Understanding GST (Goods And Servicing Tax)

What is GST?

GST, or Goods and Services Tax, is a revolutionary tax reform introduced in India to streamline the country's complex indirect tax structure. Implemented on July 1, 2017, GST replaced a plethora of indirect taxes levied by the central and state governments, unifying them under a single tax regime. Unlike the previous system, where taxes were levied at multiple points in the supply chain, GST is a destination-based tax levied on the value-added at each stage of production or service delivery. It encompasses all stages of the supply chain, from manufacturing to the point of sale, ensuring comprehensive tax coverage. In this blog, we delve into the basics of GST, its types, advantages, documents required for registration, and the prevalent GST rates in India.

Types of GST

GST in India is bifurcated into several categories, catering to different types of transactions and goods/services:
 

• CGST (Central Goods and Services Tax):

Levied by the Central Government on intra-state supplies of goods and services.The revenue generated through CGST is managed by the central government.
 

• SGST (State Goods and Services Tax):

Imposed by the State Government on intra-state supplies of goods and services.The revenue generated through SGST is retained by the respective state government.
 

• IGST (Integrated Goods and Services Tax):

Applicable on inter-state supplies of goods and services and imports.Administered by the Central Government.
 

 Advantages of GST

Implementing GST in India has ushered in a myriad of benefits for businesses and the economy at large
 

1. Simplified Tax Structure:

GST has brought about a paradigm shift in the Indian tax landscape by replacing a multitude of indirect taxes with a single, comprehensive tax. Before GST, businesses were subject to a myriad of taxes such as VAT, excise duty, service tax, etc., each with its own set of rules and compliances.With the implementation of GST, these taxes have been subsumed, leading to a simplified tax structure. This simplification not only reduces the administrative burden on businesses but also enhances compliance by providing clarity and uniformity in tax laws across the country.
 

2. Elimination of Cascading Effect:

 One of the most significant advantages of GST is the elimination of the cascading effect of taxes. Under the pre-GST regime, taxes were levied on taxes, leading to an inflated tax burden on goods and services. GST addresses this issue by allowing input tax credit (ITC) across the entire supply chain. Businesses can claim credit for the GST paid on inputs, thereby reducing the overall tax liability. This not only ensures a more efficient tax system but also promotes cost savings for businesses, making goods and services more affordable for consumers.
 

3.  Improved Compliance and Transparency:

The introduction of the online GST portal has revolutionized the tax filing process in India. Businesses can now file their GST returns online, making the entire process faster, more convenient, and less prone to errors. Moreover, the transparency offered by the GST portal enhances accountability and reduces the scope for tax evasion. Tax authorities have real-time access to transaction data, making it easier to track and monitor tax compliance. This increased transparency instills trust in the tax system and encourages voluntary compliance among taxpayers.
 

4.   Boost to Economic Growth:

GST is not just a tax reform but a catalyst for economic growth. By simplifying tax procedures and reducing compliance costs, GST promotes ease of doing business in India. This, in turn, attracts investment, fosters entrepreneurship, and stimulates economic activity. The unified tax regime ensures seamless movement of goods and services across state borders, eliminating interstate barriers and reducing logistics costs.Additionally, GST has made India a more attractive destination for foreign investment by aligning its tax system with international standards. Overall, GST acts as a catalyst for economic growth, driving productivity, competitiveness, and prosperity.
 

Documents Required for GST

Before registering for GST, ensure you have the following documents handy:

• PAN Card of the Applicant
• Aadhar Card of the Applicant
• Proof of Address (Electricity Bill, Rent Agreement, etc.)
• Bank Account Details
• Digital Signature

GST Rates in India and Different Slabs

GST rates in India are categorized into four main slabs:

• 5% GST:

Goods and services essential for daily life are taxed at 5% under GST. This includes items such as food grains, fresh fruits and vegetables, healthcare services, basic clothing, transportation services like metro and local trains, and small restaurants without air conditioning or central heating.

• 12% GST:

The 12% GST slab applies to goods and services that are considered moderately essential. This includes items like computers and computer peripherals, processed food items, frozen meat products, mobile phones, textile items like clothing above a certain value, and some services like non-AC restaurants.

