy GST calculator App and formulas to calculate the GST applicable to your goods or services, especially for complicated GSTs. However, calculating GST is much easier than its previous versions. Read this article to find our how.  

If you need to calculate the GST applicable to your business, you can do it in these methods that are fast and convenient.

  1. Use a GST calculator app.
  2. Use GST calculator online.
  3. Calculate the GST yourself using the GST calculation formula.

GST calculator app

There are various GST calculator apps that can be downloaded from Google Playstore for Android phones. Some of the GST calculators are compatible with iOS too. You can download both for Android and iOS from:

https://www.caclubindia.com/apps/gst-act-rules-igst-rates-android.asp

GST calculator online

There are various portals that offer GST tax calculator. Some GST calculator India are:

http://www.egstcalculator.com/

https://cleartax.in/s/tax-calculation-gst

https://www.omnicalculator.com/business/gst

https://gstcalculator.net/gst-calculator-india/

GST calculation formula

You can also use the mathematical formula below to calculate GST yourself. To do this you have to first know the GST Rate applicable for your Goods or Service under the GST Act.

Now, say, your GST rate is 12% then the formula will be:

Y+[Yx12/100]

Y= Original Price

So, in other words, it is:

Original Price + [Original Price x GST Rate]/100 = Final Price

GST is much easier to calculate than its earlier versions. This is one of the key benefits of GST.

GST Registration

GST Registration can be done online at https://www.gst.gov.in/

The government does not charge any GST Registration Fees. But if you hire professionals for the registration process, you will have to pay a service fee to them.

Image credit: https://cleartax.in/s/how-to-register-for-gst

Who needs GST registration?

If your businesses turnover exceeds Rs. 20 lakhs you need GST registration. It must be completed within a month of exceeding this limit. There are some exceptions:

  • Those for whom registration is compulsory
  • States for whom turnover limit is Rs 10 lakhs
  • Those who are exempt from registration, such as farmers, people making good which are covered under exempted or nil rated supplies, etc

GST Registration Online

For online registration, you need to gather various documents that vary according to the registration type. The detailed list is available at: https://www.gst.gov.in/docadvisor/

Then read about the application process that differs according to GST type: https://www.gst.gov.in/help/enrollmentwithgst

New GST Registration

Submit an online application form at GST Registration Portal: https://reg.gst.gov.in/registration/

Read this tutorial for guidance:

https://tutorial.gst.gov.in/userguide/registration/index.htm#t=Apply_for_Registration_Normal_Taxpayer.htm

There are different types of forms for the application process. To know what is relevant to you, visit:

http://www.nimsme.org/ranzo/uploads/articles/registration1-gst-formats.pdf

You can also track GST Registration Status online. Read the manual below for the steps to do that.

https://tutorial.gst.gov.in/userguide/returns/index.htm#t=Track_Return_Status_Manual.htm

GST rates in India:

The 27th GST Council was held on May 4, 2018. It decided that the GST Network would be made a government-owned holding and suggested a few other changes.

However, there were no GST tax rate changes declared. The council only discussed:

  • GST tax rate reduction of:
  1. Digital transactions.
  • Introducing Sugar Cess, over and above 5% GST.

The GST Council is the governing body for the GST rates, rules and regulations. The GST Council is constituted by the Finance Minister of the Indian Central Government and the Finance Ministers of all Indian State Governments.  

GST rates were last revised at the 25th GST Council meeting on January 18, 2018. GST rates for 29 Goods and 53 Services were revised.

Overall, as of now, there are four GST tax rate slabs for tax collection purposes:

  1. 5%
  2. 12%
  3. 18%
  4. 28%

Many items are exempted from the GST rate list, and some others are subject to 0% tax.

It is important to know the latest GST rate in India, to maintain compliance.

The Benefits of GST

The Goods and Services Tax (GST) introduced one of the biggest tax reforms in India. It created one big indirect tax umbrella of GST for entire India. There are a host of benefits of GST in India:

  1. A unified common market and simplified tax structure
  2. GST eliminates the cascading effect of tax and thus reduces the total outflow
  3. Improvement in government tax outreach and compliance
  4. GST Benefits for consumers include better products because of more competition between manufacturing and business
  1. Higher registration exemption threshold of Rs 20 lakh compared to earlier. This exempts many small businesses
  1. The Composition scheme brought many GST benefits for small businesses. Read more about it at: https://cleartax.in/s/composition-scheme-under-gst
  2. GST online processes have eliminated the requirement to run from one office to another for completing them
  3. GST India benefits include uniform formats and a lesser number of returns, thus reducing levels of compliance
  4. GST and its benefits have regularised the taxes applicable to the movement of goods in the e-commerce sector
  5. Warehouse set-up and logistics costs have been streamlined with GST
  6. GST India benefits include regularisation of the Unorganized sector
  7. More competitiveness in exports with neutralisation of taxes.

