Tax is one of the vital sources of income for the government. The amount collected from taxes is used to build helpful and required resources for the nation. The Indian tax system is divided into different tiers for collecting the amount into different categories. It helps the government to use the right amount at the right place.
Some people try to escape from paying taxes in multiple ways. But it should not be done as paying taxes is the rightful duty of every citizen of a country. India’s tax system divides tax into two forms: Direct taxes and indirect taxes. These forms are further divided into various other categories for easy classification.
Types of Taxes
Direct taxes are applied to corporate entities and citizens of a country. Direct tax is divided into income, capital gain, and corporate tax. The form of taxation is levied in each assessment year, i.e., from 1st April to 31st March. The tax cannot be transferred to someone else and is mandatory to pay if the income limit exceeds the minimum exemption limit.
Indirect taxes are the taxes applied on goods and services, unlike direct taxes levied upon individuals. Hence, people pay the tax directly while purchasing a product, as the price includes the tax. Indirect taxes are divided into various forms, such as service tax, Indian excise duty, value-added tax, customs duty, securities transaction tax, stamp duty, and entertainment tax. The State tax is easy to collect for the government; hence, the authorities feel less burned about its collection.
Relation between Tax Rates and Place of Supply
The tax rate is the percentage at which a corporate or an individual is taxed. The tax rate changes as per the place of Supply of goods and services. The tax applied under such conditions is divided into GST, CGST, and IGST. SGST and CGST are applicable in the case of intrastate transactions and interstate transactions, respectively. Deciding the correct form of applicable tax may not be accessible for responsible bodies.
For instance, The situation can be defined as an online training course guiding people in different states or goods sold on a train traveling through various forms.
While deciding the tax rate, the place of Supply is vital to determining the tax form to apply to a particular product or service, such as CGST or IGST. The rule also helps calculate the right amount of GST, as improper calculation per the rules of a location will lead to incorrect analysis of the GST.
Tax Rates Based on Various Places of Supply
Tax rates for goods and services differ as per their location. The place of Supply is essential to avoid the wrong interstate and intrastate classification of the tax rate. The site of the pool also helps in the remuneration of the wrong amount of tax paid due to improper classification. The taxpayer must also pay the correct amount after reimbursing the complete amount while paying the wrong classified amount.
GST is a destination-based tax that defines different tax rates for goods and services for other states. Mentioned below are the concepts vital for understanding the places of supply concept in other tax rates for other sites:
- Location of the recipient of services
- Location of the supplier of services
A detailed understanding of the above concepts helps understand the role of location in deciding the right amount of tax and the correct form of tax to be charged. Improper performance will lead to wrong calculations, which can be a loss for an individual or a business on a vast scale. Hence, proper knowledge and classification of the tax with the help of a known service avoid massive losses to a company or an individual.
The transaction for goods and services can also be categorized and subcategorized into domestic and international transactions. Domestic transactions are further classified into interstate and intrastate transactions, helpful for defining taxes such as GST, CGST, and IGST.
Differentiated Tax Rates for Distinct Supply Locations
Differentiated Tax Rate
A differentiated tax rate is defined as a situation when the resellers have to pay lower sales tax on a few goods and products. The sales tax under such conditions is calculated as the difference between purchase and sales tax. The definition clearly defines that the tax rate is applicable for second-hand goods such as antiques, collector’s items, and other similar products.
The tax rate is also applicable for used goods and products. The total value of VAT of products is paid at the time of original purchase; hence, the differentiated tax is low for such goods and products.
Mentioned below are a few conditions or rules required to be fulfilled for sellers to avail of differential taxation:
- The goods or products applicable for differentiated tax must be purchased within the boundary of a country.
- The buyer should not have paid any sales tax while purchasing the product.
- The reseller should auction the purchased product or can also act commercially.
Distinct Person under GST
The distinct individual is defined as the one multiple of different GSTINs of one legal entity within the same State or in separate states and countries. Individuals with valid PANs can apply for GST registration in any state or union territory. The individual can apply for a single registration for different units of the same State.
Business verticals can apply for multiple GST registrations within the same State. Such businesses are also prone to risks, returns, and functions of other companies working the straight way. Hence, when two corporation units have different registrations, they are considered distinct.
Taxability for Distinct Person
The Supply made among distinct people is taxable under Rule 2 of the Valuation Rules. The value of the transaction depends upon the situations mentioned below:
The open market value of the Supply under such situations
In case of unavailability of empty market value, the value of goods, services, or similar products can be considered
If both the problems mentioned above are not possible, then Rule 4 and Rule 5 of the valuation rules are applicable
When the receipt is utterly eligible for full input tax credit, then the value of the invoice shall be equivalent to the open market for such transactions.
