GST or Goods and Services Act is an indirect tax imposed on the supply of goods and services in India. It was introduced for the first time on 1st July, 2017 by the President of India and Government of India. It was based on the concept ‘one nation, one tax’. It subsumed the various taxes which were levied in the previous tax structure such as service tax, value addition tax, central excise duty, etc. India assumed the dual GST model which means that the administration of taxes is done both, by the Union and State Governments. GST is a destination based tax on consumptions of goods and services and is charged at all the stages of production till the final consumption. The main purpose of GST was to eradicate the multiple taxes imposed by the earlier tax structure. It was also to remove the cascading effect of taxes i.e. the imposition of tax on tax. The powers of collection and administration of the taxes are vested to State and Central Governments.
- CGST – Central GST
- SGST/ UTGST – State or Union Territory GST
- IGST – Integrated GST
The Indian GST comprises of the following 3 component:
To understand the above mentioned concepts, first we need to know about the concepts of Inter and Intra – State which plays an important role in determining the applicability of CGST, SGST or IGST.
To determine whether a transaction is an Inter or Intra State, we need identify the location of the supplier and the place of supply.
INTER STATE SUPPLY:
When the location of the supplier and the place of supply are located in two different states then it is known as Inter State supply. It also includes transactions between two union territories or one state and union territory. Export transactions that is goods and services provided to location outside of India or supply to Special Economic Zone (SEZ) units also come under Inter State Supply.
INTRA STATE SUPPLY:
When the location of the supplier and the buyer i.e. where the goods and services are supplied are located in the same state then it is known as an Intra State supply. Intra state supply does not include Import/ Export or supply to SEZ units.
CGST is levied on Intra state supplies of goods and services by the Central Government which is governed by CGST Act.
SGST is also levied on Intra state supplies of goods and services by the State Government and is governed by SGST Act.
CGST and SGST are both levied on Intra state supplies but the difference between both is that CGST is governed by Central Government whereas SGST is governed by State Government.
IGST tax is levied on Inter State supply of goods and services and is governed by IGST Act. This Act also includes imports into India and exports from India.
Let us understand the 3 types of GST in detail:
- CENTRAL GST OR CGST:
The Central Goods and Services Tax has been enacted to make a provision for levy and collection of tax on Intra- state supply of goods and services by the Central Government. Thus it is applied on supply of goods as well as services and the proceeds are distributed between the Central and State Government.
Both the Central and State Governments agree to combine their levies with an appropriate proportion for revenue sharing between them. This is mentioned in the Section 8 of the GST Act and it is also laid down in the section that the taxes levied on Intra- state supply of goods and/ or services should not exceed 14%, each.
- STATE GST OR SGST:
The State Goods and Services Tax is tax imposed on Intra- state supply of goods and services by the State Government. The administration is governed by the SGST Act and the tax proceeds collected by the respective State.
CGST will also be applied to Intra- State transactions but the CGST and SGST will be divided proportionately.
Let us understand this concept with the help of an illustration:
A is a dealer from the state of Maharashtra, who has supplied goods to B who is also in Maharashtra. The GST rate is 14% comprising of 7% CGST and 7% SGST. If the dealer collects Rs. 1400 then the division would be Rs. 700 CGST which would be collected by the Central Government and Rs. 700 SGST which will go to the Maharashtra State Government.
- INTEGRATED GST OR IGST:
Under GST, IGST tax is levied on all Inter- state supply of goods or services which is governed by the IGST Act. It is applicable on all Inter- state and Import/ Export transactions and the exports will be zero rated. The Central Government levies and collects the IGST.
A, who is a businessman from the state Maharashtra has sold goods worth Rs. 1,00,000 to B, who is in Delhi. The GST rate charged is 12% IGST. So, the dealer, A, has to collect Rs. 12,000 as IGST. This amount would the go to the Central Government.
Thus, the GST has split into CGST, SGST and IGST and has vested powers to levy and collect taxes to the Central and State Governments for better administration of the taxes and smooth running of the tax system.
- INPUT TAX CREDIT:
GST has also introduced a wonderful mechanism called- the Input Tax Credit. It is a tax that a business pays at the time of purchase and the tax liability can be reduced at the time of sale. So the businesses can claim credit on to the extent of tax paid on purchases.
For e.g. the amount of tax payable on final product is Rs. 500. Tax paid on input is Rs. 200 which is included on the total amount of the final product. So, the businessman can claim Input Credit of Rs. 300 and deposit the remaining amount in taxes.
GST has significantly evolved since its launch and has been successful in eliminating the discrepancies of the previous tax system. It has tried to remove tax frauds and aimed at reducing corruption. Tax evasion has also been minimized due to GST. It has made a positive impact on India’s GDP and has expected to increase the revenue in the long run.
GST has made a profound effect in India. It has its advantages as well as disadvantages but the merits outweigh the negative effects of GST and in the long run it is expected to benefit the economy as whole in India.