GST is known as the Goods and Services Tax.

It is an indirect tax which has replaced

many indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods
and Service Tax Act was passed in the Parliament on 29th March 2017 and came into
effect on 1st July 2017.
In other words,Goods and Service Tax (GST) is levied on the supply of goods and
services. Goods and Services Tax Law in India is a comprehensive, multi-stage,
destination-based tax that is levied on every value addition. GST is a single domestic
indirect tax law for the entire country.
Before the Goods and Services Tax could be introduced, the structure of indirect tax
levy in India was as follows:
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state
sales, Central GST and State GST are charged. All the inter-state sales are chargeable
to the Integrated GST.
Now, let us understand the definition of Goods and Service Tax, as mentioned above, in
detail.

Multi-stage
An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.
Let us consider the following stages:

 Purchase of raw materials

 Production or manufacture
 Warehousing of finished goods
 Selling to wholesalers
 Sale of the product to the retailers
 Selling to the end consumers
 

The Goods and Services Tax is levied on each of these stages making it a multi-stage
tax.
Value Addition
A manufacturer who makes biscuits buys flour, sugar and other material. The value of
the inputs increases when the sugar and flour are mixed and baked into biscuits.
The manufacturer then sells these biscuits to the warehousing agent who packs large
quantities of biscuits in cartons and labels it. This is another addition of value to the
biscuits. After this, the warehousing agent sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing of
the biscuits, thus increasing its value. GST is levied on these value additions, i.e. the
monetary value added at each stage to achieve the final sale to the end customer.

Destination-Based
Consider goods manufactured in Maharashtra and sold to the final consumer in
Karnataka. Since the Goods and Service Tax is levied at the point of consumption, the
entire tax revenue will go to Karnataka and not Maharashtra.

2. The Journey of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It
took 17 years from then for the Law to evolve. In 2017, the GST Bill was passed in the
Lok Sabha and Rajya Sabha. On 1st July 2017, the GST Law came into force.
3. Objectives Of GST
1. To achieve the ideology of ‘One Nation, One Tax’

GST has replaced multiple indirect taxes, which were existing under the previous
tax regime. The advantage of having one single tax means every state follows
the same rate for a particular product or service. Tax administration is easier with
the Central Government deciding the rates and policies. Common laws can be
introduced, such as e-way bills for goods transport and e-invoicing for transaction
reporting. Tax compliance is also better as taxpayers are not bogged down with
multiple return forms and deadlines. Overall, it’s a unified system of indirect tax
compliance.

2. To subsume a majority of the indirect taxes in India

India had several erstwhile indirect taxes such as service tax, Value Added Tax
(VAT), Central Excise, etc., which used to be levied at multiple supply chain
stages. Some taxes were governed by the states and some by the Centre. There
was no unified and centralised tax on both goods and services. Hence, GST was
introduced. Under GST, all the major indirect taxes were subsumed into one. It
has greatly reduced the compliance burden on taxpayers and eased tax
administration for the government.

3. To eliminate the cascading effect of taxes

One of the primary objectives of GST was to remove the cascading effect of
taxes. Previously, due to different indirect tax laws, taxpayers could not set off
the tax credits of one tax against the other. For example, the excise duties paid
during manufacture could not be set off against the VAT payable during the sale.
This led to a cascading effect of taxes. Under GST, the tax levy is only on the net
value added at each stage of the supply chain. This has helped eliminate the
cascading effect of taxes and contributed to the seamless flow of input tax credits
across both goods and services.

4. To curb tax evasion

GST laws in India are far more stringent compared to any of the erstwhile indirect
tax laws. Under GST, taxpayers can claim an input tax credit only on invoices
uploaded by their respective suppliers. This way, the chances of claiming input
tax credits on fake invoices are minimal. The introduction of e-invoicing has
further reinforced this objective. Also, due to GST being a nationwide tax and
having a centralised surveillance system, the clampdown on defaulters is quicker
 and far more efficient. Hence, GST has curbed tax evasion and minimised tax
fraud from taking place to a large extent.

