In simple words, GST is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India. It is multi stage destination based tax levied on value addition. It mainly removes excise, service tax, vat etc.
It took around 17 years to come into picture. It was first started by P M Vajpayee in the year of 2000 who set up a committee to draft GST law. After that in 2011 constitutional amendment bill was introduced enable GST Law.
Some of the main advantages of the GST inter alia are:-
- It removes cascading effect.
- It gives higher threshold for registration
- Composition scheme for small business
- Online simple procedures under GST.
- Lesser compliance
- Regulating the unorganized sector etc.
There are three types of taxes under GST i.e. CGST, SGST, IGST
CGST stands for central GST, SGST as state GST, and Interstate for GST.
- CGST: Collected by the Central Government on an intra-state sale (Eg: sale/service Within State)
- SGST: Collected by the State Government on an intra-state sale (Eg: sale/service Within State)
- IGST: Collected by the Central Government for inter-state sale (Eg: sale/service one state to another)
A dealer in Bihar sells goods to a consumer in Bihar worth Rs. 10,000. The GST rate is 18% : comprising CGST of 9% and SGST of 9%.
In such cases, the dealer collects Rs. 1800 and of this amount, Rs. 900 will go to the Central Government and Rs. 900 will go to the Bihar government.
Now, let us assume the dealer in Bihar sells the goods to a dealer in Haryana worth Rs. 100,000.
The GST rate is 18% comprising of only IGST. In such case, the dealer has to charge Rs. 18000 as IGST. This IGST revenue will go to the Central Government.
Under GST, goods and services are taxed at the following rates, 0%, 5%, 12% ,18% and 28%.There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 15% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products.
Still petroleum is outside the GST Purview.
In the short run most of the businessmen are confused and anxious that how it will be complied and even the GDP may take a hit But in the long run It will definitely help the country to simplify the process of tax collection and increasing the indirect tax revenue by coving unorganized sectors. Even the image of our country in the outside world will improve which may ultimately help in attracting FDI.
Niraj Kumar is a Corporate lawyer and tax expert