On a global level, the Indian taxation system had always been identified as one of the most notorious taxation regimes because of its sheer complexity. With the GST Act of 2017, this has undergone a significant change. Not only has this act simplified the process of filing indirect taxes, but it has also brought out transparency in the process.
With such massive digitization and the concept of GSTIN, it is understandable if Goods and Services Tax seems overwhelming at the moment. However, this is simpler than all other models of indirect taxation ever implemented in independent India.
To help you understand this end-to-end, we have simplified the process of GST and presented you with a detailed guide on the same.
Replacing other taxes
The very reason why GST came to place was to do away with other indirect taxes and have a unified taxation process. With GST in the picture, VAT, Central Excise Duty, Service Tax, Countervailing Duty, Entertainment Tax, Entry Tax, Luxury Tax, Purchase Tax, Advertisement Tax, CST and tax on lotteries cease to exist.
Value addition in GST
To understand the process of value addition, let us consider the case of manufacturing of honey. Bees are reared, and professionals collect honey.
The same is then sent to a factory where it undergoes multiple quality tests. Upon successfully passing the tests, the honey is bottled and packaged.
The packaged products are sent to wholesale dealers and then make their way to the retailers from whom we buy the products. At all the six stages described above, there is an addition of monetary value to the honey. As per the guidelines, GST is to be levied at every such stage of value addition.
Multiple stages of GST
As a business, you may be involved in the supply of raw materials to industry. You may be an industry producing a commodity or yours may be a warehousing facility.
In any of the above cases, you will be paying GST as this is a multi-stage indirect tax regime. Even those businesses that revolve around the sale to retailers or the transportation between the different stages need to register themselves in the gstportal.
Components of GST
GST has three components – CGST, IGST, and SGST. If the transaction is initiated and completed within a state, then the faction of GST that is collected by the state is the SGST, and the portion that is paid to the central government is the CGST.
For a transaction that happens over multiple states, IGST is the only GST collected. This is done by the Centre, and the revenue is then distributed to the state.
Taxation under GST
GST has five different slaps (0%, 5%,12%,18% and 28%) and every service or commodity is associated with a particular slab. It is only electricity, alcoholic drinks, and petroleum products that do not come under the umbrella of GST.
While every other commodity will fall under one of the five slabs of GST, these three products will be taxed by the respective state governments as per the guidelines of the old tax regime.
GST is destination based
One of the essential features that come with the picture, along with GSTR, is the destination-based collection of indirect taxes. Keeping in mind the recommendations of the gst council, if a transaction takes place across two Indian states, then the tax revenue for the same goes to the destination state.
Advantages of GST
Being driven by technology, GST removes the cascading effect of indirect taxes and introduces transparency in the process. Not only does that remove the burden on the lower economic section, but the Composition Scheme under GST will also go a long way in enabling small businesses to survive the competitive market.
With a higher registration threshold and lesser compliance, GST simplifies the process of tax filing and makes life simpler for taxpayers.
You have a clear idea of what GST is and its scope of taxation by now. The multi-stage, non-cascading GST model implemented by India is similar to the one in Canada. The successful implementation of ‘one nation, one tax’ in a country of 1.3 billion people has opened the way for many countries to follow on India’s footprints.