Components of GST

The list of queries on CGST and SGST is endless. In a nutshell, the differentiator is only from tax input standpoint and is mostly, not even noted by the end consumer. It is when the trader inputs his tax assessment sheets, which he has to do the further categorisation.

Ever since GST was launched GST in India, there is a tremendous amount of confusion as to what exactly is GST, what are the types and charges etc. What is CGST and SGST? There are three main components of GST:

  • CGST: Central GST is the tax that the Centre will charge
  • SGST: State GST is charged by the State government

Both CGST & SGST are charged for Intrastate goods supply/trading which means if the goods travel within a given state, the CGST & SGST are both levied.

The third component is the IGST, the Integrated GST that is charged in case of Inter-state import or export of goods.

So what is the difference between CGST and SGST?

GST, as a whole, was an amalgamation of various taxes that the State and Centre used to charge. Instead of the multiple & erratic pattern of taxes, they have now divided each of these tax components under only two headers – CGST and SGST.

State Taxes Central Taxes
VAT / Sales Tax Central Excise Duty
Entertainment Tax Additional Excise Duty
Luxury Tax Additional Customs Duty
Tax on Lottery Special additional duty of Customs
Octroi Service Tax
Purchase Tax Excise duty levied under Medicinal & Toiletries preparation

The only difference is that the CGST gets deposited with the Central Government whereas SGST is collected by the State. In case of CGST and SGST, the customer is charged a total percentage of GST, which is further bifurcated into CGST & SGST.

GST Returns

Socrates rightly said – “The secret of change is to focus all of our energy, not in fighting the old, but on building the NEW”. So it’s time to focus on the new – the GST system of taxation and prepare ourselves so that we don’t struggle over time.

This tax reporting structure ensures every transaction is reported with a common invoice that is identified by both seller and the recipient of the goods and services. To ensure this smooth capturing and maintenance of data, the GST Council & the Ministry of Finance have jointly initiated the GST Network. This network houses all the seller & buyer information, assimilate the details captured and also maintain a central repository for all future reconciliation.

Understanding the GST returns

All Indian Taxpayers are now expected to file a GST return form, which is, a document containing details of income that a taxpayer is required to file, with the tax administrative authorities. The GST return online form application is simple. The Tax authorities use this to calculate tax liability. GSTR 1 is the primary form through which all the inputs are taken.

GSTR – 9

This is the annual tax return, which the taxpayer has to file max by 31st Dec of the coming financial year. It is simply a compilation of all the 12 monthly returns in the form of GSTR -1, GSTR 2 & GSTR -3. It would also include the amount of tax paid during the entire year, including details & imports & exports.

In the GST format, every taxpayer has to file three monthly returns and one annual return. This amounts to 37 returns under GST in a year.

GST return

The GST return process sounds like a herculean task. Actually, it is not such a complex process. With a bit of understanding about the entire Tax filing dragon that’s hovering on your mind day-in and day-out, the tax filing becomes quite easy.

GST rates for various  Services

Confused about what is the latest GST tax rate in India? There is a lot of ambiguity in the common man of India (whom we generally refer to the “AAM ADMI”) as to what this revised GST rate brings for him.

Well, the good news is that in the 25th GST council meeting held on 18th January 2018, the Council has suggested many respite measures concerning GST rates in India. Mr Jaitley has announced that the revisions are mostly in the downward direction. The effort was to first look at reducing the 28% service tax rate to a reasonably lesser bracket – 18% or fewer GST rates for services, which he has been able to do successfully.

The main attractions of this revised GST rates item wise structure were: six items have been moved from 18% slab to 5% slab, eight shifted from 12 % to 5 %, and six items have been reduced from 5% tax bracket to ‘nil’. There are also some transport & automobile-related items, which have been reduced from 28% to 18% and 12%. The only items that seem to have scaled up service tax rates under GST are Cigarettes filter rods and Rice Bran. Following is the GST rate chart.

Sr. No Revision detail Goods and supply
1 Rate Increased from 12% to 18% Cigarette filter rods
2 Rate Increased from 0% to 5% Rice bran (other than de-oiled rice bran)
3 Reduced from 3% to 0.25% precious stones and Diamonds
4 Reduced from 12% to 5% Velvet fabric( Without Refund of ITC), Articles of straw, of esparto or of other plaiting materials
5 Reduced from 18% to 5% LPG for household use, Tamarind Kernel Powder, Cone Mehendi paste, Raw materials and Consumables for Launch vehicles/satellites, Tailoring
6 Reduced from 18% to 12% 20 litres Drinking water bottles,   metro/mono-rail construction, petrol crude mining, Sugar boiled Confectionery, Biodiesel, sprinklers, Drip irrigation system,
7 Reduced from 28% to 12% Old and used motor vehicles [other than medium and large cars and SUVs] without ITC
8 Reduced from 28% to 18% Go-karting, joy rides, Biofuel run Public transport Buses
9 Goods taxed at 0% Vibhuti, De-oiled rice bran and manufacture hearing aids parts

With the understanding of the revised tax slabs; one will now be able to equate what is the dent or relief to the pockets in the subsequent months.