Place-Specific Tax Rate Classifications
The category signifies different types of GST. GST is the tax applied on goods and services for domestic consumption. It is also stated as a form of value-added tax. GST is further divided into four forms such as:
- Integrated Goods and Service Tax (IGST)
- State Goods and Services Tax (SGST)
- Central Goods and Services Tax (CGST)
- Union Territory Goods and Services Tax (UTGST)
IGST is a form of GST applicable for the Supply of goods and services between two states, also known as interstate. It is governed under the IGST Act, with the Central Government responsible for collecting such taxes.
SGST is a form of taxation under the GST regime applicable for the Supply of goods or services under the same State, also known as intrastate. Under such cases, GST and Central GST taxation are applicable. The respective State’s government ultimately claims the revenue earned from such taxes.
CGST is also a form of taxation under the GST regime and applies to the Supply of goods and services within the same State, similar to SGST. The CGST Act governs the taxation form, and the Central Government collects the revenue earned from it.
UTGST– Another form of taxation under GST applies to the Supply of goods and services to the Union Territories of India. Union Territories such as Andaman and Nicobar Islands, Lakshadweep, Chandigarh, Daman Diu, and Dadra and Nagar Haveli fall under the UTGST form of taxation. The UTGST Act governs it, and the Union Territory Government claims the revenue collected.
Varied Tax Rates based on Supply Destination
Different tax rates based on the supply location determine the form of GST to be paid on other goods and services. Tax rates also differ based on the supply destination of goods and services. These are classified in:
- Interstate Supply
- Intrastate Supply
Interstate Supply- As per GST, it is defined as a situation where the service or goods provider is from a separate state or Union Territory to the receiver of the services or goods. Import, export, and Supply to or from Special Economic Zone Unit or Export Oriented Unit are also considered Interstate Supply. When goods and services are transported from one State to another, IGST is levied by the Central Government. The revenue generated from the procedure is shared among the central and State governments.
Intrastate Supply is a situation where the supplier of goods and services and the consumer are in the same State. The supplies are liable to CGST, SGST, or UTGST taxation. Central, state, or UT governments are responsible for the calculation of taxes.
The GST rates in India are divided into four slabs, i.e., 5%, 12%, 18%, and 28%. Special rates of GST for certain particular goods are also applicable, along with nil rates for a few essential goods.
Understanding Diverse Tax Rates for Different Places of Supply
GST is a tax that is evaluated based on different types of destinations. Hence, the tax charging has to go through different frames, including the legal framework, importance of place of Supply, types of collection, location of Supply of domestic transactions involving goods, classification of business of Supply, and many other aspects. These aspects are further divided into different categories for easy sorting of taxes. Separate rules for the Supply of goods and services internationally are also framed.
Mentioned below is an example of understanding interstate and intrastate Supply of goods and services is helpful to understand the tax to be levied:
|Place of Supply
|Whether the location of the supplier and the place of supply is in the same State
|Intra-State (CGST& Puducherry GST)
|Intra-State (CGST + UTGST)
|Daman & Diu
|Intra-State (CGST + Goa GST)
GST is further divided into other taxes based on the place of Supply, such as SGST and CGST. IGST is a form of taxation applicable in inter-state transactions of goods and services. CGST and SGST are levied in intrastate Supply of goods and services.
The location of the supplier and consumer of the goods and services helps define the tax form to be levied. The location of the supplier is the geographical location of the goods and services stored and ready to supply to consumers in different parts of a state, country, or even for consumers situated internationally. The supplier’s place is termed the ‘principal place of business’ in a GST certificate during registration.
The tax system of every country differs from the other depending upon multiple factors. The Indian tax system, too, is divided into different slabs depending upon the location of a business supplying goods and services to a consumer. Other forms of tax levied in various situations help to signify the right amount to be paid and allow one to avoid unnecessary payment of taxes.
Frequently Asked Questions
What is tax defined as?
Tax is one of the significant sources of income for a government to develop the country.
What are the different taxation tiers in India?
The Indian tax system divides taxes into direct and indirect taxes, which are further divided into various forms according to the location of taxation.
What is direct tax defined as?
Taxes applied directly to individuals and corporate entities are known as direct taxes.
What are indirect taxes?
The taxes applicable on goods and services are known as indirect taxes.
In which other forms are direct taxes divided?
Direct taxes are divided into income, gain, and corporate tax.
In which other forms are indirect taxes divided?
Indirect taxes are divided into service tax, Indian excise duty, VAT, customs duty, securities transaction tax, stamp duty, and entertainment tax.
What is a place of supply in terms of the Indian taxation system?
The place of supply is where the taxes are applied as per the rules of the area of supply of goods and services.
In which forms are the taxes applied on goods and services divided according to place of supply?
Taxes applied as per supply of goods are divided into GST, CGST, and IGST.
Why is a place of supply essential in the Indian taxation system?
The place of supply helps decide the right amount of tax to be paid on goods and services; hence, it is an essential part of the taxation system.
What are the complete forms of CGST and IGST?
CGST stands for Central Goods and Services Tax, and IGST stands for Integrated Goods and Service Tax in the Indian taxation system.