Unit 5: GST
Introduction to GST
Goods and Services Tax (GST) is a comprehensive, destination-based indirect tax levied on the supply of goods and services. It replaces multiple indirect taxes like VAT, excise duty, and service tax, creating a single unified tax system.
Simply put: GST is a one-stop tax on all goods and services, collected at each stage of the supply chain but ultimately borne by the final consumer.
Key GST Concepts
| Concept | Explanation |
|---|---|
| Supply | Includes sale, transfer, barter, exchange, or lease of goods/services for consideration |
| Input Tax Credit (ITC) | Mechanism to offset tax paid on inputs against tax payable on output |
| Destination-based Tax | Tax is collected where the goods/services are consumed, not where produced |
| CGST / SGST / IGST | - CGST: Collected by Central Government - SGST: Collected by State Government - IGST: Collected on inter-state supply |
Advantages of GST over VAT
| Aspect | VAT | GST |
|---|---|---|
| Tax Structure | Multiple taxes (VAT, Excise, Service Tax, etc.) | Single comprehensive tax |
| Cascading Effect | Yes, tax on tax | No, input tax credit eliminates cascading |
| Compliance | Complex, multiple returns | Simplified, single return per period |
| Ease of Doing Business | Fragmented and state-specific | Unified, pan-India tax system |
| Transparency | Moderate | High, due to digital tracking and ITC mechanism |
Limitation of VAT: VAT applied only on goods; service tax was separate. It led to tax cascading and compliance complexity.
GST as the Preferred Tax Structure
- Removes Multiple Taxes: Replaces VAT, excise, service tax, luxury tax, and other indirect taxes.
- Reduces Tax Cascading: Input Tax Credit ensures tax is charged only on value addition.
- Promotes Ease of Business: Simplified returns, online filing, and centralized compliance.
- Encourages Transparency: Digital invoicing and ITC records reduce tax evasion.
- Uniform Tax Rate: Common rates across states eliminate discrimination.
Example:
- Manufacturing in Maharashtra, sale in Delhi → previously taxed twice under VAT and CST.
- Under GST → IGST collected in Delhi, with ITC available for Maharashtra taxes.
Models of GST in India
| Model | Explanation |
|---|---|
| CGST + SGST | Applied on intra-state supplies; revenue shared between Centre & State |
| IGST | Applied on inter-state supplies; collected by Centre, then shared with States |
| Dual GST Model | Combines CGST & SGST for intra-state and IGST for inter-state supply |
India follows the Dual GST Model where both Centre and States share tax revenue on intra-state sales.
Need for Tax Reforms
| Reason | Explanation |
|---|---|
| Complexity of Indirect Taxes | Multiple taxes, overlapping regulations, and high compliance costs |
| Cascading Effect of Taxes | VAT & Service Tax led to tax on tax, increasing product costs |
| Ease of Doing Business | Fragmented tax system discouraged inter-state trade |
| Revenue Efficiency | Unified GST increases tax base and compliance, boosting revenue |
| Digital Transformation | GST leverages IT-enabled compliance, reducing human error and tax evasion |
Summary Table: GST vs VAT
| Aspect | VAT | GST |
|---|---|---|
| Tax Coverage | Goods only | Goods + Services |
| Cascading Effect | Yes | No (ITC mechanism) |
| Compliance | Multiple returns | Single digital return |
| Tax Rates | Varies by state | Uniform rates (CGST, SGST, IGST) |
| Transparency | Moderate | High |
In Short
- GST is a modern, unified indirect tax system designed to simplify taxation, reduce tax cascading, and promote ease of business.
- By replacing VAT and other indirect taxes, GST ensures efficiency, transparency, and uniformity across India.
GST Principles
GST is based on a few key principles to ensure uniformity, efficiency, and fairness in taxation.
| Principle | Explanation |
|---|---|
| Comprehensive Taxation | GST covers all goods and services, replacing multiple indirect taxes like VAT, excise duty, and service tax. |
| Value Addition Tax | Tax is levied only on the value addition at each stage of the supply chain, avoiding cascading. |
| Destination-Based Tax | Tax is collected where goods/services are consumed, not where they are produced. |
| Input Tax Credit (ITC) | Businesses can claim credit for tax paid on inputs, reducing the effective tax burden. |
| Single vs Dual GST | Explains the structure of GST in India (see below). |
Single GST vs Dual GST
| Type | Explanation | Applicability |
|---|---|---|
| Single GST | A single tax levied by a central authority on both goods and services | Not implemented in India; used in some countries like Singapore |
| Dual GST | GST is levied by both Central (CGST) and State (SGST) governments for intra-state supplies; IGST for inter-state supplies | Implemented in India under the CGST Act & IGST Act |
Key Point:
- Intra-state supply → CGST + SGST
- Inter-state supply → IGST
Transactions Covered under GST
GST applies to the supply of goods or services for consideration, including:
| Transaction Type | Explanation |
|---|---|
| Sale of Goods/Services | Transfer of goods or services in return for money, barter, or exchange |
| Manufacturing | Taxable even if goods are manufactured and supplied internally |
| Import of Goods/Services | Taxed as IGST, equivalent to customs duties + GST |
| Exports | Zero-rated supply; ITC can be claimed for inputs used in export |
| Leasing, Renting, and Hiring | Considered supply of services |
| Online Digital Services | E-commerce transactions, subscriptions, SaaS services, etc. |
| Deemed Supply | Supply without consideration in certain cases (e.g., transfer between related parties) |
Exemptions: Certain goods (agricultural produce) and services (healthcare, education) are exempted under GST law.
