Goods and Services Tax [GST]

Last Updated on January 24, 2023

In 1954, GST is first implemented in France. After that, more than 160 countries adopted GST or VAT in their economy. In India, Goods and Services Tax is introduced in 2010 and put into effect on 1st July 2017.

It is an indirect tax levied at a prescribed rate on every sale of goods or services that render to consumers. It is not levied on certain items in India i.e. Petroleum and Alcohol.

GST is also a form of comprehensive taxation as it is charged as the replacement of indirect taxes like excise duty, sales tax, service tax, VAT, etc.

It is levied at the common rate fixed for similar categories of goods and services in all the states and union territories of the country.

Goods and Services Tax collected by the seller of the goods or services is used to set off GST paid (input GST). So, GST is charged on the added value of the goods and services rendered by the population.

Example: Goods purchased for Rs. 2000 and GST at the rate of 18% were charged i.e. Rs. 360. The total value paid is Rs. 2360.
Those goods are again sold to the customer for Rs. 5000 and GST paid by the consumer at the rate of 18% i.e. Rs. 900. The total value paid by the consumer is Rs. 5900. The GST paid i.e. Rs. 360 is set off against GST charged from the consumer I.e. Rs. 900. The difference amount of Rs. 540 goes to the government account.

It is also known as a tax levied at the final destination i.e. the point of consumption and not at a point where it emerged.

Goods and Services Tax Slabs

GST is divided into 3 categories:

1. Central Goods and Services Tax (CGST): It is charged on the goods and services sold within the states.

2. State Goods and Services Tax (SGST): it is also charged on the goods and services sold within the states.

Both the CGST and SGST are comprised half of the part of GST charged i.e. if the GST is charged at the rate of 28%, then half part is i.e. 14% is CGST and another part i.e. 14% is SGST.

3. Integrated Goods and Services Tax (IGST): is charged on the goods and services sold outside the states, on import of the goods and services, or on the export of the goods and services outside the country.

There is also UGST that is charged on goods and services sold within the union territories ( Delhi, Andaman and Nicobar Islands, Chandigarh, Dadra & Nagar Haveli, and Daman and Diu, Jammu and Kashmir, Ladakh, Lakshadweep, Puducherry).

GST is levied upon all types of transactions that include the purchase of goods and services, sale of goods and services, transfer of goods and services, lease, and import of goods and services.

A threshold limit is set fulfilling which the business has obligation to register for GST. In India, this threshold limit is the aggregate turnover of a business that exceeds over ₹ 20,000 in a financial year.

Reverse Charge Mechanism (RCM)

Under this mechanism, GST is charged on the sale of goods and services but not paid by the consumer to the government instead the receiver of GST paid it on behalf of the consumer. It is applied when the payer of GST is not registered and in this case, the receiver of GST can enjoy an input tax credit.

List of items upon which GST is levied in India:

–>Goods

–>Services