GST stands for Goods and Services Tax. It is an indirect tax that was introduced to replace other indirect taxes such as Value Added Tax (VAT), service tax, purchase tax, excise duty, and many others. Simply put, GST is levied on the supply of goods and services. Under the GST regime, the tax is levied at every point of sale.
In the case of intra-state sales, Central GST (CGST) and State GST (SGST) are charged. All the inter-state sales are chargeable to the Integrated GST (IGST).
Before GST came into effect in India, there was no unified and centralized tax on goods and services. When GST was introduced, all the major indirect taxes were merged into one single tax i.e. GST. The introduction of GST helped to reduce the compliance burden on taxpayers and eased tax administration for the government.
The GST is a nationwide tax and has a centralized surveillance system. With the help of this system, it is easier to track GST defaulters, which has resulted in curbing tax evasion and reduced tax fraud incidents across India.
How does GST function?
It is mandatory for all service providers, buyers, and sellers to register for GST. A business that makes a total income of Rs.20 lakhs and more in a financial year must register for GST. The individuals or businesses who are entitled to register for GST are e-commerce aggregators, individuals who supply through e-commerce aggregators, individuals who pay tax as per the reverse charge mechanism, agents of input service distributors and suppliers, non-resident individuals who pay tax, businesses that have a turnover that is more than the threshold limit, and individuals who have registered before the GST law was introduced.
After GST registration, a GST certificate is issued by the concerned authorities for that registered business under the GST system. This certificate is not issued physically. It is available in digital format only.
A GST certificate contains GSTIN, legal name, trade name, the constitution of business, address, date of liability, period of validity, types of registration, particulars of approving authority, signature, details of the approving GST officer, and date of issue of a certificate.
In addition, the GST portal allows taxpayers and other stakeholders to file their grievances. Instead of sending emails to the helpdesk, the taxpayers can directly file a complaint on this portal describing the faults or challenges they are facing when working on this portal.
It has been structured so that users can describe issues they’re facing and upload screenshots of the pages where they’re encountering problems, allowing for the speedy resolution of complaints.
India established a dual GST structure in 2017, which was the biggest reform in the country’s tax structure in decades. The main aim of incorporating the GST was to eliminate tax on tax, or double taxation, which cascades from the manufacturing level to the consumption level.
For instance, the business adds the GST to the price of the product, and a customer who buys the product pays the sales price inclusive of the GST. The GST portion is collected by the business or seller and forwarded to the government. It is also referred to as Value-Added Tax (VAT) in some countries.
Benefits of GST in India
Listed below are some benefits of GST in India
- The intra-state business has become cheaper due to GST implementation. This has helped reduce the tax burden on logistics as companies are paying a uniform tax in all states across the country.
- The implementation of GST has streamlined the unorganized players as all stakeholders who have already paid taxes will compliance proofs to claim their set-offs. This has brought transparency to the system.
- The GST implementation has largely improved the coordination between the states and the central government due to the removal of all indirect taxes.
- Consumers are considered the end of the supply chain and the biggest beneficiaries of the GST system as they will no longer have to pay more for goods or services as the government withdraws all the hidden taxes.
- GST has helped decrease the transaction costs of doing business. This has led to increased competitiveness for trade and industries in India.
- The cost of collection of tax revenues by the government has been reduced after the GST implementation. This has resulted in higher revenue efficiency for the government.
Important facts about GST functioning
Listed below are some important facts about GST functioning
- France was the first country to impose the Goods and Services Tax (GST) in the year 1954.
- The GST in India is based on the Canadian model.
- The Vijay Kelkar Committee recommended that GST should be implemented in India.
- The Goods and Services Tax (GST) was imposed in India on July 1, 2017.
- Assam was the first state to implement the GST.
- In September 2016, the President of India approved the GST bill and established the GST Council.
- GST Council has appointed Amitabh Bachchan as its brand ambassador.
- The GST was enacted in accordance with Article 279 of the Indian Constitution.
- The GST Council is now chaired by Finance Minister.
- The GST Council currently has 31 members.
- The GST Council will monitor all issues relating to GST and suggest recommendations for improving the GST Bill.
- The biggest reason behind the implementation of the GST is to bring uniformity to the tax system of the country.
- GST has been implemented by the 101st Constitution Amendment Act, of 2016.
- The GST was the 122nd constitutional amendment bill to be introduced in the Parliament of India.
- During the passing of the GST bill in the Parliament, 336 votes were cast in the favour of GST bill and 11 votes were against it.
- There is a provision of 5-year imprisonment for those who do not pay GST.
- There are 5 rates of taxes in GST i.e. 0%, 5%, 12%, 18%, and 28%.
- GST is an indirect tax. In broader terms, it is known as a federal tax.
- After the implementation of GST, sales tax, service tax, customs duty, excise duty, VAT, Octroi tax, and other taxes will not exist.
- At present, there are approximately 160 countries in the world that have implemented the GST.
In conclusion, the GST system is essential for securing the information of all taxpayers, stakeholders, and customers across the globe. The GST system also helps in maintaining the confidentiality of the information of all taxpayers and is responsible for handling invoices, registrations, payments, refunds, different types of returns, and the grievances of the customers and taxpayers. In addition, the GST has brought accountability and regulation to unorganized sectors in India such as textile, real estate, agriculture, retail, banking, automotive, and many others.
Thus, the Goods and Services Tax (GST) is a milestone in India’s indirect tax system that can address multiple issues together. The GST system has brought a smoother structure to prevent double taxation and is a destination-based tax charged at the point of consumption. Apart from the various benefits of GST, there are certain challenges in the GST system that need to be addressed. The government authorities are trying their best to eliminate all the gaps and drawbacks in the GST functioning, which will help boost the development of the countries using GST and reap benefits in the long run.