Origin Of GST
The goods and services tax (GST) is a tax levied on the supply of goods and services for domestic consumption. The journey of GST began in 2000 under PM Vajpayee, and it took 17 years for the law to evolve. The GST Act, which came into effect on 1st July 2017, is arguably one of the biggest tax reforms the country has seen.
How Does it Work?
Goods and services are divided into five different tax slabs for collection of tax: 0%, 5%, 12%, 18% and 28%, except entities like petroleum, alcoholic drinks and electricity. GST is a consumption-based or destination-based tax, which means that taxes are paid to the state where the goods or services are consumed, not produced.
The primary purpose of this act was to eliminate the cascading effect of the tax, i.e. the process where consumers pay “tax on tax”. Earlier, some tax was levied at every stage of the value chain, i.e. from the manufacturer to the wholesaler to the retailer and finally to the end-user. Moreover, GST has boosted the development of the country’s economy by removing the indirect tax barriers between different states and replacing it with a uniform tax rate.
Components of GST
Three taxes are levied under GST:
- CGST or Central GST, which is collected by the central government for an intra-state transaction
- SGST or State GST, which is levied by the respective state governments on an intra-state sale
- IGST or Integrated GST, which is collected by the central government for sales between states
Advantages of GST
Although controversial in its initial stages, the GST scheme has brought about several advantages for the Indian taxpayers. Few of them are mentioned below.
- Fully Online
India is moving towards a digital economy, and the GST reform was a major step in this direction. All taxpayers – consumers and businessmen – have to pay tax and file returns only through the GST portal online. This helps the government maintain better records of all transactions, which would have otherwise been a mammoth task given the country’s population.
- GST Composition Scheme
The composition scheme under GST allows small businesses, i.e. those with a turnover below 1.5 crores (with some exceptions) to pay lesser tax. If you are a small businessman, you can avail the scheme by submitting the appropriate forms on the GST portal. Limited compliance for small taxpayers, higher liquidity, and quick filing of returns are some advantages of this scheme.
Current Status of the Act
From 2017, there have been several amendments and changes to the GST to make life simpler for the taxpayers. Some of the modifications to the original act are highlighted below.
- GST Registration
1st April 2019: If the aggregate annual turnover for a supplier of goods amounts to over INR 40 lakhs, you are supposed to apply for GST registration online to ease out the process of filing tax returns. You must also register if you are an inter-state supplier or if you supply through e-commerce platforms like Flipkart.
You have to register in the GST portal, submit details of your business and stakeholders, the services you offer and bank details to get your official GSTIN number. The main purpose of the GSTIN number is to maintain transparency and uniformity in the taxation system.
- E-bill System
This scheme was launched on 1st April 2018 for Inter-state movement of goods and on 15th April 2018 for intra-state movement of goods. Manufacturers, traders, and transporters can generate online bills for goods delivered from one city or location to another through a common portal. This makes maintenance and tracking easier for you as a businessman as well as the authorities (an added advantage is that lesser time is spent in check-posts and state borders).
- Leniency in Filing Returns
This section was amended primarily to introduce an option for certain types of taxpayers to furnish their returns every quarter and not monthly. Composition taxpayers have to file once a year. Note that you still have to pay taxes every month.
Small businesses, who usually find the process of filing very cumbersome and costly, now have some relief.
Thus, the article gave a brief overview of how GST in India has evolved since its inception in 2017, detailing some of the current schemes that make the taxation process simpler, faster, and more transparent.