GST : Goods and Services Tax

The Goods and Services Tax (GST) is a multistage, destination-based tax levied on each step of the value chain. At the national level, it is an exclusive and uniform tax on the supply of goods and services from the manufacturer to the consumer. In every step of the supply chain, the manufacturer or service provider collects and pays taxes to the government.

History of Taxation in India

India has a long and complex history of taxation, with evidence of early tax systems dating back to the Mauryan period. Throughout India’s history, different rulers and empires have imposed various taxes, including land taxes, tariffs, customs duties, and excise taxes. 

The modern tax system in India began to take shape during the British Raj, with the introduction of income taxes and other taxes on wealth. After India’s Independence in 1947, the Indian government continued to develop the tax system, focusing on expanding the base of taxpayers and improving tax administration.

 Today, taxation in India is a complex mixture of central and state taxes, with a wide range of taxes levied on everything from income and property to goods and services. Despite the challenges, the tax system in India has played a critical role in supporting the country’s development, with tax revenue used to fund essential public services and infrastructure.

 On July 1, 2017, India introduced the Goods and Services Tax (GST). The government collects GST based on the value of goods and services supplied. The advent of GST replaced multiple taxes levied on the supply of goods and services.

How Does GST Work?

The Central and State governments’ indirect taxes have, without a doubt, been replaced by GST. It replaces many state and national taxes, including value-added tax (VAT), central excise duty, service tax, and octroi.

The Finance Minister chairs the GST Council, who decides which goods and services will be taxed and the tax rate. The Central and State Governments collect it. The accumulated revenue is divided between the center and the states.

Manufacturers and consumers share a single tax on the supply of goods and services. In essence, GST is a tax on value additions at each stage. All input taxes paid at each stage are credited at the subsequent value addition stage. The GST will therefore only be charged to the last dealer in the supply chain.

Objectives of GST

The Goods and Services Tax (GST) is a value-added tax introduced in India in 2017. The GST is levied on the supply of goods and services at a national level. The main objectives of the GST are:

• To make India a single market by eliminating barriers between states
• To boost economic growth by making the tax system more efficient
• To simplify the tax system and make compliance easier
• To increase government revenues and reduce the cost of doing business
• To promote exports
• To protect the interests of consumers
• To increase the tax base and improve compliance
• To remove the cascading effect of taxes and curb tax evasion

Benefits of GST

One of India’s most important tax reforms, GST, is a single, indirect tax that replaces many earlier taxes levied on goods and services. GST is a big boost to the economy and is expected to impact GDP growth positively. Here are some of the benefits of GST:

• It makes India a unified market: GST creates a unified national market by subsuming many central and state taxes into a single tax. This will increase competition, as companies can operate nationally with a single tax regime.
• It will reduce the cost of doing business: By eliminating several central and state taxes, GST will reduce business compliance costs. This will make it easier and cheaper to do business in India.
• It will increase revenue collections: GST is expected to increase revenue collections for the government. This is because GST will eliminate the cascading effect of taxes and broaden the tax base.
•  It will promote exports: GST will refund taxes on inputs used to manufacture exported goods. This will make Indian exports more competitive in the global market.
• It will help curb corruption: GST will help curb corruption by reducing the interface between businesses and government officials. This will make it difficult for officials to demand bribes.

Components of GST

The destination-based law is levied on the product or service value. The GST is broadly categorized into four parts: the Central GST (CGST), the State GST (SGST), the Union Territory GST (UTGST), and the Integrated GST (IGST). 

Central Goods and Service Tax

The Central Goods and Services Tax (CGST) is an indirect tax levied by the Indian Government. It is a levy on the intra-state supply of goods and services. The tax is levied on the value of the goods and services at the point of sale. The CGST is levied and collected by the central government.

State Goods and Service Tax

The State Goods and Services Tax is a tax levied by the Indian states on the sale of goods and services within the intra-state. The tax is levied on the value of the goods and services sold and is collected by the state government.

Union Territory Goods and Service Tax

The Union Territory Goods and Service Tax (UTGST) is a tax levied on the supply of goods and services in the Union Territories of India. The tax is levied and collected by the Union Territory Governments. 

Integrated Territory Goods and Service Tax

The Integrated Goods and Service Tax (IGST) is a tax levied on the supply of interstate goods and services. Both imports into and exports from India will be subject to the IGST.

The Calculation of GST

As a destination-based tax, GST has consolidated almost all indirect taxes, except a few state taxes into one comprehensive tax.In India, GST is levied from 0% to 28%. 

There are five tax slabs under the GST regime – 0%, 5%, 12%, 18% and 28%. However, there are some items on which a 0% rate is applicable. GST is levied on all value additions but is refunded to all parties in the supply chain except the final consumer. The final consumer pays only the GST levied by the last dealer in the supply chain, with set-off benefits at all the previous stages.

There are a few different ways that GST can be calculated, depending on the specific situation.

To add GST to the base amount, you can ascertain the numbers using the formula below:

GST = ( Original Cost * GST% ) / 100

Therefore, 

Net Price = Original Cost + GST 

Conversely, if you want to reduce the GST amount from the base amount, you can calculate GST  using the formula outlined below:

GST = Original Cost – (Original Cost * (100 / (100 + GST% ) ) )

Hence,

Net Price = Original Cost – GST 

How to Calculate GST using Urban Money GST Calculator?

The advent of the GST calculator has made the process of ascertaining GST simple and easy. Suppose you want to calculate the GST using the Urban Money GST Calculator. In that case, you will need to follow these steps:

Step 1: Enter the total amount of the purchase, excluding GST

Step 2:  Enter the Profit Ratio

Step 3: Select the GST rate applicable to the purchase.

Once you have entered all the details, a graphical representation of the GST calculation breakdown will be displayed on your screen for a better understanding.

Who Should Register for GST?

If you are a business owner in India, you are most likely aware of the Goods and Services Tax (GST).

GST registration is optional for all businesses. However, certain businesses are required to obtain a GST registration. These businesses include

• Pre-GST-registered individuals
• A taxpayer who is not a resident or a casual taxpayer
• Input service distributors and agents from suppliers
• Taxpayers under the reverse charge system
• E-commerce aggregators supply products and services.
• Aggregators of e-commerce
• Besides being registered taxable, the person supplies online information and database access services from outside India.

Tax Laws before GST

Before introducing the Goods and Services Tax (GST) in India, the tax system was quite complex and convoluted. This system included a central excise duty, a service tax, a value-added tax (VAT), and many other taxes. These were levied on goods and services, varying from state to state. This made it difficult for businesses to comply with the tax laws and also made it difficult for consumers to understand the taxes they were paying, resulting in high levels of tax evasion. The GST has simplified the tax system by consolidating all different taxes. This has made it much easier for businesses to comply with tax laws and make it easier for consumers to understand the taxes they are paying.