Understanding the basics of GST

Goods and Services Tax (GST) is an indirect tax which was introduced in 2017. The aim was to bring a unified tax reform by replacing the multiple taxes such as excise duty, VAT, services tax, etc. GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.

• To every person who supplies goods and/or services of value exceeding Rs 20 lakh in a financial year. (Limit is Rs 10 lakh for some special category states). Compulsory registration for these. And GST must be paid when turnover exceeds Rs 20 lakh (Rs 10 lakh for some special category states).
• To any person making inter-state taxable supply of goods and/or services
• Every e-commerce operator
• Every person who supplies goods and/or services, other than branded services, through e-commerce operator
• Aggregators who supply services under their own brand name
• Casual Taxable Person
• Non-Resident Taxable Person
• Person required to deduct/collect tax (TDS/TCS)
• Input Service Distributor
• Person supplying online information and database access or retrieval services from a place outside India to a person in india, other than a registered taxable person.
• Person required to pay tax under Reverse Charge
• Person supplying the goods on behalf of other taxable person (eg. Agent)
• GST does NOT apply to Agriculturists
• GST does not apply to any person engaged exclusively in the business of supplying goods and/or services that are not liable to tax or are wholly exempt from tax under this Act

What is the GST Framework as per the new Law? 

GST replaced a myriad of indirect taxes such as VAT, customs duty, Excise, CST, Service Tax, Entertainment Tax with a single tax called the Goods and Services Tax.

• Broadly there are 2 forms of GST in India.
• At the intra-state level (when goods travel within a state) and at the inter-state level (when goods travel between states).
• At the intra-state level two types of GST are levied CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax).
• At the inter-state level IGST (or Integrated Goods and Services Tax) is levied.
• Imports are considered as inter-state supply.
• Exports are zero rated supply
• Supplies to SEZ are Zero-rated

Does GST allow Tax Cascading Benefits?

Many of us are aware that earlier indirect taxes like service tax and VAT have cascading effects, which means you can’t avail credit of tax paid by you on inputs. For example, the excise duties paid during manufacture could not be set off against the VAT payable during the sale. This led to a cascading effect of taxes. Under GST, the tax levy is only on the net value added at each stage of the supply chain. This has helped eliminate the cascading effect of taxes and contributed to the seamless flow of input tax credits across both goods and services.

Here is how set off Works in Case of GST 

IGST payments can be set off against – IGST, CGST, SGST on inputs .CGST payments can be set off against – IGST and CGST on inputs .SGST payments can be set off against – IGST and SGST on inputs.

We hope you find this information on GST helpful. As the GST landscape continues to evolve, we’ll keep you updated on the latest changes and developments, including any new regulations or clarifications that may impact your business. Stay tuned for more insights on the current GST framework and its implications. To read the entire GST Bill draft, click here.

Further Reading on Understanding GST

What is GST in India?

GST Guide