With the passing of the most significant and revolutionary tax regime, the nation witnessed the biggest tax reform on July 1, 2007. GST or Goods and Services Tax is a one nation one tax which replaces all the multiple existing taxes such as excise duty, VAT and service tax.
Understanding about Goods and Services Tax
GST is a multi-stage, a destination-based tax levied at every value added to the goods and services in India.
Consider this example to better understand about GST
For instance, if a biscuit manufactures biscuits in his factory and purchases raw materials such as flour, sugar etc. for manufacturing. After manufacturing, he sells the biscuits to wholesalers who store the biscuits and incurs the warehousing and packaging costs. These biscuits are then sold to the retailer who invests in the marketing of biscuits. The retailer finally sells these biscuits to the consumers.
So, the GST will be levied at each monetary value edition of the biscuit:
- Manufacturing of biscuit
- Selling of cookie to wholesaler
- The wholesaler sells to a retailer.
Input tax credit: At stage 1, when the manufacturer pays the GST on buying the raw materials, the tax paid is credited at the time of paying of tax liabilities. Similarly, the dealers can also claim the input tax credit on the GST paid in the previous stage. This means that taxes are not paid at every stage of the product.
Types of GST in India: There are three different Goods and Service Taxes in India.
- CGST: CGST means Central Goods and Services Tax and is levied by the Central Government of India on intrastate sale of goods and services.
- SGST: The state government collects State goods and Services Tax on intra-state sale of goods and services, which is known as SGST.
- IGST: The tax levied by the Central Govt on interstate sale of goods and services is known as IGST or Interstate goods and services tax.
GST Rates in India: There are 4 GST slab rates for goods and services under the GST act. GST Rates in India is entirely regulated by the GST council and headed by the Finance minister of India. Various state and central government members are part of the GST council.
5%- On products such as Frozen vegetables, Fertilizers, Spices, Plastic waste, Newspaper printing, Takeaway Food, Restaurants, a tax slab of 5% is levied.
12%- A 12 % of GST rate is charged on products such as Ghee, Nuts, Fruits, Pouches, Purses and Handbags, Temporary basis IP rights, Building construction for sale.
18%– Washing Machine, Camera, Shampoo, Outdoor Catering, IT services, Telecom services are applicable for 18% GST slab rate.
28%- Sunscreen, Motorcycles, Pan Masala, Cinema, Food/Drinks/Stay at AC Five Star Hotels have a GST slab of 28%.
Benefits of GST:
Unlike the old tax regime, the new tax regime involves GST registration as one nation, one tax and has the following benefits:
- Removing cascading effect: The most significant advantage of the new tax regime is that it eliminates the tax on tax. The cascading effect happens when a tax is paid at every stage of production, thus increasing the final value of the product to the consumers.
- Simplified tax system: The introduction of GST has brought all the previous existing multiple taxes like VAT, Excise duty etc. under the one umbrella and thus making the calculation of taxes simpler.
- Uniform taxation system: One tax for the entire nation has made the whole taxation system uniform. Also, businesses can now file GST online, making the process of filing tax returns more straightforward. They can now generate e-bill for intra-state goods.
- Lower price for consumers: It is expected that with the introduction of GST the costs of goods and services will get reduced in the long run as there is no tax on tax.
Thus these are some of the changes brought by the GST:
- Multiple taxes like excise duty and sales tax are eliminated,
- Has simplified ways to fill Income Tax Returns and taxes through GST online portal or website
- Has made the transportation of goods easier with e-filing of taxes.
- There is transparency in the taxation system.