GST as the law has impacted people’s lives in positive as well as negative ways. It has become an important law and it is important that one is aware of the intricacies of this law.
Firstly, it is important to understand what GST is, how does it operate and what its are effects.
What is GST? ( in India)
GST, as we call it is the abbreviated form of Goods and Services Tax. It is a tax of indirect nature that has acted as the replacement of many earlier indirect taxes in the country such as VAT, services tax, excise duty among others.
The act was passed in Parliament on March 29, 2017, and came into effect on July 1, 2017. After coming into effect of GST, tax is levied at every point in carrying out a sale. In the case of sales involving only one state (intrastate sales), Central GST and State GST are charged.
A brief history of GST
In the year 2000, a committee was set up to draft the law on GST. A good seventeen years is the time that took for the evolvement of the law. Good and Services Tax was passed in the Lok Sabha and Rajya Sabha in the year of 2017. It was on the 1st of July 2017 that the law came into force across the country.
Aim and Objectives of the GST–
GST was passed keeping in mind various objectives for the welfare of the nation. Some of these are-
- Concept of ‘One nation, One tax’ – Under the previous tax regime, a lot of indirect taxes were in existence. The Goods and Services Tax has replaced them.
- The noble purpose that a single tax such as the GST serves it that for a particular product, a single rate will be followed throughout each and every state. Administration of taxes becomes easier with the Central Government being the deciding factor for the rates and policies.
- Introduction of common laws such as e-way bills for goods transport and e-invoicing for transaction reporting has become possible. Tax compliance is now also better as taxpayers are not annihilated with multiple return forms and deadlines that used to be a worry in earlier times. Overall, it is a unified system of indirect tax compliance.
- Encompassing majority of indirect taxes existing in the country – Earlier in the country, several indirect taxes such as service tax, Value Added Tax (VAT), Central Excise, etc. used to be levied at multiple stages of the supply chain.
- The Centre has control on some of them while the others were controlled by the State. There was no unified and centralized tax on both goods and services. Hence, introduction of GST was required. Under GST, all the major indirect taxes are put into the ambit of one.
- It has, therefore greatly reduced the compliance burden on taxpayers and eased tax administration for the government.
- Curb evasion of taxes – Laws pertaining to GST are far more stringent compared to any of the erstwhile indirect tax laws. Under GST, taxpayers can claim an input tax credit only on invoices uploaded by their respective suppliers.
- This way, the chances of claiming input tax credits on fake invoices are minimal. The introduction of e-invoicing has further reinforced this objective. Also, due to GST being a nationwide tax and having a centralised surveillance system, the clampdown on defaulters is quicker and far more efficient.
- Hence, GST has curbed tax evasion and minimized tax fraud from taking place to a large extent.
- Increment of taxpayer base – GST has aided in widening the tax base in India. Previously, each of the tax laws had a different threshold limit for the registration based on turnover.
- As GST is a combined tax levied on goods and services both, it has increased tax-registered businesses. Besides, the stricter laws surrounding input tax credits have helped bring certain unorganised sectors under the tax net.
- One example of the same can be the construction industry in India.
Tax Laws before the advent of GST
The earlier tax regime saw many indirect taxes being levied both at the state and centre level. The value-added tax was the main mode of tax collection by the States. Every state had a different set of rules and regulations.
Taxation of inter-state goods was done by the center. CST (Central State Tax) was applicable in the case of inter-state sale of goods. The indirect taxes such as the entertainment tax, octroi, and local tax were levied together by state and center. These led to a lot of overlapping of taxes levied by both the state and the centre.
Taking as an example manufacturing and selling and of goods, excise duty was charged by the centre. Over and above the excise duty, VAT was also charged by the state. It led to a tax on tax effect. CGST, SGST, and IGST have replaced all the taxes.
Components of GST
Under the new system, three taxes are applicable: CGST, SGST & IGST.
- CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
- SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
- IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)
New adherences under GST –
What are E-Way Bills?
GST, with itself has brought up a centralised system of waybills by the introduction of e-way bills. On 1st April 2018, this system came into the advent of inter-state movement of goods, and on 15th April 2018 for intra-state movement of goods in a staggered manner.
Under the e-way bill system, manufacturers, traders and transporters can generate e-way bills for the goods transported from the place of its origin to their destination on a common portal with ease. Tax authorities also benefit under this system has reduced time at check -posts and helps reduce tax evasion.
What is E-invoicing?
From October 2020, the e-invoicing system was made available for businesses with an annual aggregate turnover of more than Rs.500 crore in any preceding financial years (from 2017-18).
Further, January 1st 2021, this system was extended to those with an annual aggregate turnover of more than Rs.100 crore. These businesses must obtain a unique invoice reference number for every business-to-business invoice by uploading on the GSTN’s invoice registration portal.
The portal further verifies the correctness and genuineness of the invoice. Thereafter, it authorizes using the digital signature along with a QR code. e-Invoicing provides an advantage as it allows interoperability of invoices and helps in reduction of data entry errors.
It is designed to pass the invoice information directly from the IRP to the GST portal and the e-way bill portal. It will, therefore, eliminate the requirement for manual data entry while filing GSTR-1 and helps in the generation of e-way bills too.
Who all does it apply to?
Good and Services Tax is applicable all across India. Here , in pointers are given people to whom it applies.
- To every person who is involved in an activity of supplying goods and services of value exceeding an amount of Rs 20 lakh in a given financial year. (The said limit is Rs 10 lakh for some states of special category). Along with it GST must be paid when turnover exceeds Rs 20 lakh (Rs 10 lakh for some special category states).
- To any person/persons making any inter-state taxable supply of goods or services
- Every e-commerce operator in the country
- Every person who supplies goods and/or services, other than branded services, through an e-commerce operator
- Aggregators who supply services under their brand name
- Casual Taxable Person
- Non-Resident Taxable Person
- A 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.
- A person required to pay tax under Reverse Charge
- Person supplying the goods on behalf of other taxable person.
- GST does not apply to agriculturists.
- It does not apply to any person engaged exclusively in the business of supplying goods and services that are not liable to tax or are wholly/completely exempt from tax under the said act.
GST has removed the cascading effect on the sale of goods and services. Removal of the cascading effect has impacted the cost of goods. Since the GST regime eliminates the earlier existing system of tax on tax, the cost of goods decreases.
Alongside, it is mainly technologically driven. All the activities like registration, return filing, application for a refund, and response to notice needs to be done online on the GST portal, which accelerates the processes.