Paying taxes to the government is every citizen’s duty. Because of taxation, the government can generate enough revenue to fund infrastructure, education, healthcare, scientific development, defence, and many welfare schemes. The taxes paid by the citizens come back to them in the form of better facilities. Out of all the taxes that the Government of India levies on its citizens, GST, or the Goods and Services Tax, is a crucial one.
The government introduced GST on 1 July 2017, as a form of indirect tax on all types of goods and services. The tax replaced all other existing taxes levied by both the Central Government and the state governments.
What Is GST And Why Was It Implemented?
As mentioned earlier, GST is a form of indirect tax that the government levies on all the goods and services sold for domestic purposes. The tax amount is added to the total price of the product or the service. Out of many GST benefits, the most crucial is that it makes Indian products competitive in both domestic and global markets. However, petroleum products, alcoholic beverages, and electricity are not taxed under GST; instead, they are taxed by individual state governments.
GST is divided into five tax slabs: 0%, 5%, 12%, 18% and 28%. There are four types of GST collected by different governments: IGST for the integrated tax levied by both the centre and state collectively, CGST levied only by Central Government, SGST levied by state governments, and UTGST levied by the governments of the union territories.
List of Taxes Replaced by GST
In India, GST has replaced the following taxes:
- Central Excise Duty
- Central Sales Tax and Service Tax
- Additional duties of customs and excise
- Excise duty on textiles and textile industries
- Value Added Tax
- Central Sales Tax, Entry Tax, and Purchase Tax
- Surcharge and CESS
- Taxes on advertisements, lottery, etc.
Features of GST
Some of the features of GST are
- Applicable Only to the SupplyUnlike other types of taxes that apply to production units, GST only applies to the supply of goods and services.
- Based on LocationGST works as location-based consumption taxation, not as origin-based taxation.
- Multiple Tax RatesGST allows for a range of tax rates like 0%, 5%, 12%, 18%, and 28%. A fixed list dictates that each product is to be charged with a different tax rate according to the tax slab.
- GST Composition SchemeSmall businesses from certain states that have an annual turnover of ₹75 lacs or ₹1 cr are eligible to apply for the GST Composition Scheme. According to this scheme, the firms only pay 1% of their yearly turnover as GST.
- Input Tax Credit SystemThe Input Tax Credit System is also one of the most vital features of GST. It implies that if a manufacturer or a service provider has already paid the input tax, that amount can be subtracted from the total tax liability.
Benefits of GST
You can also a range of benefits of GST registration, like
- Common MarketOne of the main advantages of GST is that it creates a common market for all goods and services. It also boosts foreign investment and makes domestic markets more competitive.
- Easy to AdministerAnother GST benefit is that it helps the government to easily administer all the indirect taxes on goods and services. As GST is backed up with a huge, end-to-end IT system, it becomes easier for the government to keep an eye on all the taxes.
- Improved ComplianceGST promotes compliance as all the returns are filed, all the input credits are verified, and all registrations are made online. Since everything is carried out online, it helps in keeping the taxpayers accountable.
- Uniformity of TaxesEarlier, there used to be many indirect taxes like excise duties and VAT. But after the advent of GST, the tax rates on all goods and services have become uniform across the country, so the whole system works smoothly.
- Prevention of Tax CascadingSince GST replaces all types of indirect taxes on products and services, no hidden costs are charged to the customer. This prevents tax cascading in the country.
- High Levels of TransparencyAnother GST benefit is that there is no opacity in how the tax system functions. As a single, unified tax is charged uniformly on all goods and services, there is utmost transparency in the whole process.
- Increased Competition:Removal of transaction costs and all other types of unseen costs improves competitiveness in trade, commerce, and production. Earlier, the provision of inter-state check posts added additional taxes on all goods and services. Now, since everything is boiled down to a single system, the extra costs have decreased, hence promoting competitiveness.
GST is a unified tax system levied on all goods and services and has replaced many forms of indirect taxes. It reduces cascading of taxes, increases the transparency of the system, brings uniformity in revenue generation, and promotes tax compliance. However, along with GST benefits, the tax system also has some downsides like loss of fiscal autonomy of the states, no cross utilisation of tax, loss of revenue for manufacturers, etc. But the advantages of GST far outweigh its benefits.
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