GST Exemptitions

Under the current GST structure with a GST exemption limit, certain Goods & Services are exempt from the GST slab. Below mentioned is a brief GST exemption list:

  • Edible vegetables, roots and tubers
  • Cereals
  • Fresh Fish, Fruits & Vegetables, Meat (other than frozen or processed)
  • Jaggery
  • Tender coconut water
  • Silkworm laying cocoon
  • Raw Silk
  • Silk Waste
  • Wool, not carded or combed
  • Cotton used in Gandhi Topi & Khadi Yarn
  • Coconut coir, fibre
  • Jute fibre, raw or processed but not spun
  • Puja articles
  • All goods of seed quality
  • Unprocessed green tea leaves
  • Fresh ginger and turmeric
  • Human blood & its components
  • Contraceptives
  • Organic Manure
  • Kumkum, bindi, sindoor, alta
  • Firewood or fuelwood
  • Wood charcoal
  • Betel leaves
  • Judicial, non-judicial stamp papers
  • Postal items
  • Printed books including Braille books, newspapers, maps
  • Earthen pots and clay lamps
  • Bangles (except those made from precious metals)
  • Agricultural implements manually operated or animal driven
  • Hand tools such as spades, shovels etc
  • Handloom
  • Spacecraft
  • Hearing aids.
  • Supply to Canteen stores department
  • Sales by CSD or unit run Canteens

The above was the list of GST exempted goods. There are many services as well which have 0% GST rate, they are:

  • India – Foreign diplomatic mission
  • Plant Cultivation
  • Animal rearing except for horse
  • toll charges
  • Transmission or distribution of electricity by an electricity transmission
  • Residential building for rent
  • Vet clinic
  • Education
  • music, dance, or theatre
  • News journalist – Independent and agencies
  • State transport-Hiring
  • Ambulance and Healthcare services

Exemption on small-scale businesses

Apart from certain Goods & Services, there is also GST exemption for small business basis their annual turnover. A business whose aggregate turnover in a financial year is lesser than Rs 20 lakhs is exempt from the GST slab; which means that business will not have to pay any GST to the government. The threshold for North Eastern and Hilly states is lesser – the exemption limit in GST assigned to such businesses is Rs. 10 lakh turnover pa.

In a nutshell, the exempted goods under GST have been designed with an objective to benefit the citizens.

Frequently asked questions on GST

  1. What is the difference between the current taxation and the new goods and services tax (GST) in India? What is the impact?

The current taxation is a multiple-point destination system of tax which is levied on the value at each stage of the transaction of the production or distribution chain. GST was introduced to put an end to the multiple taxes like CST, VAT, Service tax, sales tax etc. which makes the movement of goods and sustaining business hard.

The introduction of GST has been a historical move and one of the biggest indirect tax reform. The primary target for introducing the same was to convert India into a single market. This might have a positive impact on the economy and the GDP of the country.

  1. 2. Is GST good or bad for India?

GST is a good step forward, and it would help in the growth of the Indian economy as it would benefit not only the consumers but also the business houses at the same time also improving the administrative efficiency of tax authorities.

  1. 3. How will GST affect our every day lives?

Things will get cheaper!! There will be 0% tax on almost 50% of the products in the consumer price index basket like food grains,  egg,  meat, milk, curd, salt, bread, fruits, vegetables, essential medicines, newspaper etc.

  1. 4. What is GST? And what are the advantages and disadvantages of GST?

GST  includes or deals with nearly all tax on manufacture, sale and consumption of goods as well as services all over the country.

ADVANTAGES:

  • Eliminates the cascading effects of tax
  • Higher threshold for registration
  • Composition scheme for small businesses
  • Simple and easy online procedure
  • Improved efficiency of logistics
  • Unorganized sector is regulated

DISADVANTAGES:

  • Increased cost due to software purchase
  • Being GST- compliant
  • Increase in operational costs
  1. How will GST affect the Indian economy and consumer experience?
  • Merger of taxes
  • One law one country
  • Reduction of manufacturing cost
  • Removal of tax barriers
  • Increased demand for goods
  • Reduction of black money
  1. 6. How does GST work?

Only a registered person can charge and collect GST on taxable supplies of goods and services made by him.

  1. Who is not eligible for the composition scheme?
  • Businesses with annual turnover less than rs.1.5 crore
  • Non-manufacturers of goods, dealers and restaurants not serving alcohol