GST is an indirect tax of India, which is effective from 1 July 2017. Know what is GST, how it works, its types, benefits and tax rates.
GST means Goods and Services Tax. It is an indirect tax imposed on the purchase and sale of goods and services in India. It came into effect across the country on 1 July 2017. Before the implementation of GST, different types of taxes were levied in India, such as VAT, Excise Duty, Service Tax and Entry Tax. After the arrival of GST, many of these taxes were included in one system. Because of this the tax system became simpler than before.
Why was there need for GST?
Before the implementation of GST, different states and the central government had different taxes. Due to this, traders and businessmen had to pay many types of taxes and there was also the problem of tax on tax.
What was the purpose of GST?
- Simplifying the tax system.
- To implement uniform tax system in the entire country.
- Putting brakes on tax evasion.
- Making business easier.
How does GST work?
When a company manufactures a product, sells it and finally reaches the customer, GST is applicable at every stage. But businessmen get Input Tax Credit (ITC) of the GST already paid. Therefore, the main ultimate burden of tax falls on the customer. For example, suppose a factory made a chair and sold it to a shopkeeper for ₹ 1,000. 18% GST was imposed on this.
Price of chair: ₹1,000
GST: ₹180
Total Price: ₹1,180
Now the shopkeeper sells the same chair for ₹ 1,500. He does not have to pay the entire ₹270 GST, but gets credit for the ₹180 already paid. Meaning he only collects the tax on the difference. This is the biggest feature of GST.
How many types of GST are there?
1. CGST (Central GST): When goods or services are sold within a state, the Central Government gets a part of it.
2. SGST (State GST): The state government gets the second part of the same transaction.
3. IGST (Integrated GST): IGST is applicable when goods or services are sold from one state to another.
What benefit did the common people get from GST?
1. Tax system became easier
Earlier there were many types of taxes, now in most cases there is only one tax system.
2. Transparency increased
Through the GST bill, the customer can see how much tax he has paid.
3. Doing business became easier
Due to uniform tax system across the country, it became easier for many businesses to operate than before.
4. Control on tax evasion
Tax records can be tracked better with systems like online returns and e-invoices.
Is GST applicable on everything?
No. Some essential goods and services are exempted from GST or have zero (0%) tax. Different GST rates are applicable on different goods and services, such as 5%, 12%, 18% and 28%. GST Council also keeps changing these rates from time to time.
(Content Source: GST Council, Central Board of Indirect Taxes and Customs (CBIC), ST Portal (www.gst.gov.in), Ministry of Finance, Government of India, PIB)