- Dr MH Sgr

Basic Concepts of GST.

The Goods and Services Tax (GST) is a comprehensive, destination-based tax levied on the
supply of goods and services in India. It was implemented on July 1, 2017, to replace multiple
indirect taxes like excise duty, VAT, and service tax, creating a single tax regime. Here are the
basic concepts of Indian GST:

1. Dual GST Structure:

India follows a dual GST model, where both the central and state governments levy GST on a
common tax base. The types of GST are:

 Central GST (CGST): Levied by the Central Government on intra-state supplies.

 State GST (SGST) or Union Territory GST (UTGST): Levied by the respective state
or union territory on intra-state supplies.
 Integrated GST (IGST): Levied by the Central Government on inter-state supplies,
imports

2. Supply of Goods and Services:

GST is levied on the "supply" of goods and services. The term supply includes the sale, transfer,
barter, exchange, license, rental, lease, or disposal of goods and services. It forms the taxable
event under GST.

3. Input Tax Credit (ITC):

GST allows businesses to claim input tax credit for the tax paid on inputs used to make taxable
supplies. This reduces the tax burden, as businesses can offset the GST paid on purchases against
the GST collected on sales.

4. Destination-Based Taxation:

GST is a destination-based tax, meaning the tax is collected by the state where the goods or
services are consumed, not where they are produced.

5. Tax Rates:

GST has multiple tax slabs, generally 0%, 5%, 12%, 18%, and 28%. These rates vary based on
the nature of goods and services. Some essential goods like food grains have a 0% tax, while
luxury items may attract higher rates.

6. Composition Scheme:

Small businesses with an annual turnover of up to ₹1.5 crore (as per the latest threshold) can opt
for the Composition Scheme, which allows them to pay tax at a lower rate (1% to 6%), without
availing input tax credit.

7. Exemptions:
Certain goods and services are exempt from GST. These include unprocessed food items,
healthcare, educational services, and agricultural services.

8. Registration:

Businesses with a turnover above a specified threshold (currently ₹20 lakhs for services and ₹40
lakhs for goods in most states) are required to register for GST. Entities below this threshold can
voluntarily register to avail input tax credit and comply with the GST regime.

9. Returns Filing:

Registered taxpayers must file GST returns, which include details of sales, purchases, output
GST (on sales), and input GST (on purchases). These returns can be filed monthly, quarterly, or
annually, depending on the type of taxpayer and the turnover.

10. E-Way Bill:

For the transport of goods valued over ₹50,000 across state borders or within the state, an
electronic waybill (e-way bill) is required. This helps in tracking the movement of goods and
ensuring tax compliance.

11. Reverse Charge Mechanism:

In certain cases, the recipient of goods or services is liable to pay GST instead of the supplier.
This is known as the reverse charge mechanism, applicable mainly on specified services and
transactions with unregistered dealers.

Salient Features of GST

The Goods and Services Tax (GST) in India has several salient features that make it a significant
reform in the country’s indirect tax system. Here are the key features:

1. Single Tax on Supply:

GST is a single, comprehensive tax levied on the supply of goods and services, replacing
multiple indirect taxes like VAT, excise duty, service tax, and others.

2. Dual Structure:

India follows a dual GST model, which means both the Central Government and State
Governments impose GST:

 Central GST (CGST): Collected by the Central Government.

 State GST (SGST): Collected by the State Government.
 Integrated GST (IGST): Collected by the Central Government on inter-state supplies
and imports.

3. Destination-Based Tax:
GST is a destination-based tax, meaning that the tax revenue goes to the state where the goods or
services are consumed, not where they are produced.

4. Comprehensive Input Tax Credit (ITC):

One of the major benefits of GST is the seamless flow of input tax credit across the entire supply
chain. Businesses can claim credit for the GST paid on their purchases, reducing the overall tax
liability.

5. Multiple Tax Rates:

GST has different tax rates to classify goods and services according to their type and value:

 0%, 5%, 12%, 18%, and 28% are the standard rates.
 Essential goods like food items are taxed at lower rates, while luxury goods and services
attract higher rates.

6. Elimination of Cascading Effect:

GST eliminates the cascading effect of taxes, where tax was previously levied on the value of
goods as well as the tax paid on inputs. With GST, tax is levied only on the value addition at
each stage of the supply chain.

7. Uniform Taxation:

GST ensures uniformity in the indirect tax structure across India. The same tax laws, procedures,
and rates apply throughout the country, creating a unified market and simplifying compliance.

