Basics of GST (Goods and Services Tax): Understanding India’s Unified Tax Regime

Introduction

What is GST?

• Comprehensive: It subsumes almost all indirect taxes except a few state taxes.
• Multi-stage: It is levied at each stage of the supply chain, from manufacture to final consumption.
• Destination-based: The tax is collected by the state where the goods or services are consumed, not where they are produced.
• Value Addition: Tax is levied only on the value added at each stage, preventing the cascading effect of taxes (tax on tax) that was prevalent in the previous regime.

The Dual Structure of GST in India

1. Central Goods and Services Tax (CGST): Levied by the Central Government on intra-state supplies of goods and services (i.e., within the same state or Union Territory with a legislature).
2. State Goods and Services Tax (SGST): Levied by the State Government on intra-state supplies of goods and services. For Union Territories without a legislature (like Chandigarh, Lakshadweep), Union Territory Goods and Services Tax (UTGST) is levied instead of SGST. CGST and SGST/UTGST are levied concurrently on the same transaction.
3. Integrated Goods and Services Tax (IGST): Levied by the Central Government on inter-state supplies of goods and services (i.e., between different states or Union Territories), as well as on imports and exports. IGST is the sum of CGST and SGST/UTGST components. The revenue from IGST is apportioned between the Central and State Governments based on the recommendations of the GST Council.

Key Concepts in GST

• Supply: The taxable event under GST is ‘supply’. Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act) defines ‘supply’ comprehensively to include all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Certain activities specified in Schedule I are treated as supply even if made without consideration, while activities specified in Schedule III are treated neither as a supply of goods nor a supply of services.
• Goods: Defined under Section 2(52) of the CGST Act as “every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.”
• Services: Defined under Section 2(102) of the CGST Act as “anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.”
• Taxable Person: A person who is registered or liable to be registered under Section 22 or Section 24 of the CGST Act. This generally includes any person carrying on business in India who crosses a specified threshold turnover (which varies based on the nature of supply and location).

Input Tax Credit (ITC)

GST Council

Compliance Requirements

• Registration: Obtaining a unique Goods and Services Tax Identification Number (GSTIN).
• Invoicing: Issuing GST-compliant invoices.
• Filing Returns: Periodically filing various returns (e.g., GSTR-1 for outward supplies, GSTR-3B for summary of inward and outward supplies and tax payment) detailing supplies, ITC claimed, and tax liability.
• Payment of Tax: Paying the net GST liability after utilising ITC.
• Record Keeping: Maintaining proper accounts and records.

Benefits and Challenges

Conclusion