GST or Goods and Service Tax is a relatively new taxing structure that was passed by the Parliament on 29th March 2017. It is an indirect tax. The main goal of establishing this one indirect tax is to eliminate all other indirect taxes.
It is levied on everything and it eliminates almost every other unnecessary tax in the country. In simple words, it is an all in one tax. The GST Bill has replaced many other taxes in the country that have previously been there. Read more about Composition Scheme under GST to understand the function of GST in India.
Under this taxing structure, tax is levied on every point, in cases of intra/inter sale or central and state sale.
The journey of the destination-based tax began in the year 2000. It took almost 17 years for a proper act to be formulated and for a single, uniform act to come into effect. The GST bill was passed from one house to the other, from one minister to another, before it got released to the public in 2017.
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GST has mainly 3 components:
SGST: This GST is collected for all the sales which are within the state. It is collected by the state government. Any sale happening within the state only will fall under this.
CGST: This GST is collected by the Central Government for all the sales that are happening within the state.
IGST: This is basically for an inter-state sale. The central government collects this tax on any sale happening between two different states.
Before the GST bill, there were a plethora of taxes in India. Each state had its own rules and regulations. Everyone had a different way of implementing the tax. Nothing was uniform so to say. This led to a lot of confusion and chaos. Various taxes like CESS, VAT, Entry Tax, Entertainment tax were in effect.
Now, with the introduction of GST bill, we do not have to worry about these multiple taxes. The advantages of GST are as follows:
It has a very simple procedure. There is no hassle for the same.
It is good at regulating all sectors in India, organized and unorganized.
It removes all the unnecessary effects that taxes have on India.
There is efficiency for the same in all sectors in India.
Logistics are improved and so is e-commerce.
The registration process is simple and does not take much time.
How Is GST Calculated?
The rates of GST in India are currently 5%, 12%, 18%, and 28%. Manufacturers and businessmen calculate their GST with a simple formula: GST Amount= (Original Cost x GST%)/100.
This simple technique helps them find out how much tax they are supposed to pay for their business or their goods.
These taxes have subsumed the various unnecessary taxes that were enforced on everyone at every stage.
This tax is particularly called a destination-based tax because the tax will go to the state that is the final destination even if it is levied on the point of consumption.
The GST has been imposed on various items and at different rates. The rate of GST is different for different products. The rate is 28% on detergents. It may be something else for some other product. The rate is fixed. The rate for property under construction is 12%.
Because of this tax, check-posts were no longer needed in the country. They were done away with very soon. GST has been imposed on basic things like petroleum.
Need For GST
The introduction of GST bill was extremely critical for the country. It was a pivotal step in the progress of the country. It changed the face of the country’s taxing structure. The problem of so many taxes and issues were addressed quite quickly.
Rates differed from each state before GST. Now, all the rates are singular and uniform and there is no reason for any major hassle.
After the implementation of GST, India came up with different tax rates:
0.25% was applied to rough diamonds. This was particularly for industrial diamonds.
0% tax rate applied to certain newspapers, books and food products. Also, hotels that charged below Rs 1000.
18% tax rate applied to certain luxury products, makeup or any footwear that costed more than Rs 500.
A 12% tax rate was applied to any frozen items like meats, sugar, and bio-diesel. It was also applicable to any apparel costing above 1000.
28% tax applied to all the luxury products like cigarettes, sunscreen, cars, bikes.
Reverse Charge Mechanism
Reverse Charge Mechanism is a system wherein the receiver pays taxes on behalf of the service suppliers. The receiver can be eligible for receiving the input tax credit because of RCM. This mechanism was introduced by the government on February 1, 2019. It was implemented as per the amendments and acts of the GST.
The technicalities of GST are still being addressed. However, this bold move by the government has changed the taxing structure in India.