CA, CS, CMA, Advocates are available for Free Consultation!!!

   +91 85400-99000   A98, Nanhey Park, Uttam Nagar, New Delhi, India

Goods and Service Tax

India has undergone a significant change in its taxation system with the introduction of the Goods and Services Tax (GST). GST has replaced several indirect taxes in the country, such as the excise duty and value-added tax, among others. This comprehensive multi-stage destination-based tax has helped to streamline the tax administration process by levying taxes on every point of sale. With GST, there is now a single domestic indirect tax law for the entire country, making it easier for taxpayers to comply with the regulations. In this blog post, we will delve deeper into what GST is and the journey of its implementation in India.

1. What is GST in India?

The Goods and Services Tax (GST) is an indirect tax that has replaced several indirect taxes in India, such as the excise duty and VAT. It is a comprehensive multi-stage destination-based tax that is levied on the supply of goods and services. The GST Act was passed in the Parliament on March 29, 2017, and came into effect on July 1, 2017. Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged, whereas all the inter-state sales are chargeable to the Integrated GST.

An item goes through multiple change-of-hands along its supply chain, and the GST is levied on each of these stages, making it a multi-stage tax. The primary objective of GST was to remove the cascading effect of taxes that existed under the previous tax regime. Before the GST could be introduced, the structure of indirect tax levy in India was complex and confusing. Thus, to subsume a majority of the indirect taxes in India, GST was introduced.

The GST journey began in the year 2000, and it took 17 years for the Law to evolve. The GST is divided into five different tax slabs for collection of tax, i.e., 0%, 5%, 12%, 18%, and 28%. Moreover, there is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. The tax rates, rules, and regulations are governed by the GST Council, which consists of the finance ministers of the states and the central government. The positive outcomes of the GST in India include reduced travel time in interstate movement by 20% due to the disbanding of interstate check posts. [1][2]

2. The journey of GST in India

The journey of GST in India began in the year 2000 when the Kelkar Task Force on Indirect taxes proposed the idea of a nationwide GST. The objective was to replace the prevailing complex and fragmented tax structure with a unified system that would simplify compliance, reduce tax cascading, and promote economic integration. The Empowered Committee of State Finance Ministers released the First Discussion Paper in 2009, laying out a design and roadmap. However, it took several years and many challenges before the Constitution Amendment Bill was finally passed in the Parliament in August 2016. The GST Council was established to make decisions on various aspects of GST, including tax rates, exemptions, and administrative procedures. It played a crucial role in shaping the GST framework in India.

To prepare for the implementation of GST, extensive efforts were made to build the necessary technological infrastructure and train tax officials and businesses. The GST Network (GSTN), a not-for-profit company, was created to provide the IT backbone for the GST system, including taxpayer registration, return filing, and tax payments. Since its implementation, the Indian GST has undergone various amendments and refinements based on feedback from businesses and the evolving economic scenario.

Overall, the journey of GST in India showcases a monumental shift in the country’s tax structure, aiming to create a more unified, efficient, and transparent indirect tax regime for the benefit of businesses and the economy as a whole. As the GST Council Chairman, Finance Minister Arun Jaitley, once said, “The launch of GST will go down in history as one of the greatest reforms in the country.” [3][4]

3. The objective of GST

The Goods and Service Tax (GST) was introduced in India with several objectives in mind. One of the primary objectives was to create a common market in India with a uniform taxation system that would limit tax evasion in the country. As per the Indian government, GST is a way of bringing transparency to the tax system and enhancing revenue for the developmental activities of the country.

The introduction of GST was also targeted at reducing the cascading effect of the indirect taxes on a single transaction. This was achieved by allowing the setting off of prior taxes that are related to the same transactions in the form of input tax credit. Under GST, the tax is applicable only on the net value added during each stage of the supply chain, making it easier to calculate and file taxes.

The government aimed to simplify the entire process of paying taxes and compliance for taxpayers by introducing a consolidated tax like GST. The idea was to help companies with an uncomplicated tax filing procedure that would improve their efficiency and cut down the overall costs associated with business processes. In the words of the Indian Prime Minister, Narendra Modi, “Goods and Services Tax (GST) is India’s biggest tax reform in the last 70 years. It is aimed at creating a common market, eliminating double taxation and enhancing transparency.”

In conclusion, the main objectives of GST are to bring a uniform taxation system in India with a nationwide surveillance system, eliminate the cascading effect of taxes, simplify the tax filing procedure, widen the tax base, and enhance revenue for developmental activities in the country. [5][6]

4. Five different tax slabs under GST

The and Service Tax (GST) is an indirect tax levied on the sale of goods and services across India. The GST Council has divided the GST rates into four different slabs based on the HSN or SAC code classification. Let’s discuss the five different tax slabs under GST, categorized by the respective percentages:

– GST rate of 0% (nil-rated): Includes essential items such as food grain, books, and newspapers.

– GST rate of 5%: Includes items such as specific drugs, vaccines, medical equipment, and artificial limbs.

– GST rate of 12%: Includes items such as processed food, mobile phones, and clothes.

– GST rate of 18%: Includes items such as air conditioners, refrigerators, aerated drinks, and cigarettes.

– GST rate of 28%: Includes items such as luxury cars, yachts, and tobacco products.

According to the GST council, the tax slabs vary depending on the necessity and luxury of goods and services. The council regularly reviews and revises GST rates for various products. GST implementation has led to significant changes in the tax system, reducing the tax burden on small businesses and boosting the Indian economy. The GST Council’s periodic reviews of tax rates help ensure that the tax system remains fair and transparent, continuing to benefit businesses and consumers alike. [7][8]

5. Special rates under GST

Under Goods and Service Tax (GST) system in India, there are special rates for certain goods and services that do not fall under the standard GST rates. These rates are determined by the GST Council and are usually higher than the standard rates.

One example of such a special rate is the cess on the sale of certain items like cigarettes and luxury cars, which ranges from 1% to 204%. Coir Mats, Matting & Floor Covering, and preparations of Vegetables, Nuts, Fruits, or other parts also fall under special rates. Small cars are charged an additional 1% or 3% cess, while consumer durables such as air conditioners and refrigerators attract an 18% GST rate.

In addition to these special rates, GST is also applicable on goods sold at the Indo-Bangladesh border. As per the GST Council’s decision, IGST is levied on such goods. Saint John’s Wort, a natural plant-based product used for medicinal purposes, and imported silver and gold fall under the special GST rate of 0.25%.

The HSN code system and SAC code system classify all goods and services transacted in India under GST. The GST rates are set in five slabs ranging from 0% (nil-rated) to 28%, with few rates such as 3% and 0.25% being less commonly used. The GST Council revises the rate slabs periodically. Therefore, it is essential to stay aware of these changes and ensure compliance with GST regulations.

In summary, special rates under GST serve to enhance transparency and trust between customers and sellers in the taxation process in India. Trading in goods and services under the GST Council’s GST regime can now experience a level of certainty, transparency, and trustworthiness. [9][10]

CA, CS, CMA, Advocates and IT experts, just a call away…