5. To increase the taxpayer base

GST has helped in widening the tax base in India. Previously, each of the tax
laws had a different threshold limit for registration based on turnover. As GST is
a consolidated tax levied on both goods and services both, it has increased tax-
registered businesses. Besides, the stricter laws surrounding input tax credits
have helped bring certain unorganised sectors under the tax net. For example,
the construction industry in India.

6. Online procedures for ease of doing business

Previously, taxpayers faced a lot of hardships dealing with different tax

authorities under each tax law. Besides, while return filing was online, most of the
assessment and refund procedures took place offline. Now, GST procedures are
carried out almost entirely online. Everything is done with a click of a button, from
registration to return filing to refunds to e-way bill generation. It has contributed to
the overall ease of doing business in India and simplified taxpayer compliance to
a massive extent. The government also plans to introduce a centralised portal
soon for all indirect tax compliance such as e-invoicing, e-way bills and GST
return filing.

7. An improved logistics and distribution system

A single indirect tax system reduces the need for multiple documentation for the
supply of goods. GST minimises transportation cycle times, improves supply
chain and turnaround time, and leads to warehouse consolidation, among other
benefits. With the e-way bill system under GST, the removal of interstate
checkpoints is most beneficial to the sector in improving transit and destination
efficiency. Ultimately, it helps in cutting down the high logistics and warehousing
costs.

8. To promote competitive pricing and increase consumption

Introducing GST has also led to an increase in consumption and indirect tax
revenues. Due to the cascading effect of taxes under the previous regime, the
prices of goods in India were higher than in global markets. Even between states,
the lower VAT rates in certain states led to an imbalance of purchases in these
states. Having uniform GST rates have contributed to overall competitive pricing
 across India and on the global front. This has hence increased consumption and
led to higher revenues, which has been another important objective achieved.

4. Advantages Of GST
GST has mainly removed the cascading effect on the sale of goods and services.
Removal of the cascading effect has impacted the cost of goods. Since the GST regime
eliminates the tax on tax, the cost of goods decreases.
Also, GST is mainly technologically driven. All the activities like registration, return filing,
application for refund and response to notice needs to be done online on the GST
portal, which accelerates the processes.
5. What are the components of GST?
There are three taxes applicable under this system: CGST, SGST & IGST.
  CGST: It is the tax collected by the Central Government on an intra-state sale
(e.g., a transaction happening within Maharashtra)
 SGST: It is the tax collected by the state government on an intra-state sale (e.g.,
a transaction happening within Maharashtra)
 IGST: It is a tax collected by the Central Government for an inter-state sale (e.g.,
Maharashtra to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

Transaction New Old Regime Revenue Distribution

Regime

Sale within the CGST + VAT + Central Revenue will be shared equally between the Centre a
State SGST Excise/Service tax State

Sale to another IGST Central Sales Tax + There will only be one type of tax (central) in case of
State Excise/Service Tax sales. The Centre will then share the IGST revenue ba
destination of goods.

Illustration:
 Let us assume that a dealer in Gujarat had sold the goods to a dealer in Punjab
worth Rs. 50,000. The tax rate is 18% comprising of only IGST.

In such a case, the dealer has to charge IGST of Rs.9,000. This revenue will go to
Central Government.

 The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The
GST rate on goods is 12%. This rate comprises CGST at 6% and SGST at 6%.

The dealer has to collect Rs.6,000 as Goods and Service Tax, Rs.3,000 will go to the
Central Government and Rs.3,000 will go to the Gujarat government since the sale is
within the state.

