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What is the Goods and Services Tax (GST)?

7 September 2023

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The ultimate tax burden falls on the customer. GST replaced many taxes formerly charged by the federal and state governments, including central excise duty, service tax, extra customs duty, surcharges, state-level value-added tax, and octroi.

The Indian GST legislation is a comprehensive, multi-stage, destination-based tax on all value additions. The GST council governs tax rates, rules, and regulations on the concept of one country, one tax. Finance ministers from both the federal and state governments serve on the council.

This implies that the Union and state governments now administer taxes via the Central GST and State GST, respectively. The federal government levies the Central GST (CGST) while the state government levies the State GST (SGST) on intra-state transactions. The Central Government sets Integrated GST (IGST) on inter-state transactions and imported goods and services.

However, this complicates the tax collecting procedure for state governments since they are now unable to collect taxes owing to the federal government. First, assess whether the transaction is taxable to establish if CGST, SGST, or IGST is applicable.

Inter-state: When the supplier's and buyer's locations are the same, i.e., same states.
Intra-state: Occurs when the supplier's and buyer's locations are in separate states.

The division was established by the country's federal system, in which the Constitution grants both the Centre and the States the authority to levy and collect taxes. Both have specific tasks to fulfil, which need the collection of tax income. This kind of tax structure enables taxpayers to obtain credit against each other.

How Does GST Work?

Businesses that make taxable supply must register for GST if their annual sales turnover exceeds the statutory level. Only a registered person may charge and collect GST on taxable goods and services supplied by him. The registered person may deduct the amount of GST incurred on inputs (input tax) from the amount of GST invoiced (output tax).

The government must pay the difference if the output tax exceeds the input tax in the applicable period. The government will reimburse the difference if the input tax is more than the output tax.

Tax Laws before the Implementation of GST

Previously, the Centre and the States collected tax independently. The tax systems varied depending on the state.
Even when an import tax was charged on one person, the burden was placed on another. In the event of direct taxation, the taxpayer is required to pay the tax.
Before the implementation of GST, India had both direct and indirect taxes.

Types of GST

GST tax is classified into four categories, which are listed below:

State Goods and Services Tax (SGST)

The State Goods and Services Tax Act of 2016 governs SGST. The present state taxes of State Sales Levy, Luxury Tax, Entertainment Tax (unless collected by local governments), VAT, Lottery, Betting, and Gambling Tax are all rolled into the SGST tax.

Central Goods and Services Tax (CGST)

The CGST is an abbreviation for Central Goods and Services Tax. It is responsible to providers based in the state. The accumulated expenses will be shared with the target expert body.

Integrated Goods and Services Tax (IGST)

The term "Integrated Products and Services Tax" (IGST) refers to the tax imposed under this Act on the delivery of any goods and services in the course of inter-State trade or commerce, and it includes, for this purpose, the use of the term "goods and services tax."

Union Territory Goods and Services Tax (UTGST)

The Union Territory GST applies to India's union territories, including Chandigarh, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, and the Andaman and Nicobar Islands.

Who is Eligible for GST Registration?

To apply for GST registration, your yearly revenue must fall into one of the following ranges:

The manufacturing business faces a hurdle of ₹40 lakhs or above.
The barrier for the service industry is ₹20 lakh or higher.
The barrier is ₹10 lakhs or higher for northeastern and hill states firms.

Furthermore, if you match any of the following conditions, you must register for GST:

You sell products or services in a state different than the one in which you live.
You may sell your stuff on e-commerce sites like Flipkart or Amazon.
You are in the import-export business.
You need to generate tax invoices for your clients.
You are a business attending an exposition or event outside your state as a casual taxable payor.
Under the reverse charge technique, you are taxed.
You are acting as an agent on behalf of a registered taxpayer.
You work as an Input Service Provider (ISD).
You own an e-commerce site or an aggregator company.
You offer OIDAR (Online Information Database Access and Retrieval) services to India from outside the country

GST Registration

Regular, casual taxable people, non-resident taxable persons, and e-commerce businesses are all eligible for GST registration. Regardless of revenue, simple taxable individuals, non-resident taxable persons, and e-commerce businesses must get GST registration.

A Casual Taxable Persons:

A "casual taxable person" is defined under the GST Act as someone who sometimes provides goods or services in a state or union territory where the entity does not have a permanent place of business. As a result, those conducting transitory enterprises at fairs, exhibits, or seasonal companies would be classified as casual taxable persons under GST.

