GST has resulted in significant benefits for consumers, as it reduces the impact of prior taxation and facilitates a single national market. Reduced tax burden and greater customer openness. The new GST tax regime came into effect on July 1, 2017. GST is a clear and self-policing tax regime that is easier to handle and improves economic growth. Understanding GST components is critical as it affects how businesses pay taxes.
Overview of the Goods and Services Tax (GST)
Since the GST was created in 1947, indirect taxes have been a major cause of dispute in India. India’s Finance Minister suggested a goods and services tax for the first time in 2006. (GST).
In his Budget statement for 2006-07, the then-Union Finance Minister proposed the GST. The first GST FDP was released in November 2009. It was written by the Empowered Finance Ministers’ Committee (which was responsible for creating the State VAT design). All subsequent GST negotiations were based on this document, which also provided ideas for the new taxing scheme.
In the 16th Lok Sabha, the 122nd Constitutional Amendment was introduced to ensure that the federal government and state governments collaborate on the GST’s structure, design, and implementation. It was introduced in December 2014 and passed in May 2015 by the Lok Sabha. The following month, it was delivered to the Rajya Sabha select committee.
The Rajya Sabha released its findings on the bill throughout the month of July. It was passed by the Lok Sabha with various revisions in addition to the Rajya Sabha. The bill entered into effect the next day after President Obama signed it. The Constitution Act was named after the date it was passed, September 16th of the same year (101st Amendment).
Financial relations between the centre and the states after GST
Even before GST, the fiscal powers of the state and the Centre were well separated, with no overlap. Previously, the Centre had the ability to levy a tax on the manufacture of goods, with the exception of some products designed for human consumption, such as alcohol/liquor. Purchases made in other states were subject to a state sales tax. The central government, on the other hand, levied a central sales tax on interstate sales. The original states kept them, and they took them home with them. Additional customs duties were collected by the Center on the sale or purchase of products during their export from or import into India. Customs fees increased as a result of this. Local sales tax, state sales tax, and excise tax were levied on domestic products.
Following the implementation of GST, a one-of-a-kind institutional system was put in place to ensure that decisions about the design and operation of GST would be made jointly by the Centre and the states. The tax will be levied in two parts: the Union (CGST) and the States (SGST). The Parliament has sole authority to charge GST on interstate trade or commerce (including imports) in goods and services (IGST).
Components of GST
GST is levied on a common basis by both the central and state governments at the same time. The components of GST can be classified as follows:
- Central GST (CGST) – The GST is levied by the central government.
- State GST (SGST) / Union Territory GST (UTGST) – The GST is levied by the states and union territories.
- Integrated GST (IGST) – A tax levied by the central government on inter-state supplies of goods and services to keep the credit chain intact. Apart from any applicable customs charges, imports of goods and services would be considered inter-state supplies and hence liable to IGST.
The GST Council (GSTC) would be in charge of determining the rates for the components of GST i.e CGST, IGST, and SGST/UTGST with the Centre and states’ mutual agreement. The Centre absorbed the following taxes with the implementation of GST:
- Excise Duty on Central Excise
- Excise Duty (Medical and Toilet Preparations)
- Customs Special Additional Duty (SAD)
- Service Tax
- Goods and Services that were subject to a cess and surcharge.
- Excise Duty in Addition (Textiles and Textile Products)
- Excise Duty in Addition (Goods of Special Importance)
- Customs Additional Duties (commonly referred to as CVDs)
The GST eliminated the following state taxes:
- Combined Sales Tax
- Declare VAT
- The Purchase Tax
- Entry Fee (All forms)
- The Luxury Tax
- Advertisement Taxes
- Entertainment Taxes (other than those imposed by local governments)
- State Cesses and Surcharges to such an extent as they apply to the supply of goods or services
- Lottery, betting, and gaming taxes
What you should remember
- There is no GST on alcohol for human consumption.
- Crude, Diesel, ATF, Petrol, and Natural Gas are the five petroleum products on which GST would be levied beginning on a date determined by GSTC.
- Tobacco and tobacco products are subject to a central excise duty levied by the government, as well as GST.
Tax Slabs: GST Rates explained
For all goods and services, the government suggested a four-tier tax structure with four slabs of 5%, 12%, 18%, and 28%.
Continue reading to learn whether various items and services are tax-free or taxed under the following slabs:
1. No tax slab or 0%
The following items are tax-free:
A variety of fresh meat, jute, fish, chicken, milk, eggs, curd, buttermilk, fresh fruits and vegetables, natural honey, besan, flour, salt, bread, sindoor, prasad, bindi, books, newspapers, bangles, bone grist, and so on.
2. Tax slab of 5%
Packaged food, skimmed milk powder, cream, branded paneer, coffee and tea, frozen vegetables, spices and rusk, and pizza bread are some of the most popular food items that are subject to a 5% GST tax. Other popular food items include lifeboats, medicines, stents, cashew nuts and raisins, ice and snow and insulin.
3. Tax slab of 12%
Clothing worth more than Rs 1,000, cheese, ghee, butter, frozen meat products, packaged dry fruits animal fat, fruit juices, sausage, Ayurvedic medicines, bhujia, namkeen, tooth powder, picture books, colouring books, exercise books and notebooks, sewing machine, umbrella, ketchup & sauces, cellphones, diagnostic kits and reagents, fertilisers, fish knives, spoons, forks, cake servers, ladles etc. In addition, services such as non-AC hotels, state-run lotteries, and business class air tickets are subject to a 12% GST tax.
4. Tax slab of 18%
Soups, sauces, instant food mixes, ice cream, tissues, mineral water, tampons, envelopes, printed circuit boards, notebooks, TVs, cameras, aluminium foil, weighing machines, headgear, and steel products are all subject to 18% GST.
5. Tax slab of 28%
All paint, deodorants, bottled water, shaving creams and other personal products would be taxed at a rate of 28%.
Private-run lotteries authorized by states, 5-star hotels, theatres, and race club betting will all be subject to a 28% GST.
GST Mobile Application
The Central Board of Excise and Customs (CBEC) has developed a Goods and Services Tax App to assist taxpayers in their transition. In order to answer all of your indirect tax-related queries, this app was developed. They can also get help adjusting to the new tax system through toll-free numbers, reading materials, and videos.
There’s also a GST app for Android users to learn about the transfer criteria and how to apply for migration. The app also has a thorough FAQ section covering things like registration, valuation, tax payment, refunds, input tax credit, search and seizures, and an appeals forum.
The app also includes a free helpline number and email address for taxpayers who need clarification on GST-related concerns.
Understanding the components of GST is crucial. Businesses and consumers alike benefit from frequent revisions to the Goods and Services Tax (GST) legislation. With a better understanding of the GST definition and other key aspects, you should be able to better grasp how it affects your organisation. To conduct your business lawfully and prevent non-compliance and fines, follow the GST legislation and pay the necessary taxes on time.