Nicki Jenns

Understanding the Goods & Services Tax GST in India

The Goods & Service tax (GST) launched in India on July 1st had a great impact on the economy. While most of the business owners are happy to have a uniform tax system in place, there are others who are complaining of high tax slabs and ambiguity in the application. 

No matter what, GST is considered as one of the most progressive event in the history of Indian economy. There are many questions that are raised after the launch of GST, through this guide, we will offer you a complete insight of Goods & Service Tax in India and why it is such an important step for the country.

What is GST (Good & Service Tax)?

Goods and Service Tax (GST) Law is a multi-stage, comprehensive and destination oriented law in India that is based on the phenomenon of value addition at different point of the buying and selling process.

Let us discuss the concept of GST in detail based on its definition. ‘Multi Stage’ this indicates to the different stages as the product goes from the producer to the final spot for sale. The complete cycle has many steps; here are the steps of a typical cycle: raw material- manufacturer- warehouse- retailer- end customer. The Goods & service tax will be imposed on each of these stages and thus is a multi stage tax. It will be imposed on the monetary worth added to the product at each stage.

The destination based tax system unlike the earlier system where the excise duty was imposed on the raw material and then the state government would impose a VAT on the final product as well as on the sale, applies to each point of sale.

The importance of Goods & Service Tax:

As you understand the definition of GST you must be wondering what made it so important to introduce a whole new taxation law in the country. Here is the complete explanation that will help you understand the importance of GST for the taxation system and therefore for the economy of India.

There are two types of tax provisions in our economy- Direct taxes and indirect taxes. In the direct taxes, the onus of paying the tax cannot be transferred to any other person; one has to pay it on its own. For example, income tax has to pay by an individual earning it.

However, in the indirect taxes provision, the onus of paying the taxes can be transferred to another person. Earlier, when VAT was the main taxation law, the shopkeepers charged VAT on the sale price. This way, the customer was liable to pay the price as well as the Value Added Tax to the shopkeeper. This was because the shopkeeper had already paid the tax while buying the product from the wholesaler and there is no other way for him to get this tax back except than charging it to the customer.

But after GST, the customer would pay only what is the price of the commodity as the government offers the provision of claim the tax already paid so that the liability is not passed on to the end user.

The work process of GST:

  • GST in India is bifurcated into three levels of taxes: CGST, SGST & IGST.
  • CGST: the revenue will be deposited to the Central Government
  • SGST: the revenue will be deposited to the State Government for intra-state.
  • IGST: the revenue will be deposited to the Central Government for intra-state.

GST Slab rate in India:

  • Essential Goods and Services in India: 5%
  • Standard Goods and Services for GST (I): 12%
  • Standard Goods and Services for GST (II): 18%
  • Special category of Goods and Services in India: 28%

How is it helpful for businesses and common man?

The entire system of Goods and Service tax in India has a flawless system of claiming the tax already paid. The provision of input Tax Credit at every point of value addition has taken off the burden of extra taxes from the receiving end parties. Now, none of the party can transfer the tax on its successor party and this ultimately benefits the businesses and the final consumer i.e. common man.

Despite all the speculation, the Goods and Service tax in India has been a favorable decision so far. The experts claim it to bring economical reforms in India once it comes in its full working.