In a country known for its complex and multi-layered tax system, implementing GST was a significant stride toward simplification and uniformity. Before the implementation of GST, many indirect taxes, like excise duty, value-added tax (VAT) and service tax, were imposed by the Central and State governments, resulting in a complex labyrinth of tax regulations. The introduction of GST aimed to streamline this intricate tax structure, alleviate the tax burden on consumers and producers and boost economic integration.
What is Goods and Service Tax?
GST, or Goods and Services Tax, is a comprehensive indirect tax system imposed on India’s supply of goods and services. This new tax regime has replaced the intricate structure of previous indirect taxes, including central excise duty, service tax, and value-added tax (VAT).
When was GST introduced in India?
The Parliament of India approved the Goods and Service Tax Act on March 29, 2017, and it was implemented on July 1, 2017.
Who introduced GST in India?
In 2014, the then Finance Minister, Mr Arun Jaitley, presented the Constitution Amendment Bill in Parliament. In May 2015, the Constitution (122nd Amendment) Bill received approval in the Lok Sabha. Subsequently, the Lok Sabha and the Rajya Sabha passed the Integrated GST Bill, 2017, the Union Territory GST Bill, 2017, the Central GST Bill, 2017, and the GST (Compensation to States) Bill, 2017 by April 20, 2017. Finally, on July 1, 2017, the official rollout of GST took place.
Objectives of GST
- The primary goals were to streamline taxation, lighten the tax load on consumers and producers, eradicate tax cascading, boost business efficiency, and stimulate economic unity.
- GST sought to establish a unified national market by eliminating inter-state trade barriers.
- Additionally, GST aimed to expand the tax base, enhance adherence, deter tax evasion, and elevate revenue collection.
Features of GST
One Nation, One Tax:
GST took over the role of various indirect taxes imposed by both the Central and State Governments, including excise duty, service tax, value-added tax (VAT), and more. This shift introduced a consistent tax structure throughout India, eliminating the issue of tax cascading.
GST functions under a double system, consisting of the Central GST (CGST) administered by the Central Government and the State GST (SGST) imposed by State Governments. Integrated GST (IGST) is implemented for interstate transactions, collected by the Central Government and then distributed to the relevant State. Importing goods or services is considered an interstate supply, making them liable for IGST and the applicable customs duties.
GST is a destination-based tax imposed at every point along the supply chain, starting from the manufacturer and concluding with the consumer. It’s levied on the value added at each stage, facilitating the smooth transfer of credits and alleviating the tax load on the final consumer.
Input Tax Credit (ITC):
GST permits the utilisation of input tax credits, enabling businesses to offset the tax paid on inputs used in manufacturing or providing goods and services. This prevents double taxation and lowers the total tax liability.
Read more details on the Input Tax Credit
The composition scheme entails a fixed percentage of their turnover as GST payment and simplified compliance procedures. It is designed for small taxpayers with turnovers below a specified threshold (presently 1.5 crores and 75 lakhs for special category states).
GST introduced an online platform, the Goods and Services Tax Network (GSTN), for tasks such as registration, return filing, tax payment, and other compliance activities. This digital system streamlined processes, enhancing ease and efficiency for taxpayers.
Why Was GST Introduced in India?
GST Eradicates the Tax Cascading Effect
GST, a holistic indirect tax system, aims to consolidate diverse forms of indirect taxation. Establishing a system where tax credits flow seamlessly through the entire value chain, even across state borders, is designed to minimise the cascading of taxes. This approach effectively reduces the concealed expenses associated with conducting business.
Elevated Registration Threshold
In the previous VAT system, businesses with a turnover exceeding Rs 5 lakh (with variations among states) were obligated to pay VAT. Additionally, service tax was waived for providers with turnovers below Rs 10 lakh. This threshold has been raised to Rs 20 lakh in the GST regime, granting numerous small traders and service providers exemptions.
Composition Scheme for Small Enterprises
GST offers small businesses (with turnovers between Rs 20 to 75 lakh) the opportunity to reduce their tax and compliance obligations through the Composition scheme. This measure has alleviated the tax and compliance burden for numerous small enterprises.
Streamlined Online Procedures
GST has streamlined the entire process, making it simple and accessible online. This online approach has benefited startups by eliminating the need to navigate various registrations like VAT, excise, and service tax separately.
Reduced Compliance Requirements
Compliance requirements have been significantly reduced under GST. Unlike the previous VAT and service tax systems, GST combines multiple returns and compliances into a unified framework. Approximately 11 returns under GST, with four basic returns applicable to all taxpayers. GSTR-1 is manually populated, while GSTR-2 and GSTR-3 are auto-populated, simplifying the process.
The introduction of GST in India was a transformative move driven by simplifying the tax system, reducing tax complexities, and promoting economic growth. This new tax regime has replaced many indirect taxes with a unified framework, eliminating the cascading effect of taxes. It has also ushered in a digital era of taxation, making compliance more efficient and accessible. While there were teething problems during its implementation, GST has gradually settled into the Indian tax ecosystem, achieving its goal of creating a single national market. The impact of GST on businesses and consumers is substantial, and it continues to shape the nation’s economic landscape.
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Frequently Asked Questions(FAQs)
1. Who Pays the GST?
Typically, the Goods and Services Tax (GST) burden falls on consumers or purchasers of goods and services. However, specific products, particularly those from the agricultural or healthcare sectors, may be exempt from GST, subject to jurisdictional variations.
2. What Are the Advantages of GST?
GST offers several advantages as it streamlines the taxation process, consolidating multiple taxes into a single, uncomplicated system. Additionally, it is believed to curb tax evasion by businesses and minimise corruption.