Goods and Services Tax (GST)
GST is an indirect tax introduced in India on 1st July 2017. It is a value-added tax levied on the manufacture, sale, and consumption of goods and services.
Who does GST apply to?
GST typically applies to:
- Businesses: Required to register for GST if their annual turnover exceeds a certain threshold set by the government.
- Consumers: Pay GST on goods and services purchased, usually included in the final price.
- Importers and Exporters: GST applies to imported goods and services, while exported goods and services are usually exempt or eligible for refunds.
- Certain Transactions: Some transactions may be exempt or subject to special rules depending on the nature of the goods or services and jurisdiction regulations.
GST aims to streamline the tax system by combining various indirect taxes into a single tax, thus reducing the cascading effect of taxes on the final price of goods and services.
Types of GST?
Goods and Services Tax (GST) in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. The implementation of GST subsumed multiple indirect taxes that were previously levied by both the central and state governments. GST in India is categorized into four main types:
- Central Goods and Services Tax (CGST)
CGST is levied by the Central Government on intra-state supplies of goods and services. It is governed by the Central Goods and Services Tax Act. The revenue collected under CGST goes to the central government.
Example: If a product is sold within a state, both CGST and SGST (State Goods and Services Tax) are levied. If the rate of GST on a product is 18%, it is divided into 9% CGST and 9% SGST.
- State Goods and Services Tax (SGST)
SGST is levied by the State Government on intra-state supplies of goods and services. It is governed by the State Goods and Services Tax Act. The revenue collected under SGST goes to the respective state government.
Example: Following the same instance as above, if a product is sold within a state, SGST is levied at 9%, along with 9% CGST.
- Integrated Goods and Services Tax (IGST)
IGST is levied by the Central Government on inter-state supplies of goods and services, including imports. It is governed by the Integrated Goods and Services Tax Act. The revenue collected under IGST is shared between the central and state governments as per the rates fixed by the authorities.
Example: If a product is sold from one state to another, say from Maharashtra to Gujarat, IGST is levied. If the rate of GST on a product is 18%, the entire 18% is charged as IGST.
- Union Territory Goods and Services Tax (UTGST)
UTGST is levied by the Union Territory (UT) government on intra-UT supplies of goods and services. It is similar to SGST and is applicable to Union Territories without legislature, such as Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, and Chandigarh. The revenue collected under UTGST goes to the respective union territory.
Example: If a product is sold within a Union Territory, UTGST and CGST are levied. If the rate of GST on a product is 18%, it is divided into 9% UTGST and 9% CGST.
Key Points to Note:
Intra-State Supply: When goods and services are supplied within the same state, CGST and SGST are levied in equal proportions.
Inter-State Supply: When goods and services are supplied from one state to another, IGST is levied.
Import of Goods and Services: IGST is applicable on imports. Importers have to pay IGST along with customs duty.
Export of Goods and Services: Exports are treated as zero-rated supplies. No tax is payable on exports, but input tax credit can be claimed.
Example of GST Calculation
Let’s consider an example of an intra-state sale where a manufacturer in Maharashtra sells goods worth ₹10,000 with a GST rate of 18%.
CGST: 9% of ₹10,000 = ₹900
SGST: 9% of ₹10,000 = ₹900
Total GST: ₹900 (CGST) + ₹900 (SGST) = ₹1,800
In this example, the buyer pays a total of ₹11,800, which includes the original price of ₹10,000 and the GST of ₹1,800. The ₹900 collected as CGST goes to the central government, and the ₹900 collected as SGST goes to the Maharashtra state government.