Non-resident Taxable Persons:

A non-resident taxable person (NRI) is defined under GST as any individual, company, or not-for-profit organisation that provides goods or services but does not have a permanent place of business or habitation in India.
As a result, any foreign person, foreign corporation, or foreign organisation selling products or services to India would be considered a non-resident taxable person, subject to all Indian GST requirements.

E-Commerce Operators:

Anyone who owns, maintains or manages a digital or electronic facility or platform for electronic commerce is considered an electronic commerce operator. As a result, regardless of company revenue, everyone selling through the internet is regarded as an "e-commerce operator" and must register for GST.

Know the GSTIN - GST Identification Number

GSTIN, which stands for Goods and Services Tax Identification Number, is a unique 15-digit identification number provided to each taxpayer (mainly a dealer or supplier, but also any corporate organisation) registered under the GST system.

Obtaining a GSTIN and registering for GST are both completely free of charge. Before the implementation of GST, all merchants registered under state VAT laws were assigned a unique TIN by the different state tax authorities; GSTIN has replaced this. Businesses registering for GST now get a unique identification number known as the GSTIN.

GST Certificate This certificate is Form GST REG-06, granted to all GST-registered firms and individuals. The GST certificate is often used to prove that an organisation is registered under the GST system. It also includes information on tax transactions.

Regular taxpayers' certificates do not expire under normal circumstances. The certificate is valid until the government or the taxpayer revokes their registration. The validity date, on the other hand, applies when an NRI or taxable person registers.

GST Returns

A Goods and Services Tax Return (GSTR) is a document that includes all of the information about revenues and expenses that a taxpayer is required to disclose to the Tax Authority of India. The tax authorities use this document to assess the tax burden that rests on an entity so that it may be collected or returned.

GST returns are made up of four major components:

Revenue
Purchases
Calculate GST depending on sales.
GST-registered purchases

Rates of GST

In India, the GST percentage is split into four rates: 5%, 12%, 18%, and 28%. The GST Council regularly revises the inclusions under these rates to guarantee optimal pricing of various product categories.

The fee determines whether the commodity or service is a necessity or a luxury. Generally, things of need get a reduced tax rate, such as 5% or 12%, whereas luxury items are taxed at 18% or 28%.

Aside from these, the GST on gold is 3%, and the GST on semi-precious and raw stones is 0.25%. Furthermore, a tiny part of all products and services subject to the GST scheme are exempt from taxation, including several salt kinds and, most recently, sanitary napkins.

How to Calculate GST?

To calculate GST, multiply the taxable amount by the GST rate. When CGST and SGST/UTGST are combined, the CGST and SGST amounts equal half of the total GST payment.

GST is calculated by multiplying the taxable amount by the GST rate. If you already have a figure that includes GST, use the formula below to calculate the GST-free value.

GST excluding the amount = GST including the amount / (1+ GST rate/100).

What is a GST Payment?

A GST payment is the periodic repayment of a business's GST liability. It is one of the essential requirements for a company to remain compliant. According to the instructions, every registered regular taxpayer must pay GST on the 20th of each month and file a GSTR-3B form.

GST payments may be made online, ensuring a smooth and transparent experience.

E-way Bill for GST

An e-way bill is an electronic bill for the transportation of goods that may be created using the GSTN (common portal). SMS will also be used to produce and cancel e-way invoices.

Advantages of GST

The cascading tax impact is eliminated

GST is a comprehensive tax intended to prevent the cascading effect. The cascading effect refers to a tax on an existing tax system in which the tax responsibility was passed at each transaction level. As a consequence, the item's worth rose.
The GST eliminates this cascading effect since the tax directly impacts the cost of goods and services. The tax burden is moved to the customer, which helps the sector via improved cash flow and working capital management.

Input Tax Credit

When paying taxes on output, producers or service providers may deduct the tax they have previously spent on inputs. The average tax burden for manufacturers or service providers is anticipated to decrease. As a result, lowering the price would stimulate increased consumption.

Tax Evasion

The beneficiary, i.e., the manufacturers or service providers, are only eligible for the input credit if the supplier submits the information in its return. It stimulates providers of products and services, hence reducing tax avoidance.

Higher registration threshold

Previously, firms with a turnover of more than 5 lakh rupees were obliged to pay VAT. Various states had different limits. However, under the GST system, the barrier has been raised to 20 lakh rupees. This implies that small businesses and service providers are excluded.