6. Tax Laws before GST

In the earlier indirect tax regime, there were many indirect taxes levied by both the state
and the centre. States mainly collected taxes in the form of Value Added Tax (VAT).
Every state had a different set of rules and regulations.
Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was
applicable in case of inter-state sale of goods. The indirect taxes such as the
entertainment tax, octroi and local tax were levied together by state and centre. These
led to a lot of overlapping of taxes levied by both the state and the centre.
For example, when goods were manufactured and sold, excise duty was charged by the
centre. Over and above the excise duty, VAT was also charged by the state. It led to a
tax on tax effect, also known as the cascading effect of taxes.
The following is the list of indirect taxes in the pre-GST regime:

 Central Excise Duty

 Duties of Excise
 Additional Duties of Excise
 Additional Duties of Customs
 Special Additional Duty of Customs
 Cess
 State VAT
 Central Sales Tax
 Purchase Tax
 Luxury Tax
 Entertainment Tax
 Entry Tax
 Taxes on advertisements
 Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST have replaced all the above taxes.
However, certain taxes such as the GST levied for the inter-state purchase at a
concessional rate of 2% by the issue and utilisation of ‘Form C’ is still prevalent.
It applies to certain non-GST goods such as:

i. Petroleum crude;
ii. High-speed diesel
iii. Motor spirit (commonly known as petrol);
iv. Natural gas;
v. Aviation turbine fuel; and
vi. Alcoholic liquor for human consumption.

It applies to the following transactions only:

 Resale
 Use in manufacturing or processing
 Use in certain sectors such as the telecommunication network, mining, the
generation or distribution of electricity or any other power sector

7. How Has GST Helped in Price Reduction?

During the pre-GST regime, every purchaser, including the final consumer paid tax on
tax. This condition of tax on tax is known as the cascading effect of taxes.
GST has removed the cascading effect. Tax is calculated only on the value-addition
at each stage of the transfer of ownership. 
GST is known as the Goods and Services Tax. It is an indirect tax which has replaced
many indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods
and Service Tax Act was passed in the Parliament on 29th March 2017 and came into
effect on 1st July 2017.
In other words,Goods and Service Tax (GST) is levied on the supply of goods and
services. Goods and Services Tax Law in India is a comprehensive, multi-stage,
destination-based tax that is levied on every value addition. GST is a single domestic
indirect tax law for the entire country.
Before the Goods and Services Tax could be introduced, the structure of indirect tax
levy in India was as follows:
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state
sales, Central GST and State GST are charged. All the inter-state sales are chargeable
to the Integrated GST.
Now, let us understand the definition of Goods and Service Tax, as mentioned above, in
detail.

Multi-stage
An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.
Let us consider the following stages:

 Purchase of raw materials

 Production or manufacture
 Warehousing of finished goods
 Selling to wholesalers
 Sale of the product to the retailers
 Selling to the end consumers
 

The Goods and Services Tax is levied on each of these stages making it a multi-stage
tax.
Value Addition
A manufacturer who makes biscuits buys flour, sugar and other material. The value of
the inputs increases when the sugar and flour are mixed and baked into biscuits.
The manufacturer then sells these biscuits to the warehousing agent who packs large
quantities of biscuits in cartons and labels it. This is another addition of value to the
biscuits. After this, the warehousing agent sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing of
the biscuits, thus increasing its value. GST is levied on these value additions, i.e. the
monetary value added at each stage to achieve the final sale to the end customer.

Destination-Based
Consider goods manufactured in Maharashtra and sold to the final consumer in
Karnataka. Since the Goods and Service Tax is levied at the point of consumption, the
entire tax revenue will go to Karnataka and not Maharashtra.

2. The Journey of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It
took 17 years from then for the Law to evolve. In 2017, the GST Bill was passed in the
Lok Sabha and Rajya Sabha. On 1st July 2017, the GST Law came into force.
3. Objectives Of GST
1. To achieve the ideology of ‘One Nation, One Tax’

GST has replaced multiple indirect taxes, which were existing under the previous
tax regime. The advantage of having one single tax means every state follows
the same rate for a particular product or service. Tax administration is easier with
the Central Government deciding the rates and policies. Common laws can be
introduced, such as e-way bills for goods transport and e-invoicing for transaction
reporting. Tax compliance is also better as taxpayers are not bogged down with
multiple return forms and deadlines. Overall, it’s a unified system of indirect tax
compliance.

