What is GST

It is a destination based tax imposed on the consumption of goods and services. It is proposed to be imposed at all stages from producer to final consumption to avail credit of payments made at previous stages; in short only value addition will be taxed and the burden of tax will be borne by the final consumer.

History of GST

 France is called the father of GST in the world because France was the first country in the world to implement Goods and Services Tax (GST). It implemented GST in 1954 itself. Today more than 140 countries around the world have implemented GST. It was implemented in India in 2017.

Article 279-A of the Constitution deals with the formation of GST Council. It empowers the President of India to constitute the GST Council within 60 days of the commencement of the 101st Constitutional Amendment Act, 2016.

Goods and Services Tax (GST): – The 101st Constitutional Amendment Act of 2016 introduced a new tax system (GST) in the country. This amendment added a new Article 279-A to the Constitution of India. For the smooth and efficient administration of this tax, the GST Council was formed, which is a constitutional body created to make recommendations to the central and state government on issues related to goods and services tax. Under this, the President constituted the council by issuing an order in 2016. The secretariat of the council is located in New Delhi. The Union Revenue Secretary serves as the ex-officio secretary of the council.

Process

Any product passes through several stages from manufacture to final consumption. The first stage is buying raw materials. The second stage is production. Then, there is storage or warehouse of the materials. Next, the product comes to the retailer. And in the last stage, the retailer sells the final goods to you or the final consumer.

Purchase of raw materials => Production => Sale to wholesaler => Sale to retailer => Final sale to consumer

GST will be levied at these stages, and it will be a multi-stage tax. How? We will see shortly, but before that, let us talk about ‘value addition’. Let’s say a manufacturer wants to make a shirt. For this, he has to buy yarn. This yarn will become a shirt after manufacturing. So, it means, when it is woven into a shirt, the value of the yarn increases. Then, the manufacturer sells it to a warehousing agent who adds labels and tags to each shirt. This becomes another addition of value. The warehouse then sells it to the retailer who packages each shirt separately and invests in marketing the shirts. This investment adds value to each shirt.

                                                          Thus, monetary value is added at each stage which is basically value addition.

GST will be levied on this value addition. There is another term in the definition that we need to talk about – destination-based. GST will be levied on all transactions that take place throughout the manufacturing chain. Earlier, when a product was manufactured, the Centre levied excise duty on the manufacturing. At the next stage, when the item is sold the state adds VAT. Then there will be a VAT at the next level of sale.

Now, GST will be levied at every stage of sale. Let’s assume the entire manufacturing process is taking place in Raipur and the final sale is happening in Bilaspur. Since GST is levied at the time of consumption, Raipur will get revenue at the production and warehousing stages. But Raipur will not get revenue when the product moves out of Raipur and reaches the final consumer in Bilaspur. This means that Bilaspur will earn revenue on the final sale, as it is a destination-based tax. This means that Bilaspur will earn revenue on the final sale, as it is a destination-based tax and this revenue will be collected at the final destination of sale which is Bilaspur.

Types of GST in India – CGST, SGST and IGST?

GST in India has replaced several other taxes such as Service Tax, VAT and Excise Duty. The GST Act was passed on 29th March 2017 and was implemented on 1st July 2017 becoming the 101st Constitutional Amendment passed by the Government of India. GST is a single and independent tax law across India. The different types of GST are CGST, SGST, UTGST and IGST, and the laws are the same for the whole country. GST varies depending on the goods and services supplied and their value.

The major tax slabs are 0%, 5%, 12%, 18% and 28%. Cheaper and essential goods and services fall under the 0% category, while more expensive and luxury goods fall under the 28% category.

Types of GST in India

CGST (Central Goods and Services Tax)

SGST (State Goods and Services Tax)

UTGST (Union Territory Goods and Services Tax)

IGST (Integrated Goods and Services Tax)

SGST :-

State Goods and Services Tax is one of the types of GST that is imposed by the government of a particular state. The state government levies tax on goods and services within the state (intrastate, for example Mysore), and the state government is the sole beneficiary of the revenue collected.

SGST replaces various state-level taxes such as lottery tax, luxury tax, VAT, purchase tax, and sales tax.

CGST :-

The Central Goods and Services Tax is applicable on intrastate (within the state) supply of goods and services. The central government levies tax on it. The CGST Act governs this type of GST. Here the revenue generated from CGST is collected along with SGST and is divided between the central and state government.

For example, when a trader transacts within the state, the goods are taxed with SGST and CGST. The GST rate is equally divided between SGST and CGST, while the revenue collected under CGST belongs to the central government.

IGST :-

Integrated Goods and Services Tax is a type of GST where the tax is applicable on interstate supply of goods and services. This GST is also levied on goods and services imported and exported. The IGST Act governs it, and the central government is responsible for the collection of IGST.

The IGST collected is equally divided between the central and state government parts. The state part of IGST is provided to the state where the goods and services are received and the remaining IGST goes to the central government.

For example, when the trader makes supplies between two states, IGST will be applicable in this case.

Union Territory Goods and Services Tax is a type of GST levied on goods and services in Union Territories. It is similar to SGST but applies only to Union Territories.

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