The milestone goods and services tax (GST), which was launched on 1st July 2017, has been completed for four years. The one-nation, the one-tax revolution has seen a few hiccups, but it’s settling down and benefits should start to flow sooner rather than later.
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.
In other words, Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. GST is a single domestic indirect tax law for the entire country.
Manufacturer: The manufacturer will have to pay GST on the raw material that is purchased and the value that has been added to make the product.
Service Provider: Here, the service provider will have to pay GST on the amount that is paid for the product and the value that has been added to it. However, the tax that has been paid by the manufacturer can be reduced from the overall GST that must be paid.
Retailer: The retailer will need to pay GST on the product that has been purchased from the distributor as well as the margin that has been added. However, the tax that has been paid by the retailer can be reduced from the overall GST that must be paid.
Consumer: GST must be paid on the product that has been purchased.
GST is primarily categorized into three different types, i.e., CGST, SGST, IGST & UGST.
The Central Government collects CGST tax on the intra-state supply of products and services. The introduction of the Central GST led to the abolition of central taxes such as Central Excise Duty, Customs duty, Service Tax, etc.
SGST is applicable to goods and services that are sold within the state (intra-state). SGST replaced several other taxes, including Value Added Tax (VAT), Entertainment Tax, Entry Tax, State Sales Tax, and any applicable surcharges. Revenue collected through SGST is directed toward the State Government.
Integrated GST is charged on products and services that are transacted inter-state. The revenue from IGST is distributed among all the states. IGST was implemented to streamline the tax process and ensure that each state only transacts with the Union Government.
UTGST is applicable to the goods and services supplied within the union territories of Chandigarh, Andaman, and the Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, and Lakshadweep. UTGST is collected along with CGST.
In the earlier tax regime, many indirect taxes were levied by both state and central governments. The states mainly collected taxes in the form of Value Added Tax (VAT). Every state had a different set of rules and regulations. The center taxed Inter-state sale of goods. CST (Central State Tax) was applicable for the inter-state sale of goods. These indirect taxes, such as the entertainment tax, octroi, and local tax, were levied together.
The following is the list of indirect taxes that were applicable in the pre-GST regime:
Also Read: Supreme Court Judgements
In India, the GST Bill was first introduced in 2014 as The Constitution (122nd Amendment) Bill.
This got approval in 2016 and was renumbered in the statute by Rajya Sabha as The Constitution (101st Amendment) Act, 2016. Its provisions:
Central GST to cover Excise duty, Service tax, etc, State GST to cover VAT, luxury tax, etc.
Integrated GST to cover inter-state trade. IGST per se is not a tax but a system to coordinate state and union taxes.
Article 246A – states have the power to tax goods and services.
Article 279A - GST Council to be formed by the President to administer & govern GST. Its Chairman is the Union Finance Minister of India with ministers nominated by the state governments as its members.
The council is devised in such a way that the center will have 1/3rd voting power and the states have 2/3rd.
The decisions are taken by the 3/4th majority.
GST is a very good step toward shifting the Indian economy from an informal to the formal one. But, both the Center and States have to understand the limitations associated with Indirect Taxes and move towards the inclusion of people into the Direct tax bracket. But, to revive GST Regime back on track India needs some radical steps such as an extension of revenue guarantee to States, restricting cesses, and above all respecting the need of State governments' fiscal problems. The law is still a ‘work-in-progress’ and the process of evolution, in such a complex journey, cannot be eliminated. The Government should continue to take measures to deliver on its promise of a ‘Great & Successful Tax’ in the times to come.
Also read: Law of Arrest in India