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ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Summary: GST in India is an indirect tax introduced in 2017 that aims to merge multiple taxes into a single system.
When you buy your groceries or any other item from the supermarket, you see GST printed on your receipt. Although a relatively new tax, GST is now the most common tax you will find on the goods you purchase and the services you take. As a taxpayer, it is essential you understand what is GST, how it reached India, its types, and most importantly, how it impacts you financially.
Let’s discuss GST or the Goods and Services Tax. Ever wondered why it is such a big deal? Essentially, GST is an indirect tax that has simplified the tax structure in India. To define GST easily, it is a multi-stage, destination-based tax levied on every value-addition step. Before GST, several other taxes like excise duty, VAT, and service tax made things a bit more complicated. However, that all changed when the GST Act was passed in Parliament on March 29, 2017, and officially rolled out on July 1, 2017. Since then, it has streamlined the entire tax system, making life easier for businesses and consumers.
Now that you understand what is GST meaning, let us explore the fascinating journey of GST, which started long before its introduction in India.
Believe it or not, GST’s history began in 1954 when France first implemented it. Over the years, more than 160 countries followed suit, with Malaysia being one of the latest in 2015. In India, GST debuted in 2017 with a unique dual tax structure.
The introduction of GST in India was led by Mr. Arun Jaitley, the Finance Minister at the time. In 2014, he introduced the Constitution Amendment Bill in Parliament. By May 2015, the 122nd Amendment Bill was passed in the Lok Sabha. Soon after, on the 20th of April 2017, the Integrated GST Bill, Union Territory GST Bill, Central GST Bill, and the GST (Compensation to States) Bill were approved by both the Lok Sabha and Rajya Sabha. This laid the groundwork for the historic official rollout of GST on July 1, 2017.
India’s GST journey began much earlier than 2017. Discussions about adopting GST for India first took place over twenty years ago, in the year 2000. Given their experience with state VAT, an empowered committee of state finance ministers was set up to explore this.
By 2004, a Fiscal Responsibility and Budget Management Committee was formed, and the introduction of GST was recommended. In 2006, during the Union Budget Speech, Finance Minister P. Chidambaram announced that GST would be implemented by April 1, 2010. However, a series of delays led to the introduction of the Constitution (115th Amendment) Bill in 2011, but it was stalled with the dissolution of the Lok Sabha in 2014, leading to the bill lapsing. Eventually, the Constitution (122nd Amendment) Bill was introduced in the same year, and the journey toward GST officially resumed.
Here’s how GST gradually evolved over the years:
This timeline reflects how GST has grown and adapted, continuously evolving since its inception to meet the needs of an economy as dynamic as India. To really understand GST, you must first understand what the government aims to achieve with it.
Now that you know what is GST in India, you must be wondering what its objectives are. Here are some of the main objectives that help define GST easily:
GST aims to simplify the taxation system by unifying multiple indirect taxes under a single regime. This simplification helps reduce businesses’ compliance costs.
Under the previous tax regime, taxes were levied on taxes, leading to a cascading effect. GST eliminates this cascading effect by allowing input tax credits across the value chain.
One of the top objectives of GST is that it promotes the concept of ‘One Nation, One Market’ by providing a common market across states and Union territories, promoting seamless interstate trade.
In India, there are primarily four main types of GST levied depending on the nature of the supply (sale of goods and services):
CGST is the component of GST that the Central Government levies on intra-state supplies of goods and services. The revenue collected from CGST goes to the Central Government.
SGST is the component of GST that the State Governments levy on intra-state supplies of goods and services. The revenue collected from SGST goes to the respective State Governments.
IGST applies to inter-state supplies of goods and services as well as imports. It is collected by the Central Government and then distributed among the states. IGST replaces the Central Sales Tax (CST) levied on inter-state sales.
UTGST is similar to SGST but is levied by the Union Territories (UTs) without legislatures. The revenue collected from UTGST goes to the respective Union Territory Governments.
In India, the responsibility to pay GST falls on several categories of taxpayers:
Any business exceeding the GST registration threshold (₹40 lakhs for most states, ₹20 lakhs for some special category states) must register and pay GST on taxable supplies.