Impact of GST
GST has transformed the indirect tax system in India, affecting businesses, consumers, and government revenue.
| Area | Impact |
|---|---|
| Businesses | Simplified tax compliance with single tax regime; reduced cascading effect; easier inter-state trade |
| Consumers | Transparent pricing; reduction in tax-on-tax; uniform GST rates across states |
| Government Revenue | Expanded tax base; improved collection efficiency through IT-enabled filing |
| Supply Chain | Streamlined logistics due to common tax structure; elimination of multiple checkpoints and entry taxes |
| Digitalization | Mandatory e-invoicing and return filing; improved transparency and accountability |
Example:
- Earlier: A product moved from Maharashtra to Gujarat → VAT + CST → higher cost
- After GST: IGST collected at point of sale → ITC available → lower overall tax burden and price stability
Summary Table: GST Principles and Impact
| Aspect | Key Points |
|---|---|
| Principles | Comprehensive tax, value addition, destination-based, ITC, single vs dual GST |
| Single GST | One central tax; not in India |
| Dual GST | CGST + SGST (intra-state), IGST (inter-state); implemented in India |
| Transactions Covered | Sale, supply, import, export, leasing, digital services, deemed supply |
| Impact | Simplified compliance, reduced cascading, uniform pricing, efficient revenue, digitalization |
In Short
GST is a destination-based, value-added tax replacing multiple indirect taxes.
India follows a dual GST model, covering all goods and services, simplifying compliance, reducing tax cascading, and promoting transparency in trade and taxation.
GST Registration
GST registration is the process by which a business becomes legally recognized under GST law and is allotted a GSTIN (GST Identification Number) for compliance.
Who Must Register?
| Category | Threshold / Condition |
|---|---|
| Normal Taxpayers | Annual turnover exceeds ₹40 lakh (Goods) / ₹20 lakh (Services) – varies by state |
| Casual Taxable Person | Engages in business temporarily in a state |
| E-commerce Operators | Mandatory for marketplace operators facilitating sales |
| Composition Scheme Taxpayers | Businesses with turnover ≤ ₹1.5 crore can opt for simplified scheme |
| Other | Input Service Distributor (ISD), Non-resident taxable person, Tax deductor/collector |
Process
- Apply online at GST Portal.
- Provide PAN, business details, bank account, and digital signature.
- Receive 15-digit GSTIN upon approval.
GST Filing
GST filing is the submission of periodic tax returns detailing sales, purchases, output tax, and input tax credit.
Key GST Returns in India
| Return | Frequency | Who Files |
|---|---|---|
| GSTR-1 | Monthly / Quarterly | Outward supplies (sales) |
| GSTR-3B | Monthly | Summary of inward & outward supplies, tax liability, ITC claimed |
| GSTR-4 | Quarterly | Composition scheme taxpayers |
| GSTR-9 | Annual | Annual return for all normal taxpayers |
| GSTR-9C | Annual | Reconciliation statement for audited taxpayers |
Note: Returns are digitally filed through the GST portal.
Rates of GST
GST Rates in India
India follows a slab system for goods and services:
| GST Slab | Type | Examples |
|---|---|---|
| 0% | Exempt | Agricultural products, education, healthcare services |
| 5% | Low | Essential goods, packaged food items |
| 12% | Medium | Processed food, computers, capital goods |
| 18% | Standard | Consumer durables, services, industrial goods |
| 28% | High | Luxury goods, tobacco, luxury cars |
Special rates: Some items like precious metals are taxed differently; sin goods may attract cess.
GST Rates in Foreign Countries (Examples)
| Country | Tax Type | Rate |
|---|---|---|
| Singapore | GST | 8% (2023), 9% (2024 projected) |
| Australia | GST | 10% |
| Canada | GST / HST | 5%-15% depending on province |
| UK | VAT | 20% standard, 5% reduced |
| UAE | VAT | 5% |
Observation: India’s GST rates (0%-28%) are broadly in line with global VAT/GST systems, with multiple slabs to balance essential and luxury goods.
Assessment and Administration of GST
Assessment: Determination of tax liability of taxpayers based on their returns, invoices, and other documents.
Types of GST Assessment
| Type | Explanation |
|---|---|
| Self-Assessment | Taxpayer declares liability in GSTR-3B / GSTR-1 and pays accordingly |
| Provisional Assessment | Allowed when exact tax liability is uncertain, taxpayer can apply to authorities |
| Scrutiny / Audit Assessment | GST officers may audit books, invoices, and returns to verify compliance |
| Best Judgment Assessment | If taxpayer fails to file or respond, officer can estimate tax liability |
| Reassessment / Revision | Correcting errors in past assessments within time limits |
Administration
- Administered by Central Board of Indirect Taxes & Customs (CBIC).
- Includes registration, returns, refunds, ITC verification, anti-evasion measures.
- GST Council (Chair: Finance Minister) recommends rates, exemptions, and policies.
Summary Table
| Aspect | Key Points |
|---|---|
| GST Registration | Mandatory for businesses above threshold; GSTIN issued |
| GST Filing | GSTR-1, 3B, 4, 9, 9C; monthly/quarterly/annual returns |
| GST Rates (India) | 0%, 5%, 12%, 18%, 28%; special rates for luxury/sin goods |
| GST Rates (Global) | 5%-20% in developed countries; India similar 0%-28% |
| Assessment | Self-assessment, provisional, scrutiny, best judgment, reassessment |
| Administration | Managed by CBIC; GST Council decides rates & policies |
In Short
- GST in India is a digitally administered, slab-based tax system with simplified registration, filing, and assessment procedures.
- It is designed to replace multiple indirect taxes, enhance compliance, reduce cascading, and align India’s taxation with global standards.