Introduction
GST was ideated in the year 2000 by setting up a committee to draft the law. It took 17 years from then for the law to evolve. In 2017, the GST Bill was passed in the Lok Sabha and Rajya Sabha. GST came into effect from July 1, 2017, through the One Hundred and First Amendment of the Constitution of India at the Parliament of India. GST replaced most of the multiple existing taxes levied by the central and state governments.
What is GST?
Goods and Services Tax (GST) is an indirect tax which is levied on the supply of goods and services in India. It is a comprehensive, multi-stage, destination-based tax. - Comprehensive because it has subsumed nearly all of the indirect taxes except for a few state taxes. - Multi-stage because it is imposed on all stages of the production. It is intended to provide GST as input credit to all parties at different stages of production other than the final consumer. - Destination-based tax as GST is collected from the point of consumption and not from the point of origin as in the case of previous taxes.
Components & Rates
There are three taxes applicable under this system: CGST, SGST, and IGST.
- CGST is collected by the Central Government on an intra-state sale (Ex: transaction happening within Maharashtra).
- SGST is collected by state governments on an intra-state sale (Ex: transaction happening within Maharashtra).
- IGST is collected by the Central Government for inter-state sale (Ex: Maharashtra to Tamil Nadu).
GST rates are classified into different tax slabs such as 0%, 5%, 12%, 18%, and 28%. A special rate of 0.25% is applicable to precious rough and semi-precious stones, and 3% to gold. In addition to GST, a cess of 22% or other rates on top of 28% GST applies for a few items such as luxury cars, aerated drinks, and tobacco products. However, alcoholic drinks, petroleum products, and electricity are not paid under GST and are taxed separately by the individual governments as per the previous tax system.
Advantages of GST
GST has mainly removed the cascading effect on the sale of goods and services. The removal of the cascading effect has impacted the cost of goods. The cost of goods decreases as the GST regime eliminates the tax on tax. To reduce compliance burden, the government introduced the composition scheme for small businesses whose turnover is up to 1.5 crores.
GST is also a technologically driven taxation regime. All activities such as registration, return filing, application for refund, and response to notice needs to be done online on the GST Portal. This accelerates the processes and eases the compliances.