2. To subsume a majority of the indirect taxes in India

India had several erstwhile indirect taxes such as service tax, Value Added Tax
(VAT), Central Excise, etc., which used to be levied at multiple supply chain
stages. Some taxes were governed by the states and some by the Centre. There
was no unified and centralised tax on both goods and services. Hence, GST was
introduced. Under GST, all the major indirect taxes were subsumed into one. It
has greatly reduced the compliance burden on taxpayers and eased tax
administration for the government.

3. To eliminate the cascading effect of taxes

One of the primary objectives of GST was to remove the cascading effect of
taxes. Previously, due to different indirect tax laws, taxpayers could not set off
the tax credits of one tax against the other. For example, the excise duties paid
during manufacture could not be set off against the VAT payable during the sale.
This led to a cascading effect of taxes. Under GST, the tax levy is only on the net
value added at each stage of the supply chain. This has helped eliminate the
cascading effect of taxes and contributed to the seamless flow of input tax credits
across both goods and services.

4. To curb tax evasion

GST laws in India are far more stringent compared to any of the erstwhile indirect
tax laws. Under GST, taxpayers can claim an input tax credit only on invoices
uploaded by their respective suppliers. This way, the chances of claiming input
tax credits on fake invoices are minimal. The introduction of e-invoicing has
further reinforced this objective. Also, due to GST being a nationwide tax and
having a centralised surveillance system, the clampdown on defaulters is quicker
 and far more efficient. Hence, GST has curbed tax evasion and minimised tax
fraud from taking place to a large extent.

5. To increase the taxpayer base

GST has helped in widening the tax base in India. Previously, each of the tax
laws had a different threshold limit for registration based on turnover. As GST is
a consolidated tax levied on both goods and services both, it has increased tax-
registered businesses. Besides, the stricter laws surrounding input tax credits
have helped bring certain unorganised sectors under the tax net. For example,
the construction industry in India.

6. Online procedures for ease of doing business

Previously, taxpayers faced a lot of hardships dealing with different tax

authorities under each tax law. Besides, while return filing was online, most of the
assessment and refund procedures took place offline. Now, GST procedures are
carried out almost entirely online. Everything is done with a click of a button, from
registration to return filing to refunds to e-way bill generation. It has contributed to
the overall ease of doing business in India and simplified taxpayer compliance to
a massive extent. The government also plans to introduce a centralised portal
soon for all indirect tax compliance such as e-invoicing, e-way bills and GST
return filing.

7. An improved logistics and distribution system

A single indirect tax system reduces the need for multiple documentation for the
supply of goods. GST minimises transportation cycle times, improves supply
chain and turnaround time, and leads to warehouse consolidation, among other
benefits. With the e-way bill system under GST, the removal of interstate
checkpoints is most beneficial to the sector in improving transit and destination
efficiency. Ultimately, it helps in cutting down the high logistics and warehousing
costs.

8. To promote competitive pricing and increase consumption

Introducing GST has also led to an increase in consumption and indirect tax
revenues. Due to the cascading effect of taxes under the previous regime, the
prices of goods in India were higher than in global markets. Even between states,
the lower VAT rates in certain states led to an imbalance of purchases in these
states. Having uniform GST rates have contributed to overall competitive pricing
 across India and on the global front. This has hence increased consumption and
led to higher revenues, which has been another important objective achieved.

4. Advantages Of GST
GST has mainly removed the cascading effect on the sale of goods and services.
Removal of the cascading effect has impacted the cost of goods. Since the GST regime
eliminates the tax on tax, the cost of goods decreases.
Also, GST is mainly technologically driven. All the activities like registration, return filing,
application for refund and response to notice needs to be done online on the GST
portal, which accelerates the processes.
5. What are the components of GST?
There are three taxes applicable under this system: CGST, SGST & IGST.
  CGST: It is the tax collected by the Central Government on an intra-state sale
(e.g., a transaction happening within Maharashtra)
 SGST: It is the tax collected by the state government on an intra-state sale (e.g.,
a transaction happening within Maharashtra)
 IGST: It is a tax collected by the Central Government for an inter-state sale (e.g.,
Maharashtra to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

Transaction New Old Regime Revenue Distribution

Regime

Sale within the CGST + VAT + Central Revenue will be shared equally between the Centre a
State SGST Excise/Service tax State

Sale to another IGST Central Sales Tax + There will only be one type of tax (central) in case of
State Excise/Service Tax sales. The Centre will then share the IGST revenue ba
destination of goods.

