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Corporate and Individual Taxation

What is the Goods and Services Tax? Its Types and Impact

Written by:
Mehak Sharma
Published on
27-Aug-19

GST is an indirect tax structure which is designed for aiding and availing the growth of the economy of our country. It is an all-inclusive tax which is levied on the consumption, sale and manufacturing of goods and services at a national level. In Parliament, The Goods and Services Tax Act which is also identified as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, was passed on March 29th, 2017. It came into effect on July 1st, 2017. The tax under GST is levied on every stage of sale. In the case of intra-state sales, Integrated GST is charged.And for inter-state sale, Central GST and State GST are charged. Under the GST regime, the Central and State taxes would be amalgamated as a single tax payment. GST reduced the overall tax burden on the consumers and also enhanced the position of India at both domestic as well as international market.

Table of Contents:

  1. How the GST came about

  2. Types of GST

  3. What is the Difference between GST and the previous Taxation System in India?

  4. How to Apply for GST

  5. Pros and Cons of GST

  6. How can we Help you?

 

How the GST came about

The concept of GST in India was introduced in the year 2000 by the then Prime Minister Atal Bihari Vajpayee; and a committee was set up for designing the model of GST for the country. After that, a task force on Fiscal Responsibility and Budget Management was formed in the year 2003. This task force recommended, in 2004, the GST for replacing the existing tax regime. It introduced a comprehensive tax structure on all goods and services which was supposed to replace the Central level VAT and State level VATs. The task force also gave the recommendation to replace all indirect taxes leaving the customs duty with value added tax on all goods and services with complete set-off in all levels of the value chain.

Mr. Jaswant Singh, the then Finance Minister of India articulated the initiative towards GST in his Budget speech of 2006-07. At that time, it was proposed that from April 1st 2010, the GST would be introduced; and the Empowered Committee of Finance Minister (designed the State SAT also) was bestowed with the task of coming up with the structure and the road map for GST. A Joint Working Group was formed consisting of officials having representatives of the Centre as well as the State. The group had the important task of examining the various aspects of GST and to formulate a report particularly on exemptions and thresholds, taxation of inter-state supplies and taxation of services. The Empowered Committee released its First Discussion Paper (FDP) on the GST in November, 2009. It was based on the discussion within and between the Committee and the Central Government. This paper showcased the characteristics of the proposed GST and also formed the basis for the discussion between the State and the Centre so far. 

Consult: Top Corporate and Individual Taxation Lawyer in India

Types of GST

India has a number of industries in different sectors having different locations, target customers, supply chain, etc.; which is why the economy of India is highly diverse. For understanding the detailed impact of GST on Indian economy, we have to first understand the three types of GST.

A) Central Goods & Service Tax (CGST)

According to the Central Goods & Services Tax Act 2016, Central Goods & Services Tax is a centralized part of GST that includes the existing central taxation and levies the following:

  • Central Sales Tax

  • Central Excise Duty

  • Additional Excise Countervailing Duty (CVD)

  • Excise Duty under Medical & Toiletries Preparation Act

  • Additional Custom Duty & other centralized taxation

The revenue which is collected through CGST belongs to the Central Government. And this tax is applicable on the supply of goods and services which could be amended from time to time by an expertise body governed by the Central Government. The input tax is transferred to the State Government so that they can use it for making the payment of CGST.

B) State Goods & Services Tax (SGST)

SGST is a vital part of the GST and stands for State Goods & Services Tax, as according to the 2016 GST bill. Several taxation and levies which comes under the head of the State authority are included in the SGST as one uniform taxation. It is the amalgamation of the following taxes:

  1. State Sales Tax

  2. Levies on lottery

  3. Entertainment Tax

  4. Entry Tax

  5. Octroi

  6. Luxury Tax 

  7. Other taxation in regards to the movement of goods and services under State authority through one uniform taxation.

The revenue collected through SGST belongs to the State Government although the framework of the State governing body is supervised and directed by the Central Government. Every state has its own State authority for collection of SGST.

C) Integrated Goods and Services Tax (IGST)

IGST is an organ of GST which lies under the ambit of one nation, one tax. It is charged on the goods and services which are supplied from one state to another state. For example, if the supply of goods and services happens between Delhi and Gujarat, IGST will be applicable.

According to Article 269A of the Indian Constitution, the trade and commerce activities involving the movement of goods and services from one state to another shall be levied with IGST under the GST regime. Under IGST, the Government of India collects the revenue and further changes can be made by the GST Council of India.

Related Read: GST Simplified

What is the Difference between GST and the previous Taxation System in India?