8. Digitalized Compliance:

GST administration is largely digital, with all processes such as registration, return filing, tax
payments, and refund claims conducted online via the GST portal. This promotes transparency,
reduces human intervention, and ensures timely compliance.

9. Composition Scheme for Small Businesses:

To ease compliance for small businesses, a Composition Scheme is available, allowing them to
pay tax at a lower rate and file returns quarterly, without claiming input tax credit. This scheme
applies to businesses with an annual turnover of up to ₹1.5 crore.

10. Reverse Charge Mechanism:

In certain cases, GST is paid by the recipient of goods or services rather than the supplier. This is
known as the reverse charge mechanism and typically applies to specified goods/services or
when dealing with unregistered suppliers.

11. Exemptions and Threshold Limits:

Certain essential goods and services, such as healthcare, education, and basic food items, are
exempt from GST. Additionally, businesses with turnover below specified thresholds (₹20 lakh
for services and ₹40 lakh for goods) are not required to register under GST.
12. E-Way Bill System:

To streamline the movement of goods and ensure tax compliance during transportation, GST
mandates the generation of an electronic waybill (e-way bill) for goods valued over ₹50,000,
when moving across or within states.

13. GST Council:

The GST Council is the apex decision-making body that governs GST laws in India. It comprises
the Union Finance Minister and finance ministers of all the states. The Council regularly meets
to make key decisions on GST rates, exemptions, and policies.

14. Compensation to States:

To protect states from potential revenue loss due to the implementation of GST, the Central
Government provides compensation for the first five years of GST implementation. This ensures
a smooth transition for states that relied heavily on indirect taxes.

15. Reduction in Tax Evasion:

The digital nature of GST and the use of e-way bills, along with the ability to track the flow of
goods and services throughout the supply chain, has significantly reduced tax evasion,
encouraging better compliance.

16. Special Provisions for Certain States:

Special provisions are in place for the North-Eastern and hilly states, allowing them to enjoy
higher exemptions and certain fiscal benefits under GST.

Objectives of GST
1. Simplification of the Tax Structure:
Before GST, India’s indirect tax system included various taxes like VAT, excise duty,
service tax, and customs duty, each with different rates and compliance requirements
across states. GST has streamlined these into a single, comprehensive tax, applicable
uniformly across the nation. This simplification helps businesses comply with a single tax
system rather than navigating multiple ones, leading to more transparency and reduced
administrative costs.
2. Removal of Cascading Effect (Tax-on-Tax):
One of the major problems in the pre-GST tax structure was the cascading effect, where
taxes were applied on top of other taxes. GST eliminates this by allowing businesses to
claim an input tax credit (ITC) for the tax already paid on inputs, which can be deducted
from the tax they owe. This means businesses only pay tax on the value added at each
stage of production or service delivery, reducing the final cost for consumers.
3. Broadening of the Tax Base:
GST brings a wider array of goods and services under its scope, including many that were
previously exempt from tax. This expansion increases the tax base, meaning more people
and businesses are contributing to tax revenue. It also minimizes tax evasion by
 simplifying the system and increasing compliance, leading to higher government revenue,
which can be used for public services and development.
4. Promoting a Unified National Market:
Before GST, each state had its tax rates and laws, creating barriers to trade across state
lines and making interstate business challenging. With GST, India has one tax structure
across states, creating a unified national market. Businesses can now move goods and
services across state borders more freely, promoting competition and growth.
5. Boosting Ease of Doing Business:
GST has made it easier for businesses, especially small and medium-sized enterprises
(SMEs), to comply with tax regulations. By reducing the number of taxes, paperwork,
and varying tax rules across states, GST has simplified operations for businesses and
improved India’s ranking in the World Bank’s Ease of Doing Business index.
6. Reduction in Corruption and Tax Evasion:
GST is a digitalized tax system where all transactions are recorded online, and returns are
filed electronically. This transparency has minimized the scope for corruption, as there is
less manual intervention and more accountability. Also, with provisions like matching of
invoices, GST reduces the chances of tax evasion and increases compliance among
businesses.
7. Promoting Export Competitiveness:
GST exempts exports from taxes, meaning no tax is levied on goods and services meant
for export. This exemption makes Indian goods and services more competitive in
international markets, as they are free from the cascading taxes that could otherwise make
them more expensive compared to products from other countries.
8. Increasing Government Revenue:
By widening the tax base and reducing tax evasion, GST enhances government revenue.
Compliance has improved under GST due to its streamlined and digitized process, which
means more businesses are part of the tax net. Higher revenue generation allows the
government to invest in infrastructure, healthcare, education, and other public services
that benefit the country.