Illustration:
 Let us assume that a dealer in Gujarat had sold the goods to a dealer in Punjab
worth Rs. 50,000. The tax rate is 18% comprising of only IGST.

In such a case, the dealer has to charge IGST of Rs.9,000. This revenue will go to
Central Government.

 The same dealer sells goods to a consumer in Gujarat worth Rs. 50,000. The
GST rate on goods is 12%. This rate comprises CGST at 6% and SGST at 6%.

The dealer has to collect Rs.6,000 as Goods and Service Tax, Rs.3,000 will go to the
Central Government and Rs.3,000 will go to the Gujarat government since the sale is
within the state.

6. Tax Laws before GST

In the earlier indirect tax regime, there were many indirect taxes levied by both the state
and the centre. States mainly collected taxes in the form of Value Added Tax (VAT).
Every state had a different set of rules and regulations.
Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was
applicable in case of inter-state sale of goods. The indirect taxes such as the
entertainment tax, octroi and local tax were levied together by state and centre. These
led to a lot of overlapping of taxes levied by both the state and the centre.
For example, when goods were manufactured and sold, excise duty was charged by the
centre. Over and above the excise duty, VAT was also charged by the state. It led to a
tax on tax effect, also known as the cascading effect of taxes.
The following is the list of indirect taxes in the pre-GST regime:

 Central Excise Duty

 Duties of Excise
 Additional Duties of Excise
 Additional Duties of Customs
 Special Additional Duty of Customs
 Cess
 State VAT
 Central Sales Tax
 Purchase Tax
 Luxury Tax
 Entertainment Tax
 Entry Tax
 Taxes on advertisements
 Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST have replaced all the above taxes.
However, certain taxes such as the GST levied for the inter-state purchase at a
concessional rate of 2% by the issue and utilisation of ‘Form C’ is still prevalent.
It applies to certain non-GST goods such as:

i. Petroleum crude;
ii. High-speed diesel
iii. Motor spirit (commonly known as petrol);
iv. Natural gas;
v. Aviation turbine fuel; and
vi. Alcoholic liquor for human consumption.

It applies to the following transactions only:

 Resale
 Use in manufacturing or processing
 Use in certain sectors such as the telecommunication network, mining, the
generation or distribution of electricity or any other power sector

7. How Has GST Helped in Price Reduction?

During the pre-GST regime, every purchaser, including the final consumer paid tax on
tax. This condition of tax on tax is known as the cascading effect of taxes.
GST has removed the cascading effect. Tax is calculated only on the value-addition
at each stage of the transfer of ownership. 

