Demystifying the GST Act: A Comprehensive Summary

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Published Date:  30-01-2024   Author:   ujjwal-goel
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Earlier, there used to be numerous taxation policies in place. This used to cause a lot of burden on the taxpayers, as each one of them had unique compliance requirements. Therefore, to make the process more uniform, GST was introduced in India.

However, since GST’s implementation in India, there has been a massive debate on whether it is a boon or a bane. Many feel it has resulted in higher tax payments, while some also feel it is a simple and just alternative.

So, let’s discuss GST in detail.

Table of Contents

What is GST?

Goods and Services Tax is an indirect tax system applied to the supply of goods and services in India. It operates as a comprehensive and destination-based tax. This means that GST encompasses various stages of production and is collected at the point of consumption.

Notably, it replaces numerous pre-existing indirect taxes, promoting efficiency in the taxation structure. The key feature lies in providing input credit to entities at different production stages, except for the final consumer.

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Evolution and Implementation of GST: An Overview

The evolution of the Goods and Services Tax in India spans over two decades. A series of discussions, committees, and legislative efforts marked it. Here is how it evolved:

  • Year 2000: Inception under Atal Bihari Vajpayee: GST’s roots trace back to discussions initiated in 2000 during the Atal Bihari Vajpayee government.
  • Empowered Committee Formation: Recognising the need for comprehensive reform, an empowered committee of state finance ministers with expertise in State VAT laid the groundwork for GST.
  • 2004: Fiscal Responsibility and Budget Management Committee’s Recommendation: The committee recommended the introduction of GST, marking a crucial step towards tax reform.
  • 2006-07: The Union Finance Minister set a target to implement GST in the Budget Speech by April 1, 2010.
  • Constitution (115th Amendment) Bill, 2011: Introduced in Parliament to incorporate GST provisions, subjected to detailed examination by a Standing Committee.
  • Dissolution of Lok Sabha and Bill Lapse: In 2014, with the dissolution of Lok Sabha, the Bill lapsed, necessitating a new Constitutional Amendment Bill.
  • July 1, 2017: After years of evolution, the GST Act was finally implemented, unifying a complex tax structure into a comprehensive indirect tax system.
  • Significant Milestone in 2017: The implementation marked a historic milestone, streamlining taxation, promoting ease of doing business, and fostering a unified market in India.

What are the key Components of the GST Act?

The GST Act is a complex tax reform that aims to simplify indirect taxation in India. The key components of the GST Act include:

1. Central Goods and Services Tax (CGST)

This component deals with the taxation imposed by the Central government on the intra-state supply of services and goods.

2. State Goods and Services Tax (SGST)

SGST pertains to the taxation imposed by the State government on the intra-state supply of services and goods.

3. Integrated Goods and Services Tax (IGST)

IGST is applicable to the inter-state supply of services and goods and is collected by the Central government. It ensures seamless transactions across state borders.

4. Union Territory Goods and Services Tax (UTGST)

UTGST is akin to SGST but is applicable in Union Territories with a legislative assembly.

5. Goods and Services Tax Compensation Cess

This component allows for the imposition of an additional tax on certain goods and services to compensate states for any revenue loss during the initial years of GST implementation.

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What is the Structure of GST?

The Goods and Services Tax in India comprises a four-tier tax structure with different tax slabs applied to various goods and services. The detailed breakdown of GST is given below:

Tax Slab  Rate (%)  Examples of Goods/Services Covered 
0%  Exempt  Staple food items like rice, wheat, milk, eggs, fruits, vegetables, unbranded bread, newspapers, books, etc. 
5%  Low rate  Essential items like non-AC railway tickets, sanitary napkins, salt, fertilizers, etc. 
12%  Standard rate  Most processed food items, textiles, footwear, mobile phones, soap, detergents, etc. 
18%  Higher rate  Restaurants (non-AC), televisions, washing machines, furniture, paints, ACs, etc. 
28%  High rate  Luxury items like cigarettes, tobacco, pan masala, aerated beverages, motorcycles, cars, etc. 

Also Read: What Is The Structure Of GST In India?

What are the Salient Features of the GST Regime?

The GST regime in India brought about a transformative shift in indirect taxation. Here are some of the salient features that underpin its significance:

1. One Nation, One Tax

The GST regime unifies diverse indirect taxes, eradicating tax cascading. This move fosters a seamless national market by streamlining tax processes and eliminating complexities associated with multiple tax structures.

2. Destination-Based Tax

GST is levied at the point of consumption, ensuring fairness in tax distribution among states. This destination-centric approach encourages healthy competition across regions, aligning tax revenues with consumption patterns.

3. Comprehensive Tax Base

The GST framework encompasses a wide array of goods and services, minimising exceptions. By broadening the tax base, it has the potential to augment revenue and significantly curtail opportunities for tax evasion.

