Goods and Services Tax (GST) was implemented on the 1st of July 2017 as Goods & Services Tax Act. It is a uniform indirect tax levied on goods and services across the country which replaced central taxes like central excise, service tax, additional duties of excise & customs, special additional duty of customs, besides cesses and surcharges, on supply of goods and services.
The main objective of incorporating the GST was to eliminate tax on tax, or double taxation, which cascades from the manufacturing level to the consumption level. The implementation of the GST system in India is, therefore, a measure that is used to reduce inflation in the long run, as prices for goods will be lower.
FEATURES OF GST
- Single Indirect Tax – GST has been introduced as a single, unified tax reform. It has eliminated many existing indirect centre and state taxes like Central Value Added Tax, Special Additional Duty of Customs, Service Tax, and VAT and converted them into a single tax.
- Input Tax Credit System – One of the most prominent GST features in India is the input tax credit. If a manufacturer or service provider has already paid input tax on a purchase, the same can be deducted from their total output tax liability. Thus, the input and output invoices need to match to take advantage of the tax credit.
- GST Composition scheme – SMEs with an annual turnover of up to Rs. 1 crore or Rs. 75 lakhs in specified states can also voluntarily opt for the composition scheme. With this scheme, the businesses can pay a fixed GST rate of 1% on their turnover.
- Four – Tier Tax Structure – GST has a 4-tier tax structure of 5%, 12%, 18%, and 28%. All the goods and services can only be taxed as per this tax structure. Many of the essential commodities such as food items do not have any GST. Improved transparency and cheaper goods and services are two of the biggest advantages of this 4-tier structure.
- 3 Types of GST – GST is primarily categorized into 3 types, namely, Central Goods & Service tax which is collected by the Central Government, State Goods & Service tax which is collected by the State Government & third is Integrated Goods & Services Tax which is charged on the inter state supply of goods & services.
BENEFITS OF GST SYSTEM
The following are the main advantages of the GST system –
- GST will ensure that indirect tax rates and structures are common across the country which would increase the certainty and ease of doing business.
- Reduction in transaction cost of doing business would eventually lead to an improved competitiveness for the trade & industry.
- GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.
- The cascading of taxes will be prevented by GST as the whole supply chain will get an all-inclusive input tax credit mechanism.
Thus, in a nutshell GST is basically a multi-stage tax system which is comprehensive in nature and is levied on the supply of goods and services with the aim of replacing a host of other indirect taxes such as value added tax (VAT), service tax, excise duty, and so on