The GST is a value-added tax imposed on most goods and services produced within the country. Nowadays, it has become mandatory for every business owner to have a GST registration number to continue their business if their annual turnover exceeds INR 40 lakhs. Consumers pay the GST, but companies who sell the goods and services must remit it to the government.
The GST is an indirect federal excise tax levied on the cost of certain products and services. The GST is added to the product price by the company, and the consumer pays the sales price, which includes the GST. The GST percentage is accumulated and transferred to the government by the company or vendor.
How the GST works, and what are the different structures?
Numerous countries that hold a GST (Goods and service tax) get a single monolithic GST system. This implies that a single tax rate gets applied across the board.
A nation with a unified GST platform collects all central taxes (like central excise tax, sales tax, and service tax) and state taxes (such as customs duty, entertainment tax, sin tax payment, and luxury tax) as well as a single tax.
Only a few nations, such as Canada and Brazil, have a two-tiered GST system. In contrast to a single GST economy, where the national government collects the tax and then distributes it to the states, the federal GST gets imposed on the state income tax in a dual system.
In Canada, for example, the federal government levies a 5% tax, while some provinces and states levy a provincial state tax (PST) that ranges from 7% to 10%. The GST and PST rates, applied to the purchase price, will be displayed on the customer’s invoice in this case.
Execution of GST (Goods and Services Tax ) in India
In 2017, India implemented a dual GST system, which was the nation’s most significant tax policy in decades. The principal aim of implementing the GST was to eradicate tax on tax, or double taxation, which takes place when goods get manufactured or consumed.
The former system, in which there was no GST (Goods and Service Tax), intended that tax was paid- on the value of goods and profit at each stage of the manufacturing process.
It would point to a higher total tax burden, which would get passed on to the end-user in the form of elevated goods and service prices.
As a result, this integration of the GST system in India is a long-term method of reducing inflation by lowering the cost of goods.
What are the objectives of GST?
Mentioned hereunder are some of the main objectives of GST.
To accomplish the ideology of ‘One Nation, One Tax,’
Multiple indirect taxes that existed under the earlier tax regime have been replaced by GST. The advantage of owning a single tax is that each state retains the same rate for a specific product. The national government sets the prices and policies, making the tax system easier.
Common laws, such as e-way bills for freight transportation and e-invoicing for transaction reporting, could be enacted.
The taxpayers’ financial literacy is further improved as they do not get burdened by multiple forms and deadlines. Overall, it is a systematic indirect regulatory compliance system.
Subjugate the majority of India’s income taxes
Service tax, Value Added Tax (VAT), State Excise, and other indirect taxes were once applied at various stages across the supply chain in India. States were in charge of some taxes, while the federal government was responsible for levying other taxes.
On both products and services, there was not even a single central tax. As a result, the Goods and Services Tax (GST) got introduced. All of the significant indirect taxes got merged into the GST.
Also, it has substantially lowered the difficulty of compliance on taxpayers while also making the tax system easier and made it quick for the businesses to apply for a business loan with the GST number.
To eliminate the taxation’s compounding effect
One of the main objectives of the GST was to eliminate the tax cascade effect. Initially, due to differing indirect tax legislation, taxpayers were not able to offset one tax’s tax incentives against another.
The excise duties collected during manufacturing, for example, could not be offset against the VAT due during the sale. As a result, taxes began to cascade.
Only the net value introduced at each stage of the production process gets taxed under GST. This has aided in eliminating the tax cascade effect and the smooth flow of taxes and duties across both products and services.
To put a stop to tax theft
India’s GST laws are far stricter than any of the country’s previous indirect tax laws. Only receipts submitted by their respective suppliers are eligible for tax deductions under the GST.
The chances of claiming tax returns on fake invoices got reduced in this manner. The introduction of e-invoicing has only strengthened this goal. Furthermore, because GST is a national tax with a centralised surveillance system, the crackdown on defaulters is faster and more efficient.
As a result, the GST has significantly reduced tax evasion and reduced tax fraud.
To broaden the base of individuals
The Goods and Services Tax (GST) has aided in the broadening of India’s tax base. Previously, each tax policy had a different registration limit value based on turnover.
GST has increased the number of tax-registered enterprises because it is a centralised tax that applies to goods and services. Furthermore, stricter laws governing input tax credits have aided in the taxation of some disorganised sectors.
A better logistics and transportation system is needed
Various evidence for the supply of goods gets reduced by a fixed indirect tax regime. GST cuts transportation, processing time, enhances supply chain and turnaround times, and encourages warehouse centralization, among other things.
The Bottom Line
The onset of GST has helped the business world in different manners by reducing the taxes and introducing numerous policies to safeguard the hard-earned money. This is why more and more people are now starting their businesses to earn increased profits.
If you are an existing business owner looking for a business or an MSME loan to start your company, look no further than Ziploan.
Frequently Asked Questions
Following are the types of GST:
1) The Central Goods and Services Tax (CGST)
2) The State Goods and Services Tax (SGST)
3) The Union Territory Goods and Services Tax (UTGST)
4) The Integrated Goods and Services Tax (IGST)
Prime Minister Narendra Modi launched GST into operation on the midnight of 1 July 2017. But GST was almost two decades in the making since the concept was first proposed under the Atal Bihari Vajpayee government.
GST calculation can be explained by simple illustration : If a goods or services is sold at Rs. 1,000 and the GST rate applicable is 18%, then the net price calculated will be = 1,000+ (1,000X(18/100)) = 1,000+180 = Rs. 1,180.
GST is known as the Goods and Services Tax. It is an indirect tax that has replaced many indirect taxes in India such as excise duty, VAT, services tax, etc. The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017.