Have you ever noticed that your restaurant bills, movie tickets, and shopping bills have a term called GST? So, GST (goods and service taxes) applies to some products and services. If you are a business owner, consumer, manufacturer, trader or dealer, then you surely must know what GST is. This guide will help you learn about GST in detail and give you an overview of some of its features and calculations.
What is GST?
Goods and Services Tax, also known as GST, is an indirect tax introduced on 1 July 2017 in India and was implemented to avoid double taxation and streamline tax administration. This shift marked one of the significant changes in the taxation sector.
GST is a tax levied on goods and services consumed in India. It is charged based on the final market price of the product, which is summed up to the retail price. Applicable GST rates differ in different categories and countries. The journey of GST started in 2000, but Implementation took over 17 years to pass the bill. Many indirect taxes were eliminated after the introduction of GST with the motive of having one nation, one tax.
Key features of GST
- Multi-stage
GST is collected at the end stage of the sale, while it is charged at every stage, from raw materials to manufacturers to suppliers, reducing the consumer’s burden.
- Dual GST Structure
GST has a dual structure operating under both central government and state government GST, known as SGST and CGST.
- Single Tax System
GST is a single tax; no other taxes, such as value-added, service, or customs duties, are charged. It replaced taxes imposed by state and central governments and is the only tax applicable. This single tax system has reduced the cost of products and services, making it easier for businesses and consumers.
- Uniform Tax Rates
GST has uniform tax rates all over the country, which reduces the complexities of different tax rates in different states. GST can also be calculated using an online tool called the GST calculator.
- Transparency
GST has led to massive digitalisation, which has created transparency in the taxation system, reduced fraud and corruption, and made it easy to keep electronic records.
Components of GST
- SGST
SGST ( the State goods and service tax) is a component of GST. It is a tax the state government applies on goods and services for transactions within a state, ensuring uniform tax rates. SGST makes sure that the state government receives its share of tax revenue.
- CGST
CGST (Central goods and services tax) is a GST tax applied on intra-state supplies and transactions. It replaces many taxes, such as service tax, excise duty, and customs duty, and it is responsible for collecting earnings generated through taxes.
- UTGST
(Union territory goods and services tax) UTGST is a GST charge on transactions in the United territories and sales of products and services in India. Union territories like Delhi, Puducherry, Lakshadweep, etc, levy this tax.
- IGST
(integrated goods and service tax) IGST is a tax charged when products and services are imported or exported from one state to another. Taxes collected through IGST are shared among the state and central governments.
Benefits of GST
The introduction of GST has brought a massive change in India’s taxation sector, leading to various benefits for consumers, businesses, and service sectors. Let’s have a look at some of the benefits of GST.
- Elimination of Multiple Taxes
GST is an indirect tax designed to combine all taxes into one. The introduction of GST has eliminated various taxes, such as service tax, custom duties, and excise duty, eliminating double taxation. Before GST, taxes were supposed to be paid on each point from raw material to consumers, but GST has made it easier for taxpayers to avoid double taxation.
- Online Facility for GST Compliance
GST has made it easier to register and file ITRs from anywhere in the world through digital platforms and GST software. This has reduced the hassles of businesses registering different taxes, such as service tax.
- Threshold for Registration
Before GST was introduced, businesses with more than five lakhs and service providers generating more than ten lakhs were liable to pay value-added tax. But, after GST came, the value increased to 20 lakhs.
- Simple E-commerce Procedures
Before GST, online platforms were supposed to file VAT and did not have a separate law for e-commerce platforms. But now, GST is applicable all over India, eliminating the complications of intra-state movement.
- Regulated Unorganised Sectors
Before GST was implemented, many unorganised sectors existed. However, GST provisions and online payments made these industries more organised and regulated.
- Online Taxation System
The introduction of GST resulted in a growing online platform, which made making payments and filing ITRs easy. This resulted in massive digitalisation, unlike in old times, when all these financial things were done on pen and paper, making keeping records difficult for a longer period of time.
How is GST Calculated?
The GST percentage for every category differs depending on the category. For example, GST for clothing is 5% – 12%, but GST for non-AC restaurants is 5%. The GST can be calculated by multiplying the product’s price by the GST percentage tax rate.
Let us understand with the help of an example:
Let’s say you want to purchase a T-shirt worth Rs.1200. GST for any clothing item above Rs.1000 is 12%, which is why the T-shirt will cost Rs.1344 based on the below calculation:
12% of 1200 = 144
Therefore, Rs.1200 + 144 = Rs.1344
Therefore, the cost of the T-shirt will be Rs.1344
Various online tools, like a GST calculator, can be used to determine the GST amount to make it simpler.
Bottomline
It has never been easy to get used to changes, and this exactly happened when GST was passed. GST has brought a massive change in the taxation system in India’s history, and although adapting to these changes has been difficult, the government is trying its best to ease up. GST continues to evolve with new technologies like AI, helping fraud detection, precise data and forecasting India’s wisdom and freedom.
