Goods and Services Taxes is a simplified tax system that is complex to understand. This is because of the structure, implementation, rules, functioning, framework, and different rules that shape this Act. If you are a charter Accountant or a regular taxpayer, you need to get GST explained in detail to remain GST compliant and to fully benefit from this reasonably new tax regime. Different aspects make you GST compliant such as registering under GST, getting GST number verification through which you will get your unique GST Identity that is GSTIN. Here is a comprehensive guide about the pathbreaking tax regime – GST.
What is GST?
Goods and Services Tax (GST) is an indirect tax regime that has subsumed almost all indirect taxes. This Act was first proposed in the year 2000 and implemented on 1st July 2017. It is a multi-level, destination-based, all-inclusive tax regime. Its multi-level as taxes imposed are on every step of supply, from manufacturing to final sale. It’s destination-based because the final consumer pays the tax. The tax on any goods or services is based on value addition and not on the total product value.
How GST works:
GST is taxed on the value addition of Goods and Services and not on the actual value of the product. For Example, a shoemaker buys raw material for manufacturing shoes such as leather, cloth, glue, etc. The value of inputs increases when leather and fabric come together, making it a boot. The manufacturer then sells the footwear to a wholesaler who packs large quantities of shoes under its brand name. It creates another value addition to the product. The wholesaler then sells it to a retailer who packs and markets the product increasing the value addition. GST applies to all stages of supply. But only on the amount of value-added to the product. GST removed the tax-on-tax or the cascading effect that happened in the previous tax regime. This improved transparency and collection of taxes as well as helped increase the sale of goods and services with the cut in tax rates.
The structure of GST is on a four-tier tax slab. 5%,12%, 18% and 28%. Through the 37th GST council, cut and semi-precious stones will come under a new tier of 0.25% tax rate. There is also an exempted GST tax slab where essential items like groceries and household items are not taxed. Items such as fish, chicken, eggs, cereal grains, salts, etc. are exempted.
5% tier – This tier contains goods and services that are necessary to a great extent. Items such as spices, cashew nut, raisin, insulin, coal, fertilizers, etc. are taxed under this tax slab.
12% tier – Diesel engines, corrective spectacles, intraocular lens, all diagnostic kits, spearmint oil, peppermint, etc. are taxed under this slab.
18% tier – Dental wax, Aluminium foil, shopping bags, and handbags made of artificial plastic material, precast concrete pipes, etc. come under this tier.
28% tier – Goods that are considered luxuries, such as luxury cars, yacht, etc. Or products considered as “sin-products” such as tobacco. Cigars etc. are taxed under this tier.
Categories: GST is categorized into Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST).
CGST: CGST is a tax levied by the central government on the supply of goods and services on an intra-state level. The tax collected through CGST remits to the central government.
SGST: SGST is a tax levied by the state government on the supply of goods and services on an intra-state level, and the tax collected will be remitted to the state government. The central government governs SGST.
IGST: This tax levies on the supply of goods and services on an inter-state level. It also levies on the import and export of goods to and from India. The central government shares the tax collected with the state of destination of goods.
UTGST: It is a tax levied on the supply of goods and services from the five union territories, including Andaman and Nicobar Islands, Lakshadweep Islands, Daman, and Diu, Chandigarh, Dadra, and Nagar haveli.
The GST is governed by 33 member GST council headed by the finance minister who is assisted by the finance minister of all the states of the country. The GST council regulates, modifies, and procures any regulation or law based on the nature and context of Goods and Services.
There are different ways in which GST has simplified the tax process and, at the same time, build a smart way to create transparency. E-way bill is one such step. E- way bill is an electronically generated document that specifies the movement of a particular good from one place to another, such as an interstate or intrastate movement. A special E-way Bill Number is assigned to a product and is available to the supplier, transporter, and consumer.
For the benefit of taxpayers and suppliers, the Input Tax credit is introduced under GST. Input Tax Credit is a system where a supplier can claim back the GST amount paid on an invoice. The way there is a complex market in India, many unregistered suppliers are in the system who supply to a registered dealer. When this happens, a reverse charge mechanism is implemented where the tax on supply is paid by the receiver as against the normal tax system where the supplier pays the tax. There is also a composition scheme under GST, where a small supplier can choose to get rid of paying taxes every month and can choose to pay taxes at a fixed rate of turnover. As this scheme is for small suppliers, only those with a turnover that’s less than 1.5 crores are eligible for this scheme.
GST might seem like a very complicated, hard to understand tax regime, but with few essential aspects becoming clear, it can be easily understood. It’s not necessary for every taxpayer to get GST explained in detail and to know all its structure and functions. An individual can take the help of a chartered accountant or GST expert, but it’s necessary for any taxable individual or business to get registered and get GST number verification, or GSTIN verified to remain GST compliant. Through a simple registration process on the GST portal, any individual or business can get registered under GST.