Overview of GST in India

In the year 2000, a committee was formed to draft legislation for the GST. The Law took 17 years to develop, after which the GST Bill was passed by both Lok Sabha and Rajya Sabha in 2017. The GST Law went into effect on July 1, 2017. Good and Services Tax (GST) came into effect to reduce the number of taxes by combining them into a single tax. GST was enacted in India not only as a single tax but also as a major step forward in the field of Indirect Tax reforms. GST is a national Indirect Tax that is levied on the consumption, sale, and manufacturing of goods and services. GST was implemented to boost economic growth and lower the overall tax burden on goods in the country. GST is a single tax that is charged at any point of sale or service. There is no longer a requirement to pay VAT or Service Tax on the same product with the implementation of GST into the tax system.

Tax Structure Before Implementation of GST

  1. Prior to implementing GST, the taxation laws between the union and the states were well-defined. There were no fiscal powers that overlapped in any way. The Centre would levy a tax on goods manufactured, with the exception of alcohol for human consumption, drugs, opium, and other controlled substances.
  2. The states had the authority to levy a tax on the sale of goods.
  3. In addition, the Centre levied a service tax on all kinds of services.
  4. Furthermore, the Centre was levying and collecting additional customs duties on goods imported or exported from India.

This tax was imposed in addition to the Basic Customs Duty, and extra customs duty is known as Countervailing Duty (CVD) or Special Additional Duty (SAD), and it is used to counterbalance state VAT, excise duties, sales tax, and other taxes.

Features of GST

Single Indirect Tax: The GST was implemented as a single, unified tax reform. Many existing indirect centre and state taxes, such as the Central Value Added Tax, Special Additional Duty of Customs, Service Tax, and VAT, have been reduced and replaced with a single tax. The elimination of these indirect taxes has helped to make many goods and services more affordable for customers while also making tax compliance easier for corporations.

Input Tax Credit: A manufacturer or service provider’s total output tax liability will be deducted if they have already paid input tax on a purchase. To qualify for the tax credit, the input and output invoices must be identical. This aids in the elimination of the cascading tax effect, also known as the conventional “tax-on-tax” regime. It also helps in the reduction of tax fraud.

Composition Scheme: Small and medium-sized enterprises in specified states with an annual turnover of up to Rs. 1 crore or Rs. 75 lakhs also can opt for the composition scheme voluntarily. Businesses can pay a fixed GST rate of 1% on their turnover under this scheme. However, those companies are not eligible for the input tax credit. A company must choose between using the composition scheme and using the input tax credit feature. 4 Tier GST Tax Structure: The GST has a four-tiered tax structure: 5%, 12%, 18%, and 28%. This tax structure is the only way to tax all goods and services. Many essential commodities, such as items of food, are exempted from the GST. Two of the most significant benefits of this 4-tier structure are increased transparency and lower prices for goods and services.

Advantages of GST Tax

  1. GST replaces all indirect taxes in India with a single unified tax.
  2. A tax administration that is transparent and free of corruption.
  3. Indirect taxes for all retailers and manufacturers are unified.
  4. Simplified Tax Regime.
  5. The burden of taxation is evenly distributed between manufacturing and service industries.
  6. Similar return filing at the State and Central level also reduce the taxation system’s complexity.

Taxes not Covered Under the Purview of GST

Customs Duty: The GST will include the Countervailing Duty (CVD) and Special Additional Duty (SAD), while the Basic Customs Duty (BCD) will be charged according to existing Law only, not GST. Stamp Duty: The buyer must pay stamp duty to register the property, and GST will not cover stamp duty; instead, it will be subsumed into the government’s tax. Vehicle Tax: Because the GST does not extend to road taxes, the Vehicle Tax will not be levied under the GST and will continue to be governed by the Motor Vehicle Act. Excise on Liquor: The liquor has been kept out of the GST for the time being. To be included in the GST, alcohol requires a constitutional amendment. Entertainment Tax (Levied by Local Bodies): The extra tax imposed by local governments is not covered by the GST. As a result, in addition to the 28% GST, the local body’s extra tax could result in Double Taxation. Indirectly, this would result in a significant rise in ticket prices. Road Tax: This tax is not covered by the GST because toll taxes, road taxes, environmental taxes, and other taxes are paid directly by users and imposed by States. If you have any queries related to tax you can reach out to the international tax lawyers in Dubai

Example on GST Regime

 Price of Good = Rs. 200/-

CGST = 10% of Rs. 200/-

SGST = 14% of Rs. 200/-

Total price of Good = Rs. 224.00/-