In summary, GST aims to create a more efficient, transparent, and simplified tax system that
boosts business efficiency, encourages economic growth, and enhances government revenue.

Importance or Benefits of Implementing GST:

1. Simplified Tax Structure: GST replaces multiple indirect taxes, such as VAT, excise
duty, and service tax, with a single tax, reducing complexity and improving compliance.
2. Elimination of Cascading Effect: By allowing input tax credits at every stage of the
supply chain, GST prevents the tax-on-tax scenario, lowering the overall tax burden on
goods and services.
3. Increased Revenue for Government: GST broadens the tax base and minimizes tax
evasion through the seamless flow of input credits and stricter compliance measures,
leading to better revenue collection.
4. Enhanced Efficiency in Supply Chain: Removal of inter-state check posts and
harmonized tax structure reduces logistics and inventory costs, making supply chains
more efficient.
5. Boosts to Export Competitiveness: GST reduces the cost of locally produced goods by
eliminating the cascading effect of taxes, making exports more competitive in global
markets.
 6. Encouragement of Digitalization and Transparency: GST implementation requires
businesses to adopt digital reporting and invoicing, increasing transparency and reducing
tax evasion.
7. Uniform Tax Rates and Reduced Tax Evasion: A common tax rate throughout the
country discourages the evasion of taxes, promoting a fairer marketplace.
8. Ease of Doing Business: GST simplifies tax administration, improving ease of doing
business, especially for smaller businesses and startups, as it streamlines processes and
compliance.
9. Encouragement for Organized Sectors: GST encourages businesses to shift from
unorganized to organized sectors since compliance with GST requires digital records and
invoicing, fostering transparency and accountability across sectors.
10. Higher Economic Growth: By simplifying the tax structure, reducing costs for
businesses, and creating a seamless flow of goods across states, GST promotes overall
economic growth, attracting domestic and foreign investment due to a more predictable
tax regime.
11. Improved Interstate Trade: GST has minimized state border taxes and checkpoints,
allowing smoother and faster movement of goods across state lines, which fosters a more
integrated and efficient national economy.
12. Consumer Benefits with Reduced Prices: With the elimination of the cascading effect
and input tax credits passed on to the end-user, GST has contributed to price stabilization
or reduction in many goods and services, ultimately benefiting consumers.

Overall, GST promotes a uniform, fair, and transparent tax system, aiding in economic growth
by creating a unified national market.

Disadvantages of GST:
1. Complexity for Small Businesses: Small businesses may struggle with GST compliance
due to multiple tax slabs, frequent filing requirements, and the need for digital
infrastructure, which can be costly and complex.
2. Increased Compliance Burden: GST requires businesses to file multiple returns
regularly (monthly and annually), which increases the compliance burden, particularly for
small and medium enterprises (SMEs).
3. Higher Operational Costs: Adopting GST requires companies to invest in new
accounting software, staff training, and potentially, consultation services to ensure
compliance, raising operational costs.
4. Multiple Tax Rates: Unlike a single-rate system, GST in India has multiple tax rates
(0%, 5%, 12%, 18%, and 28%), adding complexity and increasing the chances of
classification disputes and errors.
5. Negative Impact on Certain Sectors: Some sectors, like textiles and real estate, have
seen increased tax rates under GST, which has adversely affected these industries and, in
some cases, led to job losses.
6. Reduced Profit Margins for Businesses: The uniform taxation has led some businesses
to lower their profit margins to stay competitive, as they pass on GST-related price
reductions to consumers.
7. Transitional Challenges: The shift to GST required businesses to reorganize their tax
processes, manage old inventories under new tax regulations, and deal with transitional
tax credits, which was challenging for many.
8. Initial Inflationary Impact: The introduction of GST initially led to price hikes on
certain goods and services, affecting consumer purchasing power and causing temporary
inflation in specific sectors.
 9. Lack of State Autonomy: With GST, states lost the power to levy and manage certain
taxes independently, leading to concerns about decreased financial autonomy and
flexibility in addressing regional needs.
10. Challenges with Input Credit System: The input credit mechanism is complex and
sometimes delayed, leading to cash flow issues for businesses. Missteps in the supply
chain, such as an incomplete filing by suppliers, can block input credits.

Subsuming of Taxes:
The "subsuming of taxes" means that various existing indirect taxes were consolidated or
absorbed into a single, unified tax structure. In the context of GST, this means that taxes like
VAT, Service Tax, Central Excise Duty, and others were eliminated as standalone taxes and
replaced by GST.

