Introduction to "Goods and Services Tax" (GST)

 

Background and Basics

• GST was introduced in India w.e.f. 01^st July, 2017 through Article 246A of Constitution inserted vide the Constitution (101^st Amendment) Act, 2016.

• Subsumed around 17 indirect taxes (CST, VAT, Excise Duty, Service Tax etc.) of erstwhile regime. Taxes/ duties like Basic Custom Duty, Anti-Dumping Duty, Export Duty etc. are not subsumed under GST.

• GST is levied on "supply" of goods and/or services. Supply includes sale, exchange, lease, rental etc.

• Erstwhile taxes are still applicable on some of the products like alcoholic liquor for human consumption, petroleum products (petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel) and tobacco.

• GST is levied at the rate as may be notified by the Government on the recommendation of GST Council. Some of the common rates are: 0%, 0.25%, 3%, 5%, 12%, 18% and 28%.

• However, the GST rate on any goods or services cannot be more than 40%.

• GST Cess is also levied in addition to rate mentioned above on supply of some of the goods like vehicles, tobacco etc. 

• GST rate charged on any supply of goods and services can be of two types:

1. Combination of Central GST and State/ Union Territory GST (CGST + SGST/ UTGST)
2. Integrated GST (IGST)

• Type of GST charged depends upon whether the supply of goods or services is intra-state (within state) [CGST + SGST/ UTGST] or inter-state (one state to another) [IGST].

• GST is destination based tax and input tax credit (ITC) on inputs, input services and capital goods is available throughout the supply chain.

• Supplier or recipient (in some cases recipient is deemed to be a supplier) of goods and services is required to get registered under GST if its aggregate turnover as per GST Act (Central Goods and Services Tax Act, 2017 (CGST Act)) exceeds specified limit or if the registration is mandatory under CGST Act. 

GST Council

The "GST Council"  is the joint forum of the Centre and the States consisting of the Union Finance Minister (Chairperson); the Union Minister of State, in-charge of Revenue, Min. of Finance (Member); the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government.

The GST Council can make recommendation to the Government on rate of GST, the goods and services that may be subjected to or exempt from GST, threshold limit of turnover below which the supplier is not liable to get registered under GST and several other matters.

The minimum number of members that must be present (quorum) should be 1/2 of the total number of members of the GST Council. Every decision of the GST Council shall be taken at its meeting by the majority of not less than 3/4th of the weighted votes of the Members present and voting, weights being 1/3rd for the Central Government and 2/3rd for the State Government. 

 

 

Applicability of erstwhile taxes

Intra-state vs Inter-state

For Example:

Inter-state

When 'A' in Rajasthan sells goods or provides services to 'B' or 'C' in Chhattisgarh, then, A will charge IGST in the invoice issued to the recipient B or C for supply of goods or services.

Intra-state

When 'B' in Chhattisgarh sells goods or provides services to 'C' in Chhattisgarh, then, B will charge SGST (Chhattisgarh GST) (+) CGST (Central GST)  in the invoice issued to the recipient B or C for supply of goods or services.

Input Tax Credit (ITC)

                              'A' of Rajasthan                             

                   

 'B 'of Chhattisgarh

 

 

                                                                                                                              

                                  'C' of Chhattisgarh                                 

The amount of tax paid by 'B' at the time of purchase of goods from 'A' is allowed to be adjusted from the amount of tax collected by 'B' from 'C' at the time of sale. This is called 'input tax credit (ITC)' 

Conclusion

GST is the tax paid on supply of goods/ services at the rate as may be notified by the Government on the recommendation of GST Council, collected by the supplier from the recipient and paid to the government.