Goods And Services Tax (Gst)
What is GST?
Goods & Services Tax (GST) is the tax levied on goods and services. This is an Indirect Tax as the burden of tax is passed on to the consumer unlike Direct Taxes which are supposed to be borne by the persons on whom these taxes are levied. GST is a consumption based tax which is levied on the basis of “Destination principle.” The concept relates to taxing the supply of goods or services at the point of consumption. It is a comprehensive tax regime covering both goods and services, and is collected on value-added at each stage of the supply chain. Further, GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. The essence of GST is in removing the cascading effects i.e., tax on tax of both Central and State taxes by allowing setting-off of taxes throughout the value chain, right from the original producer and service provider’s point up to the consumer level.
It's a destination-based taxation system established by the 101st Constitutional Amendment Act. It's calculated only on the "Value addition" at any stage of goods or services. The final consumer will pay only his part of the tax and not the entire supply chain.
The mother of every law in India is the Constitution. Therefore, to understand the GST it is necessary to understand the constitutional provisions behind the GST law.
India has a three-tier federal structure, comprising the Union Government, the State Governments and the Local Government. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution.
The Constitution of India is the supreme law of India. It consists of a Preamble, 25 parts containing 448 Articles and 12 Schedules.
1. Article 265: Article 265 of the Constitution of India prohibits arbitrary collection of tax. It states that “no tax shall be levied or collected except by authority of law”.
2. Article 245: Part XI of the Constitution deals with relationship between the Union and States.
3. Article 246: It gives the respective authority to Union and State Governments for levying tax. Whereas Parliament may make laws for the whole of India or any part of the territory of India, the State Legislature may make laws for whole or part of the State.
4. “Newly Inserted Article 246A” - Power to make laws with respect to Goods and Services Tax.
5. As provided for in Article 279A of the Constitution, the Goods and Services Tax Council (GST Council) was notified with effect from September 12, 2016.
6. Article 366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the GST as a tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. Five petroleum products viz., petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, electricity has been kept out of GST.
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GST was launched on July 1, 2017
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GST consists of the following Acts (35 Acts):
Central Goods and Services Tax Act, 2017 (CGST) (1)
State Goods and Services Tax Act, 2017 (SGST) (31)
Integrated Goods and Services Tax Act, 2017 (IGST) (1)
Union Territory Goods and Services Tax Act, 2017 (UTGST) (1)
Goods and Services Tax (Compensation to States) Act, 2017 (1)
Taxes Incorporated into GST:
At the state level, taxes like State Value Added Tax/Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax, Luxury Tax, Taxes on lottery, betting, and gambling are incorporated into GST. At the central level, taxes like Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty (Countervailing Duty), Special Additional Duty of Customs are incorporated into GST.
When Registration is required? Let’s delve into GST Law.
There are three categories for registration under CGST act, 2017 they are-
1. As per Section 22 – Persons Liable for registration.
Every supplier shall be liable to be registered under this act in the State or Union territory, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Twenty Lakh rupees (20 Lakh), Except for Special Category States i.e. Ten Lakh Rupees (10 Lakh).
Also, for those supplier who is engaged in Exclusive Supply of Goods and whose aggregate turnover in the Financial Year does not exceed Forty Lakh rupees (40 Lakh) is not required to get registered.
2. As per Section 23 – Persons not Liable for registration.
a. any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this act or under IGST Act (i.e. Exempted Goods, Zero rated supply, Supply to SEZ etc.,)
b. an agriculturist, to the extent of supply of produce out of cultivation of land.
3. As per Section 24 – Compulsory registration in certain cases.
i. Persons making any Inter-State taxable supply;
ii. Casual taxable persons making taxable supply;
iii. persons who are required to pay tax under reverse charge;
iv. person who are required to pay tax under sub-section (5) of section 9;
v. non-resident taxable persons making taxable supply;
vi. persons who are required to deduct tax under section 51, whether or not separately registered under this act;
vii. persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise;
viii. Input Service Distributor, whether or not separately registered under this act;
ix. persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52;
x. every electronic commerce operator who is required to collect tax at source under section 52;
xi. every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person.
Apart from above, the person who is supplying Good and Services may get register under GST voluntarily and once registered shall comply the applicable rules of GST.
Composition Scheme:
Under Section 10 of CGST Act, 2017 Composition scheme in GST provides an alternative method of tax payment, small and medium taxpayers whose turnover is not exceeding the prescribed threshold limit. The tax rates under this scheme have been kept at minimal but at the same time a person opting to pay tax under composition levy scheme can neither take Input Tax Credit nor it can collect any tax from the Recipient. It is a voluntary and optional scheme.
Benefits of GST:
1. For Central and State Governments, it simplifies the taxation system and reduces tax avoidance.
2. For the Consumer, it reduces the tax burden as the tax is included in the final price and paid by consumers at the point of sale and passed to the government by the seller.
3. For the Business Class, it makes India a unified market.
GST Council:
As provided in Article 279A of the Constitution, the Goods and Services Tax Council (GST Council) was notified with effect from September 12, 2016. There is a provision of the GST Council to decide upon any matter related to GST whose chairman is the Finance Minister of India.
Timeline of GST:
The concept of GST was first proposed in 1986. It appeared in the Budget speech for the first time in 2006 with an ambitious task of implementing GST by April 1, 2010. France was the first country to implement the GST in 1954. India Adopted the Dual GST Model.
The Goods and Services Tax (GST) in India is divided into several slabs. Here are the main GST rates:
0% - Tax rate applied to certain foods, books, newspapers, homespun cotton cloth, and hotel services.
5% - Tax on household necessities such as sugar, spices, tea, and coffee.
12% - Tax on computers and processed food.
18% - Tax on hair oil, toothpaste, soap, and industrial intermediaries.
28% - applies to luxury products, including refrigerators, ceramic tiles, cigarettes, cars, and motorcycles.
In addition to these, there are also less commonly used rates, such as 3% and 0.25%. Taxable composition persons are required to pay GST at lower or nominal rates, ranging from 1.5% to 6% on their turnover.
Please note that 5 petroleum products (Petroleum Crude, petrol, Diesel, Aviation turbine Fuel, Natural Gas), Alcoholic beverages for human consumption, and Electricity are not comes under the purview of GST till the GST Council notifies, instead are taxed separately by the individual State Governments. The GST rates are subject to change as per the decisions of the GST Council. For example, the GST rate slabs on electric vehicles have been reduced from 12% to 5%, and the GST rate on chargers or charging stations for electric vehicles has been reduced from 18% to 5%. The GST rate on mobile phones and specified parts has been increased from 12% to 18%.
GST Return mechanism:
Every registered person shall file applicable Form electronically within the time as may be prescribed. Some of the forms are-
GSTR-1 - Details of outward supplies of Goods or Services supplied.
GSTR-3B – Summary Return.
GSTR- 4 - Quarterly return for registered person opting for composition levy.
GSTR-5 - Return for Non-resident taxable person.
GSTR-6 - Return for input service distributor.
GSTR-9 - Annual Return.
GSTR10 - Final Return.
Key Takeaways:
1. The goods and services tax (GST) is a tax on goods and services sold domestically for consumption.
2. The tax is included in the final price and paid by customers at point of sale and passed to the government by the seller.
3. The GST is usually taxed as a single rate across a nation.
4 Governments prefer GST as it simplifies the taxation system and reduces tax avoidance.
5 Critics of GST is it burdens lower income earners more than higher income earners.