Goods and Services Tax (GST) Characteristics

The Goods and Services Tax (GST) is also known as the Goods and Services Tax. One of India’s many indirect taxes, it has supplanted a variety of others such as excise duty, VAT, and services tax. The Goods and Services Tax Act was passed by the Parliament on March 29, 2017, and it went into effect on July 1, 2017, making it the most recent piece of legislation to be passed in the country.

How does Goods and Services Tax (GST) work

Given below is how GST works –

• Manufacturer

The manufacturer will be responsible for paying GST on the raw materials that are purchased as well as the value that has been added to the product during the manufacturing process.

• Service Provider

In this case, the service provider will be responsible for paying GST on both the amount paid for the product and the amount of value that has been added to the product. However, the amount of tax that the manufacturer has paid can be deducted from the total amount of GST that is required to be collected.

• Retailer

The retailer is responsible for paying GST on both the product purchased from the distributor and the margin added to the price of the product. However, the amount of tax that has been paid by the retailer can be deducted from the total amount of GST that is required to be collected.

• Consumer

 As a consumer, you are responsible for paying GST on the product you have purchased.

Kinds of GST 

• Central Goods and Services Tax (CGST): The CGST is levied on products and services that are supplied within a state

• State Goods and Services Tax (SGST): Like the Central Goods and Services Tax (CGST), the State Goods and Services Tax (SGST) is levied on the sale of goods and services within a state

• Integrated Goods and Services Tax (IGST): The IGST is levied on interstate transactions involving the sale of goods and services

• Union Territory Goods and Services Tax: Tax on the supply of goods and services in the Union Territories of the country, which include the Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh, is levied under the Union Territory Goods and Services Tax (UTGST). The UTGST is levied in addition to the CGST

Objectives of GST

• In order to realise the ideology of “One Nation, One Tax”

• In order to consolidate a large proportion of India’s indirect taxes

• In order to prevent the cascading effect of taxes

• To put a stop to tax evasion

• In order to broaden the base of taxpayers

• Procedures for conducting business online for the convenience of the customer

• Improved distribution and logistical infrastructures

• The goal is to promote competitive pricing while also increasing consumption

Key Features of GST

Here are the key features of Goods and Services Tax –

• Single Indirect Tax

GST is single, unified tax reform. It consolidated numerous existing indirect central and state taxes such as the Central Value Added Tax, Special Additional Duty of Customs, Service Tax, and VAT. The abolition of these indirect taxes has made many goods and services more inexpensive compared to consumers as well as made tax compliance easier for businesses.

• Input Tax Credit System

The input tax credit is a popular GST feature in India. A manufacturer or service provider can deduct input tax paid on purchases from their total output tax liability. To claim the tax credit, the input and output invoices must match. This removes the traditional ‘tax-on-tax’ effect. It also reduces tax evasion.

• GST Composition Scheme

A voluntary composition scheme is available to SMEs in certain states with a turnover of up to Rs. 1.5 crore and in the case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh. Businesses can pay a fixed GST rate of 1%,5%, 6% based on their business and their turnover under this scheme. However, they cannot claim the input tax credit. A company must choose between the composition scheme and the input tax credit feature.

• Four-tier Tax Structure 

GST has four tiers of taxation: 5%, 12%, 18%, and 28%. This tax structure applies to all goods and services. Many essential commodities, such as food, are exempt from GST. This 4-tier structure offers improved transparency and lower costs for goods and services.

Benefits of GST 

For Businesses and Industry:

• The GST regime in India will be built on a solid IT infrastructure

• Online services for taxpayers include registration, returns, and payments

• A simple and clear way to comply

• GST would ensure uniform indirect tax rates and structures across Canada

• It would boost business certainty and ease. In other words, a GST would make doing business in the country tax neutral, regardless of location

• A continuous flow of tax credits across the value chain and across state lines would ensure minimum tax cascading

• This would cut business costs

• A reduction in corporate transaction costs would eventually increase trade and industry competitiveness

• Tax consolidation, complete and thorough set-off of tax paid on goods and services, and phase-out of CST would reduce locally created goods and services

• This would improve Indian exports and increase the competitiveness of Indian goods and services globally

For Central and State governments:

• GST replaces multiple central/state indirect taxes

• GST would be simpler and easier to administer if it had a comprehensive IT infrastructure

• A robust IT infrastructure will result in greater tax compliance

• The seamless transfer of input tax credits from one step to another in the value chain is included in the GST system to encourage tax compliance by dealers

• GST is projected to reduce the government’s tax collection costs and hence increase revenue efficiency

For Consumers: 

• Most goods and services in the country were taxed numerous times by the central and state governments, with incomplete or no ITC provided at various levels of value addition

• There would be simply one tax from maker to consumer, leading to tax clarity

• The overall tax burden on most commodities will be reduced due to efficiency gains and leakage prevention, benefiting consumers

Conclusion 

The Goods and Services Tax (GST) has several elements that are already proving to be game-changers for the Indian economy. Despite the fact that there is still much work to be done, industry, consumers, and the government have already begun to reap the benefits, which are projected to become much more widespread in the future.