Implemented on the first of July, 2017, the GST was probably the biggest reform undertaken by India. It has been over two years since this radical tax change and due to the fact that the reform was so rapid, it is obvious that a lot of people still don’t understand the policy and its impact. According to the latest news on GST, Khatabook told that GST has created a huge impact on Indian economy.
You might have a lot of questions regarding the bill, for example, which tax did GST replace? Or what is a GST number? You might have a lot of valid questions that need answering. Well, you’re in luck, this article is here to remove all your doubts regarding GST in a total of ten points.
Table of Contents
- 0.1 1. An indirect tax
- 0.2 2. A federal tax
- 0.3 3. Destination focused
- 0.4 4. Selective
- 0.5 5. Regulated by a constitutional body
- 0.6 6. Consolidated tax
- 0.7 7. Taxable ceiling
- 0.8 8. Applied on every point of sale
- 0.9 9. Quick registration
- 0.10 10. Different rates on different kinds of services and commodities
- 1 Concluding Remarks
1. An indirect tax
First and foremost, let's establish that GST is an indirect tax, meaning that the tax finally collected on a product is paid by the consumer himself/herself. A merchant must pay the taxes for the goods or raw materials he collects, but he/she can file for a return and be remunerated of the taxes that have been paid in the name of the business. Businesses have started generating GST invoices since the government has made it mandatory for all businesses to have GST based invoices.
2. A federal tax
The next point to note is that GST is essentially a federal tax. The state can collect tax for intrastate sales and services (SGST), but the center decides the rates of tax. When goods or services are provided, both CGST (Center GST) and SGST are charged. The total amount of tax collected is shared equally between the state and the center.
3. Destination focused
It can be that a business acquires goods from one state, assembles the goods in one state and sells the finished product in another state. In a situation like this, the tax collected on the finished product is given entirely to the state in which the product has been sold. For example, a merchant might acquire goods from Tamil Nadu, assemble them in Gujarat, and then sells the finished product in Rajasthan. The tax revenue will go entirely to the state of Rajasthan.
It is to be noted that the GST is selective in its implementation. Products that are considered to be daily necessities like fruits and vegetables are exempted from taxation. These products are considered mandatory for day to day life, and thus, are not taxable. What is taxable and what is not, is entirely dependent on the discretion of the GST council.
5. Regulated by a constitutional body
GST, as tax policy, is not invincible. It is regulated and can be modified by the GST Council, a constitutional body that is headed by the Minister of Finance and Corporate Affairs. This council decides and changes tax rates, as and when necessary. The Council takes all the important decisions in regard to the functioning and future of the bill.
6. Consolidated tax
Before the GST was implemented in India, the country was plagued by several indirect taxes that made the lives of merchants incredibly difficult. GST, now, represents a consolidation of several indirect taxes, making sure that the taxpayers don’t need to go through a lot of paperwork to file his/her taxes.
7. Taxable ceiling
GST only has to be paid by businesses whose turnover is for than Rs. 40 lakhs per annum (however, for the North East and hilly regions, it is 10 lakhs). Said businesses have to register with the government and once they are successfully registered, they're provided with a GST number.
8. Applied on every point of sale
GST, while it is fully compensated for by the end consumer, is applied at every point of sale. From the manufacturer, wholesaler, retailer to the actual consumer. The former three are compensated later on by the government but GST is levied on every point of sale.
9. Quick registration
Once you have filled in your application to be a registered GST trader or businessman, the registration takes around two to six days to come through. Once you are registered, you can easily pay your taxes by using your specific GST number, without much hassle.
10. Different rates on different kinds of services and commodities
As mentioned earlier, a few items that are deemed necessary are exempted from GST. However, it is to be noted that different products are grouped into different categories and are taxed at different rates. For example, goods that are not specifically necessary, but are deemed important have lower tax rates, whereas commodities that are not considered important at all, but a luxury are taxed at a higher rate (luxury tax), for example, cosmetics fall under luxury tax and are subject to a rate of 28%.
Being confused about the concept of GST is quite natural, seeing as how it has turned the concept of taxation of India a whole 180 degree, however, after reading this article, it is hoped that the concept is a bit clearer to understand now.