Taxes Subsumed in GST:

Central Taxes Subsumed in GST

1. Central Excise Duty – on manufacturing of goods

2. Service Tax – on services rendered
3. Additional Customs Duty – also known as Countervailing Duty (CVD)
4. Special Additional Duty of Customs (SAD) – on imports
5. Central Sales Tax (CST) – on inter-state sales of goods
6. Central Surcharges and Cesses – related to supply of goods and services, like Swachh
Bharat Cess, Krishi Kalyan Cess, etc.

State Taxes Subsumed in GST

1. Value Added Tax (VAT) – on goods sold within a state

2. Entertainment Tax – not levied by local bodies, but at the state level
3. Luxury Tax – on luxury goods and services
4. Octroi and Entry Tax – charged on the entry of goods into a state or municipal area
5. Purchase Tax – on specific goods or services
6. Taxes on Lotteries, Betting, and Gambling
7. State Cesses and Surcharges – related to supply of goods and services, such as the road
cess, electricity duty, etc.
Structure of GST – Dual Model of GST:
The Goods and Services Tax (GST) in India follows a dual model, which means it is levied by
both the Central Government and the State Governments. This structure allows both levels of
government to collect taxes on the same transaction, ensuring a more equitable revenue-sharing
arrangement. Here’s how the dual GST model works:

1. Central GST (CGST)

 Levied by the Central Government on intra-state (within the same state) supply of
goods and services.
 The revenue collected from CGST goes directly to the central government.

2. State GST (SGST)

 Levied by the State Government on intra-state (within the same state) supply of goods
and services.
 The revenue from SGST goes to the respective state government.

3. Integrated GST (IGST)

 Levied on inter-state (between different states) transactions and imports of goods and
services.
 IGST is collected by the central government and then distributed between the central and
state governments based on a pre-determined sharing formula.
 IGST eliminates the need for multiple inter-state taxes and allows for seamless transfer of
tax credit between states.

Features of the Dual GST Model

1. Seamless Input Tax Credit: Allows businesses to claim input tax credits on CGST,
SGST, and IGST, ensuring taxes are applied only on the value addition at each stage.
2. Transparency and Uniformity: Ensures a uniform tax rate and structure across the
country, reducing the need for multiple registrations and filings.
3. Revenue Sharing Mechanism: Balances revenue between the central and state
governments, giving each a fair share from intra-state and inter-state transactions.

This dual structure allows for efficient tax administration, minimizes tax evasion, and creates a
unified market across India.
GST Council
The GST Council is the apex decision-making body for GST in India, responsible for making
recommendations on tax policies and rates to ensure a uniform and streamlined implementation
of GST across the country. It was constituted under Article 279A of the Indian Constitution.

1. Composition of the GST Council

 Chairperson: The Union Finance Minister serves as the chairperson of the GST Council.
 Vice-Chairperson: Selected from among the members of the Council; usually one of the
state finance ministers.
 Members:
o Union Minister of State for Finance in charge of revenue or finance.
o Finance Ministers of each state or any other nominated minister by the state
government.
 Decision-Making: For any decision to pass, the Council requires a three-fourths majority
of votes. The central government has one-third of the votes, while the state governments
collectively have two-thirds.

2. Powers of the GST Council

The GST Council holds extensive powers, including:

1. Setting GST Rates: Decides the GST rates for various goods and services across
multiple tax slabs.
2. Exemptions and Thresholds: Has the authority to define goods and services that may be
exempted from GST, as well as setting thresholds for registration.
3. Amendments and Policy Recommendations: Recommends amendments to the GST
law and adjustments in tax policies.
4. Dispute Resolution: Responsible for addressing and resolving any disputes or issues that
arise between the central and state governments regarding GST.
5. Allocation of Revenue: Decides how the revenue collected under GST, especially IGST,
is shared between the center and states.

3. Functions of the GST Council

1. Recommend GST Laws and Procedures: Provides guidelines on various aspects of

GST, including model GST laws, principles of levy, apportionment of IGST, etc.
2. Suggest Changes in Tax Rates and Structure: Regularly reviews and suggests
modifications in GST rates to reflect changes in economic conditions or address specific
sector needs.
3. Oversee GST Implementation: Monitors the implementation and working of GST to
identify areas for improvement.
4. Determine Special Provisions for States: Makes special recommendations to address
the unique needs or challenges of individual states.
5. Facilitate Input Tax Credit: Establishes rules regarding the seamless flow of input tax
credit across the supply chain.

Summary of GST Council’s Role

The GST Council ensures coordination between the central and state governments, standardizes
tax rates, and aligns GST policies to maintain a balanced approach across India. Its decisions are
crucial for the efficient operation of GST, as they aim to foster a single, unified national market