• 18% GST:

Most goods and services fall under the 18% GST slab. This includes a wide range of items such as consumer durables like refrigerators, air conditioners, and washing machines, luxury goods, hotels with room tariffs between INR 1,000 and INR 7,500, and services like telecom services, financial services, and IT services.

• 28% GST:

The highest GST slab of 28% applies to goods and services considered luxury or sin goods. This includes items like automobiles, motorcycles, cigarettes, aerated drinks, high-end electronics like TVs and cameras, and premium services like 5-star hotels, cinemas, and theme parks.

Additionally, certain goods and services are exempted from GST or fall under special categories. For example, essential items like fresh milk, fruits, vegetables, and educational services are exempt from GST. Some items like petroleum products, alcohol for human consumption, and electricity are outside the purview of GST and are taxed separately by the state governments

Understanding the GST rates and different slabs is crucial for businesses to ensure compliance and calculate their tax liabilities accurately. It's essential to classify goods and services correctly to determine the applicable GST rate and fulfill the necessary compliance requirements. Moreover, staying updated with any changes or revisions in the GST rates by the GST Council is imperative for businesses to adapt their pricing strategies and operations accordingly.

GST Return Filing:

In India, the GST return filing process is conducted monthly, quarterly, and annually, depending on the type of taxpayer and their turnover. Here's a breakdown of the filing deadlines:

Monthly GST Returns:

For regular taxpayers, the GST return filing deadline for monthly returns is the 20th of the following month. For example, the GST returns for sales made in January are due by the 20th of February.

Quarterly GST Returns:

Small taxpayers with a turnover below a specified threshold have the option to file quarterly GST returns instead of monthly returns. The deadline for filing quarterly returns is the 18th of the month following the end of the quarter. For instance, the GST returns for the quarter ending in March are due by the 18th of April.

Annual GST Returns:

All taxpayers registered under GST must file an annual return, known as the GST Annual Return (GSTR-9), by December 31st of the following financial year. This return provides a summary of the taxpayer's activities for the entire financial year.

Taxpayers need to adhere to these filing deadlines to avoid penalties and late fees. Additionally, timely filing of GST returns ensures compliance with GST regulations and facilitates the seamless flow of input tax credits across the supply chain.

• E-Invoicing: The government introduced the E-invoicing system for certain categories of taxpayers to generate standardized electronic invoices. This system aims to enhance tax compliance, reduce errors, and curb tax evasion.
• Quarterly Return Filing for Small Taxpayers: Small taxpayers with an annual turnover below a specified threshold were allowed to file quarterly returns instead of monthly returns. This initiative aimed to ease the compliance burden for small businesses.
• Aadhaar Authentication: To strengthen compliance and curb fraudulent activities, the government mandated Aadhaar authentication for GST registration for certain categories of taxpayers.
• HSN Code Reporting: Taxpayers are required to report the Harmonized System of Nomenclature (HSN) or Service Accounting Code (SAC) for goods and services respectively in their GST returns. This helps in the uniform classification of goods and services for tax purposes.
• Matching of Input Tax Credit: Taxpayers need to reconcile the input tax credit claimed in their GST returns with the details uploaded by their suppliers. This matching process helps in verifying the accuracy of input tax credit claims and ensures compliance with GST regulations.
• Annual Return Filing: All registered taxpayers are required to file an annual return (GSTR-9) providing a summary of their activities for the entire financial year. This helps in assessing the taxpayer's compliance with GST laws over the year.
• GST Audit: Businesses meeting certain turnover criteria are required to undergo a GST audit conducted by a qualified chartered accountant or a cost accountant. This audit ensures compliance with GST laws and regulations.

NOTE- Please note that Businesses need to stay updated with the latest GST notifications and circulars issued by the government to ensure compliance with the current regulations.

Conclusion

In essence, GST revolutionizes the tax landscape in India by fostering a unified tax regime that simplifies tax compliance and boosts economic growth. As a business owner, understanding the nuances of GST is imperative for navigating the complexities of taxation

General Queries on GST Registration

Authors

Rohit Yadav

Business Legal Advisor

Rohit Yadav A business legal advisor, also known as a business attorney or corporate lawyer, is a professional who provides legal guidance and support to businesses. Their role is crucial in helping businesses navigate legal complexities.

Read More