Features of GST: Top 10 Features of Goods and Services Tax in India

The Goods and Services Tax (GST) is a nationwide indirect tax levied on businesses with the goal of making India a unified market. It is a single tax applied on the product life cycle of goods and services. There are three types of GST — central GST (CGST), state GST (SGST), and integrated GST (IGST). 

The Centre levies CGST and the states levy SGST on the supply of goods and services within a state, otherwise known as intrastate supply. For supplies made between States/Union Territories, otherwise known as interstate supplies, the Centre levies IGST. The revenue obtained from IGST supplies is divided between the Centre and the state as per a predetermined ratio and based on where the goods are consumed. 

In this article, we will discuss the top 10 features of GST that you should know. 

Top 10 Salient Features of GST

1. Single Indirect Tax

GST is a single, unified tax, meaning you don’t have to pay a myriad of other taxes anymore, such as value-added tax, excise duty, service tax, and others. This unification has made tax compliance easier for businesses as well as reduced the cost of several goods and services. 

The GST system applies a single tax rate to goods and services based on their classification under the Harmonized System of Nomenclature (HSN). The GST rates vary depending on the nature of the goods or services and can range from 0% to 28%.

2. Registration exemptions for small businesses

Every business with a total turnover exceeding Rs.40 lakhs in a financial year is mandated to register under GST. For special category states and the state of Telangana, the limit is Rs 20 lakhs. For service providers under GST, the threshold limits are Rs.20 lakh and Rs.10 lakh for normal category and special category states, respectively. Small businesses that do not exceed the threshold limits do not need to register under GST and collect and pay taxes.

You can refer to this article to understand the individual GST registration threshold limits for every state and Union Territory.

3. Four-Tier Tax Structure

The tax structure under GST is divided into four rates: 

• 5% — Essential goods, such as food items and life-saving drugs
• 12% — Goods such as certain apparel items, packaged food, nuts, medicines, etc.
• 18% — Goods such as electronic items, consumer durables, and most services 
• 28% — Luxury and sin goods such as cars, tobacco, and aerated drinks

In addition to these four tax rates, there is also a Nil rate imposed on several essential goods, such as food grains, as well as special tax rates of 0.25% and 3%  imposed on certain luxury goods like precious stones and jewellery. There are also special rates for taxpayers under the composition scheme.

The four-tier rate structure intends to bring uniformity in taxation across the country while reducing the cascading effect of taxes and promoting the ease of doing business. However, some experts believe the multiple tax rates complicate compliance and add to business costs. 

4. GST Composition Scheme

The GST composition scheme allows eligible businesses to pay GST at a lower rate on their taxable turnover. It also reduces the number of compliances a business needs to adhere to. 

Manufacturers that have a turnover of up to Rs 1.5 crore are allowed to opt into the composition scheme. In North-Eastern states and Himachal Pradesh, this limit is Rs.75 lakhs. There is also a special composition scheme for service providers with a turnover of up to Rs.50 lakh. However, a business paying tax under the composition scheme cannot claim the input tax credit, as explained in the next pointer.

5. Input Tax Credit System

Input Tax Credit (ITC) is the credit a registered GST taxpayer can claim for the GST paid on inputs (i.e., raw materials, capital goods, and services) that are used in producing or supplying goods and services. 

Under the GST system, the tax is levied at each stage of the supply chain, from the manufacturer to the retailer, and is ultimately borne by the final consumer. The tax paid at each stage can be claimed as an input tax credit (ITC) in the subsequent stage, except for businesses that opt for the composition scheme.

For example, a manufacturer, Mr.X, pays Rs.5,000 as GST on procuring parts to manufacture a car, say, on tyres. He can claim this Rs.5,000 as input tax credit at the time of paying GST on the sale of the final product, which is the car. Assume his GST liability on the sale of the car is Rs.36,000. By setting off input tax credit of Rs.5,000, he will need to pay only Rs.31,000 to the government. Hence, the claiming of input tax credit prevents the cascading effect of taxes that was faced under the erstwhile tax regimes. 

6. Invoice Matching

The GST system checks whether the details of the invoices filed by the supplier match those of the invoices filed by the recipient. For example, the supplier files their GSTR-1 return, which is the return of outward supplies. These details appear in the recipient’s GSTR-2B statement, which contains details of their purchases made and input tax credit available, and is used as reference when filing the GSTR-3B.  

Hence, when the recipient files their summary return and pays their taxes in Form GSTR-3B, the ITC details submitted by the recipient are system-checked with the details submitted by the supplier. If the details match, it is assumed the data has been correctly reported by both the supplier and the recipient. 

However, if there are any discrepancies or differences in the details, the system flags them, and the GST portal sends out automated reminders to the concerned taxpayer. The mismatches are then rectified by the parties involved in the transaction, failing which the ITC may be disallowed.

7. Consumption-Based Tax

GST is a destination-based consumption tax. The GST collected on goods and services is not received by the manufacturer’s state but by the state where the supplies are consumed.  And although GST is charged at every stage, whenever value is added to the goods or services, the supplier of the goods or services offsets this GST by claiming input tax credit of the GST paid on previous stages. Ultimately, the final dealer passes on the GST to the final consumer of the goods or services.

It helps to reduce the burden of tax evasion since the tax is collected at each stage of the supply chain and reconciled through the GST return filing process. 

8. Anti-Profiteering Measures

Under the GST system, businesses must pass on the benefit of lower tax rates or ITC to consumers by reducing the prices of their goods or services. The GST law comprises anti-profiteering measures that include a framework to identify whether the benefits have been passed on to consumers.

9. Competitive Advantage

The removal of the cascading effect and the introduction of ITC has helped Indian businesses reduce their cost of compliance and the cost of production. This has given Indian businesses a competitive advantage in the international market, making them more attractive to foreign buyers and investors.

10. Digital compliance and payments

GST compliance is almost completely digital. From registration to return filings to payments, taxpayers can undertake them online on the common GST portal. Taxpayers can pay GST online via internet banking, National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), and debit or credit cards. Even applications for refunds can be made online. In cases where discrepancies are detected, there are automated notices sent to taxpayers with a provision to respond and rectify the same.

Conclusion

The GST system has simplified the tax structure in the country. It has made the tax system more transparent and accountable by digitising the process and ensuring that businesses are compliant with the tax laws.