What is Goods & Services Tax (GST) in India? Goods & Services Tax Law Explained

A value added tax, GST (Goods & Services Tax) has replaced all the current forms of indirect taxes being levied in the country. Many people have questions in mind- what is goods and services tax? What is important of GST in India? Irrespective of the size of business GST is now applicable with no excuse, making the process to be the biggest fiscal reform of all times.

With GST implemented, multiple taxations are not there anymore and also a unified tax structure will be followed throughout India. At loanbaba.com, you will get GST explained in complete. Read below to know more.

What is Goods and Services Tax (GST) in India?

As the name suggests, GST is applicable to goods and services both. To make centre and state independent fiscally, the nation will now follow a dual system of GST. A four tiered tax structure has been mechanized by the GST council constituting the Union Finance Minister and various Finance Ministers of different states, which consists of four tax slabs for different categories of products and services viz. 5%, 12%, 18% and 28%.

Which taxes are replaced by GST?

  • Taxes levied and collected by the central government, which include additional duties of Customs (called CVD), Central Excise Duty, service tax, and special additional duty of Customs (SAD).
  • Taxes levied and collected by the state government, which include state VAT (Value Added Tax), CST (Central Sales Tax), Entertainment and Amusement Tax (excluding tax levied by local authorities like municipal corporation), and taxes on betting, gambling and lotteries etc.

So GST, India basically merges the taxes given above under the same umbrella to make it quite simple and easy.

GST Framework Explained at Loanbaba

  • Like Canada and Brazil, India will also follow the dual form of GST.
  • CGST and SGST at intra-state level: Central Goods and Services Tax and State Goods and Services Tax shall be levied when the goods are traded within the state.
  • IGST at inter-state level: Integrated Goods and Services Tax will be applicable on trade where two or more states are involved.
  • Imports shall be levied with IGST under the consideration of inter-state trade along with the levy of basic customs duty. On the other hand, exports shall be zero rated. Supplies to SEZ will also be treated the same as exports.

Benefits of GST:

  • Cascading effect: The important most benefit of the introduction of GST is removal of cascading effect on tax. It means levy of tax on tax due to existence of multiple taxation.
  • Setting off service tax paid on input services against output VAT is not possible in preset scenario. With the introductions of GST, input tax credit can easily be availed across goods and services. This will reduce tax burden and remove cascading effect too.
  • Having different types of taxes means filling up different returns for each one of them. But with the introduction of GST, the tax will be unified and number of returns to be filled will reduce to minimum. Same thing will be justified in the case of compliance to set rules of different taxes.

Goods & Services Tax Law Explained- How does it work?

The taxes under GST will be of three types:

CGST, in which the revenue will be collected by the centre government,

SGST, in which the revenue will be collected by the state government under intra-state sales, and

IGST, in which revenue will be collected by the centre government for inter-state sales

So now,

For sale within the state, the revenue will be shared by both centre and state governments under CGST and SGST which have taken the place of VAT, CST, excise duty and service tax.

And, for sale to another state the revenue will belong to centre government only under IGST which have taken place of CST, excise duty and Service tax.

Example: Suppose a dealer sells a television for Rs. 20,000 within the state @12% GST, the tax amount of Rs. 2,400 will be divided by the centre and state government. Whereas, if same television is sold outside the state, the revenue will belong to centre government only under IGST.