Pocket Guide to GST: GST, a short form of the term Goods and Service Tax, was levied in India by the Government. This is a form of indirect tax that the Government started on July 1, 2017. The Government put on this tax on a ‘destination basis’; that is, the tax is collected where the good is ultimately consumed, irrespective of the length of the journey done by it. It is a form of value-added tax.
GST applies to all trading goods, manufacturing goods and is also applicable to services. Before this tax was levied, there were other taxes issued by the Government. Some of these are:
- Indirect taxes issued by the Central Government: Service tax, Central Surcharges, Excise Duties, etc.
- Indirect taxes issued by the State Governments: Luxury tax, Sales tax or Value Added Tax, Purchase tax, and so on.
But these taxes are no more applicable.
The Government primarily brought GST to provide freedom from the burden of multiple taxes. There were numerous confusions regarding the tax structure of the country, which GST looked forward to removing.
Commodities And Services On Which GST Is Not Applicable
- Natural Gas
- Motor Spirit
- Turbine fuel for aviation
- Wages and salaries
- Government fees, like fees for land registration.
Businesses Or Individuals Who Are Required To Register for GST
The GST Act gives a very comprehensive list of which businesses or individuals have to register themselves for GST. This includes E-commerce operators, input service distributors, people who deduct or collect taxes like TDS and so on. Individuals can choose to register themselves voluntarily.
Various GST Rates
GST was initially thought to be one for all. But due to various reasons, like inequalities of income, regional disparities, the rigid mindset of the people towards change, the one tax policy did not happen. The multiple rates are:
Different Rates for Taxpayers
- For manufacturers: 1%
- For traders: %
- For food suppliers: 5%
Different Rates for Different Goods
- For basic necessity items (wheat, milk, etc.): 0%
- For rough diamonds: 0.25%
- For heavy metals, like gold, silver: 3%
- For items like cashew, coal, medicines, etc.: 5%
- For notebooks, books, ketchup, processed food, etc.: 12%
- For industrial goods, CCTVs, electronic goods like set-top boxes, etc.: 18%
- For luxury goods like bikes, air conditioners, aerated drinks, refrigerator, etc.: 28%
Different Rates for Different Types Of Services
- Services like rented cabs, print media advertisements, railways and other transport services, etc.: 5%
- Popular services like travel by air in business class, or air-conditioned restaurants, etc.: 12%
- Services like outdoor catering or other services for which specific GST rates have not been mentioned: 18%
- Luxury services, like the services availed in hotels, or race clubs, or entertainment services like gambling or amusement and water parks, etc.: 28%
Most of the GST rates change continuously. All the majority of goods have either 5%, 12%, or at the maximum 18%, GST levied on them. Similarly, most of the services also have 18% GST levied on them. It is mostly the luxury goods and services that have been put under the highest taxes. There is also a provision for Cess in a few selected items.
A Note On GST Cess
A compensation Cess is also available to few goods and commodities. These few handpicked items are aerated water, tobacco, cigarettes, motor vehicles, etc. This compensation is available for a maximum of 5 years (from the date when GST starts).
Understanding The Differences Between The Three GST Types
The structure of GST in India is categorised under the following heads:
- SGST: State Goods and Service Tax
- CGST: Central Goods and Service Tax
- IGST: Integrated Goods and Service Tax
The state governments exercise the SGST. SGST applies to all the goods and services that are being distributed over the state. It is thus an ‘intrastate tax.
The Central Government exercises the CGST. CGST applies to the various goods and services being given in a state. CGST is also, thus, an ‘intrastate tax.
The IGST is a tax that the Central Government levies. This tax is levied on the various goods and services that are being served outside the state. Thus it is an ‘inter-state tax. This tax is also applicable to the import of products.
|Mode of Transaction||GST Type||Example|
|Sale of goods and services
within the state
|SGST + CGST||If a company is established in
Mysore and supplies goods to
Bangalore, then it is subjected to
SGST and CGST
|Sale of goods and services
outside the state
|IGST||If a company is established in
Mumbai, and supplies goods to
Delhi, then it is subjected to
Thus, for determining GST, the place of supply is very important. It is a place where the journey of a good or service terminates. In simpler words, it is the place where a good or service is being sold by the manufacturer and received by the recipient. If the recipient is registered for GST, then the place of supply will be his location itself. But if he is not registered, then the site of the supplier becomes the place of supply.
Example: A manufacturer based in Patna sells his manufactured good to a person located in Chennai. So Mumbai becomes the place of supply, and the entire sale of the product becomes an ‘inter-state sale because the recipient is in Chennai.
The calculation of GST is straightforward. You can multiply the GST rate by the amount that is taxable.
Amount of GST = (Original cost * GST%)/100
So the final price at which the product is sold = Original cost + Amount of GST.
For example, the price of a product is Rs. 2000, and the GST applicable is 12%. The amount of GST will be thus, (2000*12)/100 = 240. So the final price is (2000 + 240) = Rs. 2240.
Why Is GST Beneficial?
GST will be of advantage to the masses for the following reasons:
- Minimising the cascading effect: The indirect tax system in India goes through cascading effect. One tax is imposed upon the other. If a manufacturer pays taxes on the raw materials, then a value-added tax is added to the finished product. So there becomes a double burden of the tax. With GST, this burden is reduced to a bare minimum.
- Provision for a single tax: Before 2017, numerous taxes were levied by both the centre and the states. The introduction of GST is like a standard map for them.
- Government revenue got a renowned boost: GST requires minimum authoritative monitoring. There is better transparency, and complying with the guidelines has never been easier. Thus, the Government’s revenue has become a lot easier, and the amount has increased manifold.