GST is regarded as India's most significant indirect tax reform. The GST Bill's principal goal is to create a single tax system that applies from the manufacturing stage to the delivery of products or services to the final consumer. It's a single tax that includes a full set-off for taxes paid earlier in the global marketplace.
The goods and services tax (GST) is a single indirect tax rate that will be applied throughout the country. It combines all of the country's current central and state taxes into a single tax rate. The Constitution (122nd Amendment) Bill was first introduced in India in 2014.
What is the Purpose of GST?
There are a variety of reasons why GST should be implemented in the country, including:
- Prior to the introduction of the GST regime, the Central and State governments imposed a variety of taxes.
- Different state governments followed their own set of taxes policies and regulations.
- A central state tax was imposed by the federal government on an interstate transaction.
- Internal trade within the country suffered greatly as a result of different taxes or a lack of uniformity in the tax structure. Internal trade was being harmed by overlapping taxes at the state and federal levels, as well as the tax regime's cascading effect.
Cascading Effect Elimination
With the adoption of the GST, the cascading effect of taxation would be eliminated. Under the GST famework, input tax credit can be claimed with ease.
Regulation of the unorganised sector
In India, there are still some unorganised industries. The GST rules will aid in the regulation of the unorganised sector by streamlining the process of online compliance and payments.
Uniform tax structure
It harmonises laws, procedures, and tax rates across the country, resulting in a tax system that is easier to understand.
GST Procedures are Completely Online
The whole GST procedure, from registration to return filing, is completed entirely online. This would be very beneficial for new businesses, as they would not have to register under numerous indirect tax systems.
Because GST replaces 17 indirect taxes with a single tax, it will enhance product demand, resulting in a rise in revenue for both the federal and state governments.
Types of GST and its Explanation
As per the newly implemented tax system, there are 4 different types of GST:
- Integrated Goods and Services Tax (IGST)
- State Goods and Services Tax (SGST)
- Central Goods and Services Tax (CGST)
- Union Territory Goods and Services Tax (UTGST)
|Types of GST||Authority||Applicable transactions||Benefiting authority|
|SGST||State Government||Intra-state transactions/transactions within a single state||State Government|
|UGST||Union Territory (UT) Government||Within a Union Territory||Union Territory (UT) Government|
|CGST||Central Government||Intra-state transactions/transactions within a single state||Central Government|
|IGST||Central Government||Inter-state transactions/transactions between two states or a state and a Union Territory (UT)||State Government and Central Government|
Integrated Goods and Services Tax or IGST
The tax levied under the IGST Act on the supply of any goods and/or services in the course of interstate trade or commerce is known as the IGST or integrated goods and services tax. In the case of I inter-state supply of goods and services, (ii) imports and exports, and (iii) supplies to and from special economic zones, the centre will tax IGST. The term "supply" refers to the sale, transfer, exchange, or leasing of goods or services for a fee in order to advance a business. Furthermore, IGST will be charged on any supply that is not covered by the Central and State GST Acts.
State Goods and Services Tax or SGST
The State Goods and Services Tax (SGST) is a tax paid on intrastate transactions when the consumer and producer are in the same state. The State GST is a tax collection mechanism for the state government, as the name implies. It is collected as a separate tax in the case of intrastate transactions. The GST Act, like the CGST, imposes a tax on all sales and purchases, as well as other non-exempt transactions.
When the SGST is implemented, the current state taxes of State Sales Tax, VAT, Luxury Tax, Entertainment Tax (unless levied by local governments), Taxes on lottery, betting, and gambling, Entry tax not in lieu of Octroi, State Cesses and Surcharges in relation to the supply of goods and services, and so on, will be merged into a single tax called State SGST.
Central Goods and Services Tax or CGST
Intrastate transactions, in which the vendor and consumer are both from the same state, are subject to the Central Goods and Services Tax (CGST). The CGST is imposed on products and services in order for the government to collect taxes. The CGST is collected at the same time as the SGST. Unlike IGST, CGST is collected as a separate tax and remitted with the Central Government in the case of intrastate transactions. CGST is levied on a wide range of commodities, from needs to extravagances, and from manufacturing services to professional services. The Central Government of India collects the Central Goods and Services Tax (CGST), which is levied on all intra-state supplies of goods and services. This is governed by the CGST Act, which stipulates that the CGST cannot exceed 14%. For example, if Mr. Arush in Uttar Pradesh sells products worth Rs. 10 lakh to Mr. Balraj in Rajasthan, the CGST and SGST will be apportioned in equal quantities and fixed at 6% each.
Union Territory Products and Services Tax or UTGST)
The Union Territory Products and Services Tax (UTGST) is the Indian Union Territories' (UTs) counterpart to the State Goods and Services Tax (SGST), which is charged on the supply of goods and/or services. In the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra and Nagar Haveli, and Lakshadweep, the UTGST applies to the provision of goods and/or services. The UTGST Act regulates the UTGST. The Union Territory government is in charge of collecting the UTGST income. In Union Territories, the UTGST takes the place of the SGST. As a result, in Union Territories, the UTGST will be imposed in addition to the CGST.