India is gearing up to witness a major renovation to its taxation structure with the Launch of Goods and services Tax. The implementation of GST will help create a common Indian market and reduce the cascading effect of tax on the cost of goods and services.
GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect taxes in India such as the excise duty, VAT, services tax, etc. The Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.
In other words, GST is levied on the supply of goods and services. Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It is a single domestic indirect tax law for the entire country.
It has mainly removed the cascading effect on the sale of goods and services. Removal of the cascading effect has impacted the cost of goods. Since the GST regime eliminates the tax on tax, the cost of goods decreases.
Also, GST is mainly technologically driven. All the activities like registration, return filing, application for refund and response to notice needs to be done online on the GST portal, which accelerates the processes.
There are three taxes applicable under this system: CGST, SGST & IGST.
CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu).
In the earlier indirect tax regime, there were many indirect taxes levied by both the state and the centre. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations.
Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was applicable in case of inter-state sale of goods. The indirect taxes such as the entertainment tax, octroi and local tax were levied together by state and centre. These led to a lot of overlapping of taxes levied by both the state and the centre.
The following is the list of indirect taxes in the pre-GST regime:
Central Excise Duty
Duties of Excise
Additional Duties of Excise
Additional Duties of Customs
Special Additional Duty of Customs
Central Sales Tax
Taxes on advertisements
Taxes on lotteries, betting, and gambling
CGST, SGST, and IGST have replaced all the above taxes.
However, certain taxes such as the GST levied for the inter-state purchase at a concessional rate of 2% by the issue and utilisation of ‘Form C’ is still prevailing.
It applies to certain non-GST goods such as:
i. Petroleum crude;
ii. High-speed diesel
iii. Motor spirit (commonly known as petrol);
iv. Natural gas;
v. Aviation turbine fuel; and
vi. Alcoholic liquor for human consumption.
It applies to the following transactions only:
Use in manufacturing or processing
Use in certain sectors such as the telecommunication network, mining, the generation or distribution of electricity or any other power sector
In any tax system, perhaps the first and foremost fundamental requirement is the identification of a taxpayer i.e., registration under the GST regime. Registration under GST involves obtaining a unique number from the tax authorities. This is for the purpose of collecting tax on behalf of the government. A person can only claim the credit for tax paid on their inward supply when they are registered.
A GST Return or GST Filing is basically a document that contains information regarding the income that a taxpayer must file with the authorities. This information is used to compute the taxpayer’s tax liability. Under the Goods and Services Tax, registered dealers must file their GST returns with details regarding their purchases, sales, input tax credit and output GST. Businesses are expected to file 2 monthly returns as well as an annual return.
Motto for bringing GST Tax Regime into the system from the point of view of government was ONE NATION ONE TAX, Hence making Tax environment of India more efficient and Competitive.