Top 10 Advantages of GST

Here in this list, you will find some of the major advantages of GST that have embarked on
the Indian economical ecosystem.
Increase in Foreign Investment 
With the implementation of GST, India has become a single market, and foreign investment has
surged in the country. Because of their lower costs, commodities created in India have become
more competitive in the worldwide market, resulting in increased exports. The implementation of
the Goods and Services Tax brings India in line with worldwide tax regulations, making it easier
for Indian enterprises to sell on a global scale.
One Tax System
One of the primary goals of implementing GST was to eliminate various forms of taxes from the
Indian tax structure. Prior to the establishment of GST, there were several taxes such as VAT,
service tax, and so on. With the implementation of GST, all such levies have been eliminated.
There is now only one tax. Although there are several slabs, GST charges for different
commodities vary, which often leads to confusion.
Less Compliance to be Followed
Before the GST act was implemented in 2017, we had several different indirect taxes. Naturally,
there were various compliance rules associated with each of these taxes which made things
complicated. Since the implementation of the new tax regime, there has been only a single
unified return to be filed by the taxpayers. The GST has around 11 returns, only 4 of which are
basic taxes that apply to all registered taxpayers regardless of their business type. For ease of
filing these returns, only the main GSTR-1 is manually populated while GSTR-2 and GSTR-3
are automatically populated.
Simple Access
Anyone sitting anywhere at any time can access the GST portal. This simplifies the filing of
returns. This is extremely beneficial to all types of organizations.
Efficiency in Logistics
GST has replaced various earlier tax systems, such as VAT. As a result, because the business
already pays to the center and state before the transportation of goods, there is no need to pay
state-level taxes during interstate movement, which improves logistics and operations.
Lift for the Lesser Developed States
The 2% interstate levy remains in place, with the majority of production remaining within the
state. However, under the new laws, the tax amount can be distributed across the country,
providing a greater boost to the less developed.
The Make In India Initiative
One of the primary objectives for instituting the Goods and Services Tax was to promote ‘Make
in India’ products. The GST facilitates competitive product manufacture. However, the
government has yet to explain how GST contributes to this campaign
Removal of cascading
A system of seamless tax credits across the value chain and across state lines would ensure that
there is minimum tax cascading. This would lower the unintentional costs of conducting
business.
Boosting of Revenue
Consider this: with the new GST in place, there will be no more evasion than there is now with
the current tax regulations. A simplified taxation term will encourage more suppliers to pay the
tax amount, resulting in an increase in revenue levels.
Transparency
The tax administration has begun working without corruption. Transparency has also resulted
from allowing sales invoices to disclose the tax applied.
Top 10 Disadvantages of GST
Let us see some of the major disadvantages of GST and its effects on the citizens of
India.

Increased Costs
GST requires firms to upgrade their current accounting software to ERP or GST-
compliant software in order to keep their operations running. However, firms should
keep in mind that purchasing, installing, and training staff to utilize GST-compliant
software can be costly. Furthermore, the expenses of conducting business have risen
significantly for both large and small enterprises, since they must now hire tax
professionals in order to become GST-compliant.
Increased Software Expenses
Prior to the implementation of the GST regime, most Indian businesses relied on basic
ERP or accounting software to manage their day-to-day operations. These software and
solutions were developed in compliance with the tax rules and structures in place at the
time. Businesses are now compelled to switch to more expensive GST-compliant
software or specialized GST software as a result of the implementation of GST. This
indicates that operating costs will rise as a result of software acquisitions and employee
training.
Increased Tax Burden on SMEs
One of the most significant downsides of GST is that it has increased tax burdens for
small and medium-sized firms. This is because, under the previous tax structure,
enterprises with annual sales of more than Rs. 1.5 crores were required to pay excise.
However, under the new tax structure, any company with a total yearly turnover of more
than Rs. 20 lakh is subject to taxation.
This tax system, however, includes a composition scheme for SMEs with a revenue of
less than Rs. 1 crore. SMEs are simply required to pay 1% of their annual revenue
under this system. However, if a company decides to take advantage of this
composition benefit, it cannot claim the input tax credit.
Difficult Migration to Online Filing System
Since the implementation of the new tax system, practically every part of the tax has
been handled online, from registration to filing tax returns. With the advancement of
modern technology, organizations are gradually adopting digital solutions. However,
such solutions for tiny enterprises receive little attention. Although the government’s
online system is incredibly convenient for business owners, it still has a steep learning
curve that can be difficult for small enterprises.
Compliance Burden
Companies must now register with GST in all states where they operate under the new
taxing regime. Businesses must issue GST-compliant invoices, keep electronic records,
and file returns as part of the registration procedure. The expense of all of these
services has significantly raised the strain on the country’s small and medium-sized
businesses. Furthermore, numerous firms are finding it difficult to adjust to GST
because all Indian states’ infrastructure is not ready to embrace e-governance.
Loss in the real estate sector
The advent of the GST has had a significant impact on the real estate industry. It has
resulted in an 8% increase in real estate prices. This has resulted in a 12% drop in
property demand. However, it is possible that this is a short-term trend that may not
persist forever.
Standard Tax Rates and Multiple Rates of CESS
Instead of a simpler tax system, India’s GST Council implemented GST with five
standard rates. Many economists believe that this complicates rather than simplifies the
structure.