All You Need to Know About the GST Bill

Delhi, India, 2021-Apr-27 — /EPR Network/ — Goods and Services Tax, or GST is basically an indirect form of tax which replaced several indirect taxes in India like VAT, excise duty, state access, service tax, etc. The drafting of the bill was initiated in the year 2000 during the administration of Mr. Atal Bihari Vajpayee. Though it was passed 17 years later, i.e., on 29th March 2017 in the Parliament and came into effect on 1st July 2017. 

Simply put, GST is imposed on a wide variety of goods and services such as food, clothing, daily items, electronics, transportation, and travel. It’s a comprehensive, destination-based, and multi-stage tax that is levied on every value addition. Essentially, this indirect tax is not directly paid by the customers but rather levied on the manufacturer or suppliers. The sellers include this GST into their cost which customers end up paying for the final product. 

What does destination-based tax imply?

GST is levied at the point of consumption of the goods and services. For example, if a product is manufactured in Pune and sold to a final consumer in Chennai, then the GST will be charged and collected by the State Government of Tamil Nadu, and not Maharashtra.  

What does multi-stage tax mean?

A product or a service is put through multiple stages before it is bought by the end-user. To understand the tax, we have to look at the typical stages of a supply chain.

• Purchasing raw materials 
• Product manufacturing 
• Warehousing the finished goods
• Sale of the product to a wholesaler, and then to a retailer
• Sale to the final user

GST is imposed on every stage mentioned, thus making it a multi-stage tax.

What are the different elements of GST?

CGST (Central Goods and Services Tax) – It is eligible to all the transactions that are done within state boundaries or at intrastate level.

SGST (State Goods and Services Tax) – SGST, like CGST, is applicable to every transaction that happens within state boundaries or at intrastate level. 

IGST (Integrated Goods and Services Tax) – It is applicable to all transactions between different states or at intrastate level.

Any sale or supply of goods and services within the state will be subjected to both CGST and SGST. In a nutshell, the tax revenue collected from these sales are shared equally between the state and the centre. 

What are the GST Tax Slabs?

At the moment, these are the tax slabs levied on products and services – 5%, 12%, 18%, and 28%. There are certain products such as high-speed diesel, petroleum, natural gas, alcohol for human consumption that are not covered under GST. Such products and services are charged according to the respective State Governments.

Which taxes are replaced by the GST bill?

• Duties of Excise
• Central Excise Duty
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duties of Customs
• Cess
• Central Sales Tax
• State VAT
• Purchase TAX
• Entertainment Tax 
• Luxury Tax
• Advertisement Taxes
• Taxes on betting, gambling, and lotteries

What are the advantages of GST?

Elimination of cascading effects – GST has helped weed out the cascading effect of the tax, interstate tax, and logistics cost. In simple terms, a cascading effect brings about the impact of “tax on tax” system which increases the overall price of the product. With the arrival of GST, now goods and services have become much cheaper for the end consumer. 

Streamlined taxes 

The GST has replaced around numerous different indirect taxes which has automatically removed the compliance expenses for businesses.

Digitization 

All activities connected to GST such as registration, tax payment, filing returns, and application for refunds are done online using the GST portal. Through such digitization, the processes have accelerated and reduced the need for time consuming manual intervention. 

Uniformity in the economy

The previously divided market across states has been unified due to the considerable decline in the cost of goods and services. 

Raised threshold for registration

In the old VAT system, the norm was that if any business has a turnover of more than 5 lakhs (in most states), then they were liable to pay VAT. Plus, for service providers with a turnover of less than 10 lakhs service tax was exempted. However, under the GST regime, this threshold has been revised to 20 lakhs which saves taxation for several small businesses. 

Efficient logistics

Before, logistic services had to manage and maintain various warehouses across the states to avoid the current CST and state entry taxes on interstate movement. This means expensive operating costs as they were forced to function below their capacity. Due to GST, these restrictions have been substantially eased, offering a much smoother inter-state movement of goods. 

Several e-commerce players and warehouse operators are now considering setting up warehouses in strategic locations to enable faster and efficient delivery infrastructure. Moreover, cut downs in logistics costs will benefit businesses in amplifying their profits in the long run.

Unorganized sector is now regulated 

Before the GST bill was passed, there were some industries such as construction and textile that remained mostly unregulated. However, in GST, there are provisions for online compliances and payments. Plus, they will only be able to benefit from the input tax credit facility when the input and output invoices are corroborated with each other. This has led to higher accountability and regulation in such industries. In other words, it has tamed the setback of tax evasion for the Indian Government.

References

https://cleartax.in/s/gst-law-goods-and-services-tax

https://razorpay.com/learn/gst-goods-and-services-tax/

https://cleartax.in/s/benefits-of-gst-advantages-disadvantages

https://www.adityabirlacapital.com/abc-of-money/advantages-of-gst