Basics GST: The full form of GST is Goods and Services Tax. It is an indirect tax that has substituted many of India’s indirect taxes, including excise duties, VAT, services tax, etc. On 29 March 2017, the Goods and Services Tax Act was adopted in Parliament and entered into force on 1 July 2017.
The Goods and Service Tax (GST) is in other words charged for the provision of products and services. In India, the Goods and Services Tax Law is a full, multi-stage destination tax, which is charged on every added value. For the whole country, the GST is one national indirect tax law. In this article, let’s learn everything about h3the basics of GST in detail.
- Who Does GST Apply To?
- Who is Exempt From GST?
- GST Registration
- Components of GST
- Calculation of GST
- GST Rates
- Advantages of GST
- New Compliances Under GST
- FAQ’s on Basics of GST
Who Does GST Apply To?
The GST is applicable for individuals who fall under the following categories:
- Every person that provides goods and/or valuable services in a financial year exceeding Rs 20 lakhs. For certain special category countries, the limit is Rs 10 lakhs.
- If the turnover exceeds Rs 20 lakhs, GST must be paid
- Any person who supplies goods and/or services taxable across states
- Each operator of e-commerce
- Anyone who provides goods or services through e-commerce operators other than branded services
- Aggregators that provide services with their own brand name
- Taxable Non-Resident
- Distributor of Input Service
- A person providing services such as online information, database access and recovery services from outside India to the person in India.
- Reverse charge person who has to pay income tax
- The person on behalf of another taxable person who supplies the goods such as agents.
Who is Exempt From GST?
- If the annual turnover is less than 20 Lakhs, then they are exempt from GST.
- For some special category states, if the annual turnover is less than 10 Lakhs, then they are exempt from GST.
- For farmers, GST does not apply. Which means farmers are exempt from GST.
- GST does not apply to any person engaged exclusively in the supply of non-taxable or fully exempt goods and/or services under this Act.
GST Registration
Under the GST regime, companies whose turnover is greater than Rs. 40 lakhs are subject to registration as ordinary taxable individuals. Whereas for the North East and Hills state, the threshold limit is 10 Lakhs. This registration process is known as the GST registration process.
Registration under GST is compulsory for certain companies. If the organisation does business without GST registration, it is a GST offence and heavy penalties apply. It normally takes 2-6 business days for GST registration.
Components of GST
Under this GST system, three taxes apply and they are CGST, SGST & IGST.
- CGST: The tax charged for intra-state sales by the Central Government (e.g., a transaction happening within Maharashtra)
- SGST: It is the intra-state sale tax collected by the state government (e.g., a transaction happening within Maharashtra)
- IGST: Tax collection for inter-state sales by the Central Government (e.g., Maharashtra to Tamil Nadu)
In most cases, under the new system, the tax structure is the following:
| Type of Transaction |
Type of GST Applicable | Example |
| Intra-state (i.e. sale within the same state) | CGST + SGST | A Tamil Nadu dealer is going to sell to another Tamil Nadu dealer. The GST rate is 18%, which means that the CGST rate is 9% and the SGST rate is 9%. |
| Inter-state (i.e sale outside state) | IGST | A dealer is selling to a dealer from Tamil Nadu to Andhra Pradesh. The rate of GST is 5%, so 5% of IGST applies. |
Calculation of GST
In order to calculate the GST, you will have to simply multiply the Taxable amount by the GST rate to compute GST. If CGST and SGST/UTGST are used, the CGST and SGST amounts are equal to half of the total GST payment.
GST = GST Rate X Taxable Amount
If you have an amount that already includes GST, you can use the formula below to compute the GST-free value.
GST Amount Excluded = GST Amount Included/(1+ GST Rate/100)
GST Rates
The GST council has classified roughly 1300 items and 500 services into four tax brackets: 5%, 12%, 18%, and 28%. This is in addition to the 3% tax on gold and the 0.25% special rate on rough precious and semi-precious stones under the GST.
| GST Rates | Products |
| 0%
|
Milk
Kajal Eggs Educations Services Curd Health Services Lassi Children’s Drawing & Colouring Books Unpacked Foodgrains Unbranded Atta Unpacked Paneer Unbranded Maida Gur Besan Unbranded Natural Honey Prasad Fresh Vegetables Palmyra Jaggery Salt Phool Bhari Jhadoo |
| 5%
|
Sugar
Packed Paneer Tea Coal Edible Oils Raisin Domestic LPG Roasted Coffee Beans PDS Kerosene Skimmed Milk Powder Cashew Nuts Footwear (< Rs.500) Milk Food for Babies Apparels (< Rs.1000) Fabric Coir Mats, Matting & Floor Covering Spices Agarbatti Coal Mishti/Mithai (Indian Sweets) Life-saving drugs Coffee (except instant) |
| 12%
|
Butter
Computers Ghee Processed food Almonds Mobiles Fruit Juice Preparations of Vegetables, Fruits, Nuts or other parts of Plants including Pickle Murabba, Chutney, Jam, Jelly Packed Coconut Water Umbrella |
| 18%
|
Hair Oil
Capital goods Toothpaste Industrial Intermediaries Soap Ice-cream Pasta Toiletries Corn Flakes Computers Soups Printers |
| 28%
|
Small cars (+1% or 3% cess)
High-end motorcycles (+15% cess) Consumer durables such as AC and fridge Beedis are NOT included here Luxury & sin items like BMWs, cigarettes and aerated drinks (+15% cess) |
Advantages of GST
The cascading effect of GST on the sale of goods and services has mainly been removed. Cascading effect removal has affected goods costs. The cost of goods decreases because the GST regime eliminates taxation. Moreover, GST is driven mainly by technology. An online GST portal that accelerates processes is necessary for all activities such as registration, return file, reimbursement and reply to notices.
The main benefits of GST are:
- Indirect single tax for India as a whole
- Credit for input taxes paid in a different country can be taken.
- Easy goods transfer from state to state
New Compliances Under GST
The GST system introduced several new systems alongside the online filing of GST returns.
E-Way Bills
By introducing the “E-way bills,” GST introduced a centralised system of travel documents. Under the E-way billing system, producers, traders and carriers can produce e-way bills for goods transported easily on a common portal from the place of origin to their destination. This system has also reduced the time of the checkpoints and helps to reduce tax evasion, benefitting tax authorities.
E-Invoicing
E-invoicing enables invoice interoperability and helps to reduce errors in data input. It aims to pass the invoice data directly on the GST website and e-way account portal from the IRP. This eliminates the manual information input requirement when submitting GSTR-1 and also assists with the generation of e-way bills.
FAQ’s on Basics of GST
Question 1.
What are the 3 types of GST?
Answer:
There are total 4 types of GST and they are:
1. SGST: State Goods and Services Tax
2. CGST: Central Goods and Services Tax
3. IGST: Integrated Goods and Services Tax
4. UGST: Union Territory Goods and Services Tax
Question 2.
How GST has helped in price reduction?
Answer:
The GST has helped in reducing the Central and State Indirect tax, which in turn helped in the price reduction.
Question 3.
What is a ‘Person’ in GST?
Answer:
Anyone who operates a company at any place in India and who is registered or must be registered in conformity with GST Act shall be a ‘taxable person’ under GST. Everybody, including trade and commerce, engaged in economic activity is treated as a person in GST.