Introduction on GST in India
Goods and Services Tax (GST) is a comprehensive indirect tax on the manufacture, sale, and consumption of goods and services throughout India. It was introduced in India on July 1, 2017, and replaced several existing indirect taxes, including the Value Added Tax (VAT), Service Tax, and Central Sales Tax (CST). GST is a destination-based tax, meaning that the tax is collected by the state where the goods or services are consumed, rather than the state where they are produced. GST is administered by the Central Board of Indirect Taxes and Customs (CBIC) and is divided into three categories: CGST (Central GST), SGST (State GST), and IGST (Integrated GST). GST has a four-tier tax structure, with rates of 5%, 12%, 18%, and 28%. GST registration is mandatory for businesses whose turnover exceeds a certain threshold, which is currently Rs. 40 lakhs for most states in India.
SGST:
SGST stands for State Goods and Services Tax.
SGST is a tax levied by state government on the sale of goods and services within a state. SGST is collected by the state government, and the revenue is used to fund the state’s development and welfare activities.
The rate of SGST is the same as the rate of CGST. So, the total GST a consumer pays is the sum of the CGST and SGST.
For example, if the GST rate is 18%, 9% is charged as CGST and the remaining 9% is charged as SGST.
SGST is applicable only when the goods or services are supplied within the state.
SGST is administered by the State government and the state GST department is responsible for the registration, assessment, and enforcement of SGST laws.
CGST:
CGST stands for Central Goods and Services Tax.
CGST is a tax levied by the Central Government of India on the supply of goods and services within a state.
CGST is administered by the Central Government and the Central GST department is responsible for the registration, assessment, and enforcement of CGST laws.
IGST:
Integrated Goods and Services Tax (IGST) is one of the three components of the Goods and Services Tax (GST) implemented in India.
IGST is charged on the value of goods and services supplied from one state to another state or Union Territory.
The rate of IGST is the same as the rate of CGST and SGST combined.
IGST is administered by the Central Government and the Central GST department is responsible for the registration, assessment, and enforcement of IGST laws.
Slab Rates in GST:
The GST rate in India is divided into four categories: 5%, 12%, 18%, and 28%. These rates are applied to different goods and services based on their classification under the GST laws.
• The 5% rate Is applied to essential goods such as food items, including fruits and vegetables, and certain goods such as jute and handloom.
• The 12% rate Is applied to goods such as packaged food items, household appliances, and certain construction materials.
• The 18% rate Is applied to goods such as electronic items, furniture, and certain services such as telecommunication and transportation.
• The 28% rate is applied to luxury goods such as high-end cars, tobacco products, and certain services such as five-star hotel accommodation.
Additionally, some goods and services are exempt from GST, meaning that they are not subject to any GST. These include goods such as fresh meat, fish, eggs, and milk, and services such as education and healthcare.
Nil rated:
In India, some goods and services are considered “nil rated” under the GST laws, which means that they are not subject to any GST, even though they are not considered as “exempted” goods and services.
Nil rated items are those goods and services on which no GST is charged, but Input Tax Credit (ITC) is available. For example, goods like fresh meat, fish, eggs, and milk, and services such as education and healthcare are considered as Nil rated.
This means that while these goods and services are not subject to any GST, businesses that supply these goods and services can still claim Input Tax Credit (ITC) on the GST paid on their inputs, such as raw materials and services used in the production of these goods and services.
It’s important to note that Nil rated goods and services are different from Exempted goods and services, where no GST is charged and no Input Tax credit is available.
Also, it’s worth to mention that GST council has the power to change the classification of goods and services as Nil rated, Exempted or taxable based on the need, and this decision is taken by the council its meeting headed by the Union Finance Minister and the Finance Minister of all the states are the members of the council.
Exempted Rated:
Some goods and services are considered “exempted” under the GST laws, which means that they are not subject to any GST and businesses supplying these goods and services are not eligible to claim Input Tax Credit (ITC) on the GST paid on their inputs, such as raw materials and services.
Examples of goods and services that are considered as “exempted” under GST in India include:
• Some agricultural produce, like fresh fruits and vegetables.
• Goods of small scale industries.
• Goods of specific use like khadi, handicrafts
• Goods used for personal consumption like goods used for religious purpose.
It’s important to note that GST council has the power to change the classification of goods and services as Exempted or taxable based on the need, and this decision is taken by the council in its meeting headed by the Union Finance Minister and the Finance Minister of all the states are the members of the council.
Zero rated:
Zero rated goods and supplies under GST refer to goods and services that are not subject to the standard GST rate of 18%. These goods and services are considered essential or basic necessities, and are therefore given a GST rate of 0%.
Examples of zero rated goods and supplies in India include:
• Agricultural products, such as grains, cereals, and vegetables
• Milk, butter, cheese, and other dairy products
• Meat, fish, and poultry
• Eggs, fruits, and nuts
• Natural honey and fresh fruits and vegetables
• Unprocessed salt and jaggery
• Medical equipment and drugs
• Books, newspapers, and periodicals
• Export of goods and services
• Services by way of transportation of goods by rail, sea, or air
• Services by way of admission to a museum, national park, sanctuary, etc.
• Services by way of construction, erection, commissioning, or installation of original works pertaining to an eligible scheme of government.
It’s worth noting that GST Council may change the rate of GST on goods and services from time to time.
Functions of GST in India:
The Goods and Services Tax (GST) in India is a comprehensive, indirect tax that replaces a number of previous taxes, including the value-added tax (VAT), service tax, and excise duty. The main function of GST in India is to streamline the tax system, making it more efficient and less prone to corruption.
Some key functions of GST in India include:
• Simplifying the tax system: GST replaces multiple taxes with a single tax, making it easier for businesses and consumers to understand and comply with the tax laws.
• Reducing the cascading effect of taxes: GST eliminates the cascading effect of taxes, which occurs when taxes are imposed on taxes. This means that businesses no longer have to pay taxes on taxes, which should help to reduce the cost of goods and services.
• Increasing tax revenue: GST is expected to increase tax revenue for the government by expanding the tax base and improving compliance.
• Improving competitiveness: GST is expected to make Indian industry more competitive by reducing the cost of goods and services and eliminating the cascading effect of taxes.
• Facilitating inter-state trade and commerce: GST is expected to make it easier for businesses to operate across state borders by eliminating the need to pay multiple taxes in different states.
• Providing input tax credit: GST allows for businesses to claim credit for the GST paid on inputs (i.e. raw materials, components, etc.) against the GST charged on output (i.e. finished goods, services)
• Having a robust IT infrastructure: GST is implemented with the use of a GST Network (GSTN) which is a non-government, non-profit company, which provides the IT infrastructure and services to the central and state governments, tax payers and other stakeholders for implementation of GST.
Overall, GST is aimed at creating a unified market in India, which will help to improve the ease of doing business, increase revenue for the government, and promote economic growth.
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