There are a number of taxes in India, including income tax, customs duties, central excise duty and more. Goods and Services Tax (GST) is one such tax. Although relatively new, it has reformed the Indian tax structure remarkably. Let's find out more about GST's meaning and how it is helping both citizens and governments.

What is GST?

GST is an indirect tax system that was introduced in India on July 1, 2017, to simplify the country's complex tax structure. Before GST, businesses and consumers had to deal with multiple taxes, such as service tax, Value Added Tax (VAT), central excise duty, central sales tax, among others. These taxes varied across states and led to confusion and inconsistencies in the tax regime. GST has unified all these taxes into a single tax, making it easier for businesses, consumers and the government to manage taxes.

Types of GST

There are four types of GST in India, as explained below:

• State Goods and Services Tax (SGST)

  As the name suggests, the state governments levy the State Goods and Services Tax (SGST) under the SGST Act, 2017. It applies to the supply of goods and services that occur within a particular state, also known as intra-state sales. For instance, if a transaction takes place within Tamil Nadu, SGST is charged on the sale by the Tamil Nadu Government.
  
  This tax helps state governments generate revenue for various internal projects and operations. It is important to note that SGST is not imposed on the sale of alcohol meant for human consumption.

• Central Goods and Services Tax (CGST)

  Central Goods and Services Tax (CGST) is a tax that the central government imposes under the CGST Act, 2017. Like SGST, CGST is applied to intra-state transactions on the supply of goods and services within a state. However, while SGST is collected by the state government, CGST is collected by the central government and used for central government spending.

• Union Territory Goods and Services Tax (UTGST)

  Union Territory Goods and Services Tax (UTGST) is a tax levied on intra-state transactions within the union territories of India, as per the Union Territory Goods and Services Tax Act, 2017. It applies to the supply of goods and services in union territories such as Chandigarh, Ladakh, Dadra and Nagar Haveli and Daman and Diu, Andaman and Nicobar Islands and Lakshadweep. UTGST functions similarly to SGST but is specific to regions that do not have their own legislature. However, union territories with legislatures, such as Delhi, Jammu and Kashmir and Puducherry, fall under SGST laws instead of UTGST.

• Integrated Goods and Services Tax (IGST)

  Integrated Goods and Services Tax (IGST) is levied on the inter-state supply of goods and services, governed by the IGST Act, 2017. It applies to transactions that take place between different states or union territories, as well as to imports and exports. The central government is responsible for collecting IGST, and the revenue is then shared between the central and state governments.

Objectives Of GST

Below are some objectives of GST:

• One nation, one tax

  One of the primary objectives of introducing GST has been to simplify the Indian tax structure. GST replaces a multitude of taxes, such as VAT, service tax and excise duty and creates a uniform tax code. Instead of dealing with various taxes at different levels, businesses and consumers now pay a single tax on the supply of goods and services. This makes the tax process easier and more transparent.

• To subsume indirect taxes in India

  Before GST, India had a complex system of indirect taxes. GST has been able to subsume all these taxes into one tax. This has greatly simplified tax payment. Moreover, it has not only made tax payment easier but also streamlined tax collection.

• To restrain tax evasion

  The higher the number of taxes, the higher the chances of tax evasion at multiple levels. With a uniform tax in place, the government has been able to curb tax evasion. Citizens are more likely to pay a uniform tax, and the government benefits from a steady revenue stream.

• Increase in overall productivity and efficiency

  With timely, simple and uniform tax collection, the government has more funds to boost economic efficiency. People are no longer confused by multiple taxes. They pay a single tax, which reduces compliance burdens and encourages the formalisation of the economy.

Advantages of GST

Below are some advantages of GST:

• GST Eliminates Tax Cascading

  GST was introduced to eliminate tax cascading, where businesses and consumers were burdened by multiple taxes at different levels of supply. Implementing a uniform tax across transactions has helped the government to reduce costs incurred by both businesses and consumers.

• Increased Registration Threshold

  GST has increased the registration threshold, which opens the door for more businesses. This has enabled more small businesses to benefit from the tax regime. Businesses with an annual turnover below these thresholds are not required to register for GST, although they have the option to register voluntarily if they wish.

• Simplified Composition Scheme for Small Businesses

  The GST Composition Scheme allows small businesses to pay a fixed rate based on their turnover instead of the regular GST rates. This makes things a lot easier for small taxpayers and allows them to skip the complicated paperwork and formalities that usually come with GST compliance. As long as their turnover is below ₹ 1.5 crore, they can enjoy this simplified approach and pay GST at a straightforward, fixed rate.

• Easy and Streamlined Online Process

  GST payments can be made online, which makes the process easier and quicker. Taxpayers can now pay their taxes on the go. This online system also simplifies tax monitoring by allowing individuals to keep track of their taxes.

What are the components of GST?

As discussed, there are four types, also known as components of GST - CGST, SGST, UTGST and IGST. Here's how each of these are collected:

• SGST: It is collected by the state government on intra-state transactions. This is collected in addition to CGST when the supply of goods or services occurs within a single state
• CGST: It is collected by the central government on intra-state transactions
• UTGST: It is applicable to transactions occurring in union territories. It is collected along with CGST for intra-state transactions in union territories
• IGST: It is levied on inter-state transactions, where the supply of goods or services happens from one state to another. In this case, only IGST is collected and shared between the central and state governments

GST calculation

Let's find out how GST is calculated:

How to calculate GST

The GST rates are determined by the government and simply added to the price of the product. If you wish to know the GST for a particular product or service, you can use an online GST calculator or the formula to determine the GST manually.

GST calculation formula

GST = (Price of the product x GST%)

For example, if a product costs ₹ 500 and the GST rate is 18%, you can calculate the GST amount and the total net price as follows:

GST = Price × GST%

=500 × 18%

= ₹ 90

So, the total price you pay for the product will be ₹ 590.

Conclusion

GST is a groundbreaking tax regime that has remarkably organised the country's tax structure. It is simple to understand by all stakeholders involved, makes it easier for businesses of all sizes to function, and helps the government ensure efficient collection, administration and tax management.

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