Small company composition schemes

Many small enterprises' tax and regulatory obligations have been lessened. Furthermore, small firms, defined as those with a turnover of 20 to 75 lakh rupees, might profit from the use of composition programs.

Observance Number

Previously, each tax had its filings and compliance since there were so many. For example, excise reports had to be completed monthly, service tax was either quarterly or monthly, and VAT varied by state. However, since the imposition of GST, there has been reduced compliance. There is just one consolidated return that must be submitted. There are 11 GST returns.

E-commerce operators have defined treatment

Before GST was established, the e-commerce industry did not specify the supply of commodities. Some jurisdictions might classify them as facilitators or mediators, exempting them from VAT registration. GST has eliminated all of these disparate treatments. The interstate circulation of products is now clear.

Disorganized sector regulation

Previously, the construction and textile sectors were generally unregulated and unorganised. GST includes facilities for online compliance and payment. As a consequence, these sectors will face more accountability and regulation.

GST Council

The GST Council was established by the Government of India (GoI) to alter, regulate, and reconcile India's goods and services tax. To make the taxes procedure easier for taxpayers, the Council will replace all current taxation processes and adopt new taxation techniques. In addition, the Council will monitor all tax procedures to help relevant agencies and eliminate fraudulent acts.

GSTN - Goods and Service Tax Network

GSTN, or the Goods and Services Tax Network, is a non-profit organisation. It offers shared information technology infrastructure and services to the federal and state governments, taxpayers, and other stakeholders. GSTN will offer all taxpayers registration front-end services, returns, and payments. In a word, it will serve as a liaison between the government and taxpayers.

Helpline for GST

Taxpayers with questions or concerns about their GST filing should contact the relevant authorities through the GST Helpline. Previously, taxpayers may contact the helpdesk through email at helpdesk@gst.gov.in. It should be noted, however, that this email address has been deactivated.

The GST Helpline contact information is as follows:

Toll-free number: 1800 1200 232

Portal for Self-Help: https://selfservice.gstsystem.in/

GST App

There are a few GST apps that are intended to work on cell phones. There is also a government-issued app, the CBEC GST, among all the applications. It may be downloaded on your Android smartphone through the Google Play Store.

Aside from that, there is a slew of third-party apps. The primary goal of these apps is to assist taxpayers in getting acquainted with the concept of GST and, as a result, facilitate a seamless transition to the new taxing system.

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FAQs What is Goods and Services GST

Can a person or organisation that does not pay GST get ITC?

No, a person or organisation not registered for GST cannot collect GST from a consumer. They are also unable to manage any input tax credits.

Is the registration process the same for a person who operates his company in many states using a single PAN number?

No, everyone should be registered individually in each state where they do business. According to Subsection (1) of Section 22 of the CGST/SGST Act, they must pay GST.

What exactly is ISD?

Section 2(61) of the CGST/SGST Act defines an Input Service Distributor or ISD. It is a system that collects tax bills to receive input services. They also allocate credit to supplier units.

What exactly is GST (Goods and Services Tax)?

The Goods and Services Tax (GST) is a single tax system for the whole economy that would turn the entire country into one marketplace. It is a single tax on goods and services initially imposed by all middlemen, from producer to retailer.

Is it possible for a taxpayer to have more than one ISD?

Yes, the taxpayer's offices may have different ISDs.

How is GST applied to imports and exports?

Imported commodities and services are considered an interstate supply. It will be subject to IGST. At the same time, exports are regarded as zero-rated supply. There is no tax on products and services exported. The exporters get a return of the input tax credit.

What papers are needed for the GST registration process?

PAN number
Evidence of business registration
Identity verification
Those in charge's photographs and proof of residence
Proof of business address
Account statements

What is the current turnover ceiling for GST registration exemption?

GST registration is not required for businesses having annual revenue of less than ₹20 lakh. The turnover ceiling for northeastern states is ₹10 lakh.

Can I sell goods online without paying GST?

Yes, you may sell things online without registering for GST until your revenue meets the maximum set by the authorities. If it exceeds the limit, you should complete your registration. Seller GST is required to register on online marketplaces such as Amazon, Flipkart, and others.

What precisely is total turnover?

The aggregate turnover is the entire value of all taxable and non-taxable supplies, exempt supplies, and exports of goods or services under the same PAN.

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