VAT (Value Added System) was followed in India before the implementation of GST. There are a number of differences between the GST and the old taxation system of India:

  • Under the old taxation system, taxes like custom duty/central excise duty, surcharge and cesses, central sales tax, etc. were applicable. The State tax included state WCT, VAT, luxury tax, etc.  Whereas, under GST all the state tax and central tax will be combined and only a single tax will be levied on all goods and services apart from petroleum, natural gas and high-speed diesel.

  • Under VAT, the tax were levied at the place where the goods were manufactured or at the place where services are rendered but under GST, the tax are levied at the consumption place such as destination-based tax.

  • Under previous taxation system of India, the registration was decentralized under central and state authorities; while under GST there is a provision of e-registration based upon the PAN of the entity.

  • Under the old conditions of taxation, the central excise and service tax were uniform; whereas the VAT differed from state to state. Under GST the procedure is the same and the dates for filing the returns, collecting or depositing are common.

  • Under VAT, the excise duty was charged up to the point of manufacturing; whereas under GST the excised duty is replaced by CGST and tax is levied up to the retail level.

There are many more differences between the GST and the old taxation system of India. All in all the changes are beneficial for the common taxpayer and lightens the burden of the tax on each and every one of them.

How to Apply for GST

Any seller who wants to sell something in India needs to have GST registration. This rule is applied as of July 1, 2017. A seller does not need to enrol for GST, if he is selling something which is under exempt categories. The GST registration is a paperless procedure. There is no hard copy or physical print-outs required for the enrolment.

The registration of GST includes the following procedure:

  • Generation of GST Application Form

Firstly, you have to go to the official GST portal. Then on the registration page, you have to enter all the requested details like PAN number, email, phone number, etc. After entering the details, you will receive two different OTPs -- one on your email and another on your mobile, verifying the mobile number and the email ID.

At the end of the process, your temporary reference number will be generated. In the TRN (Temporary Reference Number) field, you have to enter the TRN generated.

After this you will be again asked to verify OTP and after verifying it, you will reach to your “My Saved Application” page. After that you have to fill in the form details and submit it within 15 days. Now you have to click the edit button and move to part II.

  • Filling your GST Application Form

This form contains 10 sections or tabs. For this process, you need scanned copies of your valid bank account number and IFSC, Proof of incorporation of business. If it is a partnership firm, the Deed of Partnership is required; otherwise registration certificate of the business entity is required. Along with the certificate of registration, the following documents are needed:

  1. Photo of promoter

  2. Primary place of business

  3. Proof of appointment of authorised signatory

  4. Photo of authorised signatory 

  5. Once all the documents are submitted, move to the third step.

  • Registering Digital Signature

Digital sign is needed to verify the GST application. For companies and LLP, Digital Signature Certificate is compulsory. You can only use and register the digital signature of the Authorized Signatory specified in the registration form.

  • Verification and Submission of GST Application

You have the option of submitting the application by selecting any one of the following verification methods:

  1. Verification with E-Signature.

  2. Verification with EVC

  3. Verification with DSC

Related Read: HSN and SAC code for GST

Pros and Cons of GST

Every coin has two sides  And GST is no different. On one hand it is beneficial for a class of taxpayers;  on the other, it is also negatively affecting the general public. Let’s take a look at the advantages and disadvantages of GST.

Advantages

  • GST has brought a number of indirect taxes under one umbrella because of which the taxation system has been simplified.

  • Service provider companies having turnover lower than Rs. 20 lakhs have been exempted from paying GST. The threshold is Rs. 10 lakhs in North Eastern states. This helps the small businesses in avoiding the lengthy procedure of taxation.

  • GST aims at reducing the sale without receipt and corruption.

  • GST allows small businesses to avoid the excise, VAT and service tax

  • GST also helps in eliminating the cascading effect of taxes. Cascading effect can be described as ‘tax on tax’.

  • Taxes on some commodities has been reduced by 2% and 7.5% such as cars and smartphones under GST regime.

Disadvantages

  • GST has increased the operational cost of business as business entities have to purchase the software which assists in GST filing procedure.

  • GST has been titled as ‘Disability Tax’ as it taxes the wheelchair, hearing aids, braille paper, etc.

  • After the introduction of GST, the insurance premiums have become more expensive and unaffordable for lower middle-class people.

  • Because of the complexities in the taxation for products, the manufacturers cease to offer reward programs, which ultimately affects the consumer.

  • GST was introduced in the middle of the financial year which made it difficult for people to understand the procedure and applicability of GST.

  • Petrol does not fall under the ambit of GST which defies the idea of unification of commodities.

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Written by: Aman Kumar Saini