4. Input Tax Credit (ITC) Mechanism

A cornerstone of GST, the Input Tax Credit mechanism empowers businesses to offset taxes paid on inputs. This reduces the overall tax burden and promotes compliance and transparency within the system.

5. Online Compliance System

The GST regime introduces an efficient online registration, return filing, and tax payment platform. This digital transformation streamlines tax administration, minimising paperwork and enhances overall efficiency and transparency in the tax ecosystem.

6. Composition Scheme for Small Businesses

Small businesses benefit from a simplified compliance framework under the Composition Scheme. With lower tax rates and reduced compliance requirements, this initiative encourages the growth of small enterprises, contributing to economic vibrancy.

What is GST Compliance?

GST compliance refers to the adherence of businesses to the guidelines and protocols set by the government under the Goods and Services Tax system. It is crucial for businesses to follow these regulations to maintain discipline and fulfil their tax obligations. The key categories of GST compliance include:

1. Tax Invoice Compliance

Issuing accurate tax invoices is fundamental for transparent transactions, aiding Input Tax Credit claims and ensuring proper tax calculation. It establishes integrity in the GST system.

2. Return Filing Compliance

Regularly filing GST returns summarises transactions, enabling government tax assessment and facilitating Input Tax Credit reconciliation. Accurate reporting is vital for transparent financial transactions.

3. Registration Compliance

Obtaining and maintaining GST registration is mandatory for businesses, ensuring legal recognition and active participation in the GST system. It establishes legitimacy and compliance with turnover criteria.

Also Read: Different Types of Documentation Required for GST Compliance

What is the GST Return and Filing Procedure?

A GST return is a formal document providing details on purchases, sales, and the corresponding taxes paid and received. Upon submitting the return, individuals or businesses are required to clear any outstanding tax liabilities.

A. GST Filing Procedure

  1. Registration: Obtain a GST Identification Number (GSTIN) through online registration.
  1. Maintain Records: Keep accurate records of sales, purchases, taxes, invoices, and other relevant documents.
  1. Prepare Returns: Use the GST portal or accounting software to compile details for return forms.
  1. File Returns Online: Submit returns electronically on the GST portal.
  1. Pay Taxes: Pay applicable taxes online through various payment modes.

B. Types of GST Returns and Filing Dates

Form Name  Purpose  Who Should File  Frequency  Due Date (General) 
GSTR-1  Details of outward supplies (sales)  Regular taxpayers  Monthly/Quarterly  11th of the next month/31st of the next quarter 
GSTR-2A  Details of inward supplies (purchases) auto-populated  Regular taxpayers  Monthly  15th of the next month 
GSTR-3B  Summary of self-assessed tax liability and payment  Regular taxpayers  Monthly/Quarterly  20th of the next month/22nd-24th of the month following the quarter 
GSTR-4  Annual return for composition taxpayers  Composition taxpayers  Annually  30th April of the next financial year 
GSTR-5  Return for non-resident taxable persons  Non-resident taxable persons  Monthly  20th of the next month 
GSTR-6  Return for input service distributor  Input Service Distributor (ISD)  Monthly  13th of the next month 
GSTR-7  Return for tax deducted at source (TDS)  Tax deductors  Monthly  10th of the next month 
GSTR-8  Return for e-commerce operators  E-commerce operators  Monthly  10th of the next month 
GSTR-9  Annual return for regular taxpayers  Regular taxpayers  Annually  31st December of the next financial year 
GSTR-9A  Annual return for composition taxpayers  Composition taxpayers  Annually  31st December of the next financial year 
GSTR-9C  Reconciliation statement  Taxpayers with turnover above ₹5 crores  Annually  31st December of the next financial year 

Also Read: GST Return Filing-Types of Returns and Process of Filing

What is the Benefit of the GST Act?

Adopting the GST Act in India provides several benefits. It includes the following:

1. Common Market in Motion

GST creates a dynamic common market by encouraging consistency in indirect tax rates across the country. This promotes a beneficial business climate, improving the ease of conducting business and producing positive externalities.

2. Removal of the Cascading Effect

The seamless input tax credit provision in GST prevents double taxation and improves resource allocation by eliminating the cascade impact. This effective tax structure boosts competitiveness and simplifies transaction procedures.

3. Efficiency

Subsuming big indirect taxes results in the elimination of ineffective levies. Consolidation into a single tax streamlines payment processes, allowing firms to compete more effectively. This greater competitiveness has the potential to boost export growth.

4. Lower Compliance Costs

Tax rate harmonisation, simpler legislation, and the provision of seamless input tax credits, together with a strong IT infrastructure, all contribute to lower compliance costs. Online taxpayer services streamline processes even further, making compliance more accessible and cost-effective.

5. Reduction in Tax Evasion

Uniform tax rates reduce the motivation for tax evasion by eliminating rate arbitrage possibilities across states and different types of sales. This reduction in tax avoidance contributes to a more level playing field for firms.