Businesses with a turnover below the threshold can still register for GST voluntarily. This can be beneficial for claiming Input Tax Credit (ITC) on purchases.
Online marketplaces like Amazon or Flipkart must register for GST if they facilitate taxable supplies through their platform. In some cases, they might be responsible for collecting tax at source (TCS) on behalf of sellers.
These are temporary registrations obtained by unregistered businesses making a single taxable supply in a state exceeding a specific limit (₹10 lakhs in most cases).
There are no fees involved in the GST registration procedure. However, if businesses fail to complete the registration process, they may incur a penalty equivalent to 10% of the outstanding amount or ₹10,000, whichever is higher. A penalty equal to 100% of the outstanding amount will be imposed in tax evasion cases.
Upon uploading the necessary documents, an Application Reference Number (ARN) will be dispatched via SMS and email to validate the registration. Here is the list of documents you will need for GST registration:
GST categorizes goods and services into different tax brackets based on their perceived necessity and value. Here is a breakdown of the main GST slabs in India:
This slab includes commonly consumed items like processed foods (non-luxury), spices, certain packaged foods, and select household items (detergents, soaps). The lower tax rate keeps these necessities relatively affordable.
This bracket includes a wider range of goods, such as clothing (excluding luxury brands), footwear, biscuits, processed fruits and vegetables, and restaurant services (without liquor). The moderate tax rate balances government revenue needs with affordability for various products and services.
18% slab encompasses most electronic appliances, furniture, televisions, refrigerators, washing machines, and some restaurant services (with liquor). This rate applies to goods considered more discretionary or non-essential.
This slab includes luxury items like cars (except electric), air conditioners, expensive jewelry, and tobacco products. This rate aims to discourage excessive consumption of luxury goods and generate higher revenue for the government.
GST is calculated based on the value of the goods or services being supplied. The basic formula involves multiplying the GST rate by the value of the goods or services.
The formula for calculating the GST amount is:
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Where,
Once the GST amount is calculated, it can be added to the value of goods or services to find the total amount payable (for buyers) or collectible (for sellers).
As a taxpayer, you must know what GST is and when to file your GST returns. The frequency of filing GST returns depends on your business type and annual turnover:
While ongoing discussions and potential future changes exist, major new compliances under GST will likely be refinements or clarifications on existing regulations. Here are some areas to keep an eye on:
Many advantages of GST have made taxing easy for taxpayers and the government. Let us have a look at some of them:
GST replaces a complex web of indirect taxes with a unified system. This simplifies compliance for businesses and reduces administrative burdens.
GST eliminates the need for multiple tax clearances across state borders. This simplifies interstate movement of goods, leading to faster and more efficient logistics.
Increased transparency can also be considered one of the features of GST, along with an advantage. The online GST system promotes transparency throughout the supply chain. Businesses can track their tax credits and invoices electronically, reducing the risk of errors and fraud.
GST offers a composition scheme for small businesses with a lower turnover. This simplifies filing and reduces compliance burdens.
Before implementing GST in India, the country had a complex and fragmented indirect tax system characterized by multiple central and state-level taxes. Some of the key taxes that existed before GST include:
GST is essential in India’s journey toward tax reform and economic growth. GST paves the way for a robust and resilient economic ecosystem by simplifying the tax structure and fostering a unified national market. Embracing the principles of simplicity, efficiency, and inclusivity, GST continues to shape India’s economic narrative, heralding a new era of financial prosperity.
1
GST full form is Goods and Services Tax. It is a consumption tax levied whenever you buy or sell goods/services in India.
2
Yes, GST applies to taxable supplies of goods and services made within India.
3
Some essential items and specific sectors are exempt or have a 0% GST rate.
4
Some indirect taxes that GST replaces include excise duty, VAT, service tax, luxury tax, and octroi.
5
The GST Council sets GST rates and can change based on their recommendations.
6
A GST return is a document filed with the government detailing your GST transactions for a period.
7
There is no limit on GST itself. However, a threshold limit applies for mandatory GST registration.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
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