6. Consumer Advantages

The smooth movement of input tax credits across manufacturers, merchants, and service providers is projected to result in reduced end-product pricing. Consumers may benefit from lower pricing and increased affordability as the average tax burden on businesses falls.

What are the Challenges of the GST Act?

There are two sides of a coin. Similarly, if GST has certain advantages, it also has some challenges. Some of these challenges are listed as follows:

1. Technical Glitches

The GST portal has experienced frequent glitches and downtime, causing disruptions in filing returns and generating invoices. This has led to frustration among businesses and delayed tax payments.

2. Complex Compliance Requirements

GST has multiple compliance filings, such as GSTR-1, GSTR-3B, and annual returns, each with specific deadlines. This complexity burdens businesses like SMEs with additional administrative costs.

3. Frequent Changes in Rules and Rates

The GST Council has made numerous changes to GST rules and rates since its implementation, making it difficult for businesses to keep up. This uncertainty has hindered long-term tax planning and compliance.

4. Input Tax Credit (ITC) Issues

Businesses have faced challenges in claiming ITC due to strict eligibility criteria, delayed refunds, and discrepancies in invoices. This has impacted their working capital.

5. Dispute Resolution Mechanism

The GST dispute resolution mechanism is still evolving, with limited clarity on appeal procedures and timelines. This has led to delayed resolution of disputes.

6. Lack of Awareness and Capacity Building

Despite awareness campaigns, knowledge gaps persist among businesses, especially in the informal and rural sectors. This has led to potential tax evasion.

Conclusion

The implementation of Goods and Services Tax has proven to have numerous benefits that outweigh its limitations. However, that does not mean it is ideal. Authorities need to keep on amending it per the changes and requirements of the economy.

Similarly, taxpayers must also keep up with the new amendments in the GST slabs and ensure their compliance. It will help them ensure an easy and secure continuance of business. 

Frequently Asked Questions 

Q1. Who is India’s GST Forefather?

Atal Bihari Vajpayee, affectionately known as Bihari, earned the title “father of GST.” A renowned leader of the Bharatiya Janata Party (BJP), he held the position of Prime Minister of India twice during his political career.

Q2. Who Launched GST First?

The origins of GST trace back to 1954, when France initially embraced it, and since then, it has been adopted by over 160 countries globally. Among the more recent adopters, Malaysia implemented its value-based tax system, GST, in 2015.

Q3. How to Calculate GST?

In calculating the Goods and Services Tax, a straightforward formula emerges: the GST Amount is determined by multiplying the Original Cost by the GST Rate Percentage and dividing the result by 100. The Net Price is then obtained by adding the Original Cost to the GST Amount.

Q4. Who is the CEO of GST?

The GST council is now chaired by Nirmala Sitharaman, the Finance Minister.

Q5. Who was the First CEO of GST?

Arun Jaitley, the late Indian politician, served as the first chairman of the GST Council. GST is a comprehensive taxation system that amalgamates numerous individual taxes into a unified, single tax structure.

Q6. How Much is GST on Gold?

The GST rate of 3% is applicable to the total value of jewellery, encompassing the primary supply, which is the sale of gold. This rate applies irrespective of whether the making charges are itemised separately or included in the overall value of the jewellery.

Q7. What is the Limit of GST?

Businesses with an annual turnover surpassing ₹40 lakhs (for goods) and ₹20 lakhs (for services) are mandated to register for GST. Once registered, these companies must fulfil their tax obligations by paying taxes on the taxable goods and services they provide.

Q8. What is the Theme of GST?

The theme for GST Day 2023 is ‘Celebrating Simplification and Economic Growth.’ Over the past six years, GST tax has undergone modifications, aligning with business needs. With 49 GST council meetings conducted, the GST law has been streamlined, aiming to simplify processes for the benefit of taxpayers.

Q9. What is Turnover in GST?

“Aggregate turnover” refers to the combined value of all taxable supplies, exempt supplies, excluding the value of inward supplies subject to reverse charge, exports of goods or services, and inter-state supplies by individuals sharing the same Permanent Account Number (PAN).

Q10. What Does HSN Mean?

HSN code is “Harmonized System of Nomenclature,” a globally adopted system for systematically classifying goods. This system facilitates a standardised method for categorising and identifying products worldwide.

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Ujjwal Goel

Ujjwal Goel is a B2B Technical and Finance Writer. With 5 years of experience, he has established himself as a skilled and knowledgeable blogger and content creator. Hailing from a BBA background, he is passionate about the Technical and Finance field and strives to create engaging, informative, and thought-provoking content for his readers. His writing style is conversational and informative, and he is committed to delivering high-quality work that meets the needs of his clients and readers. When he is not writing, he enjoys binge-watching Netflix or traveling

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