What is GST? And Types of GST
What is GST?
The Goods and Services Tax (GST) is an indirect tax on the supply of goods and services in India. Introduced in 2017, it simplified the country’s tax system by replacing various indirect taxes like VAT, excise duty, and service tax with a single, unified tax. GST is applied at every stage of the production process but is ultimately borne by the final consumer. It’s a destination-based tax, meaning that the state where the goods or services are consumed collects the tax.
History of GST:
GST was first implemented in France in 1954 and has since been adopted by many countries, including Australia, Canada, and the UK. In India, the idea of GST gained momentum in 2000 when the government formed a committee under then Prime Minister Atal Bihari Vajpayee to explore its implementation. After years of deliberation and legislative hurdles, GST finally became law on July 1, 2017.
The implementation of GST marked the end of several central and state taxes, such as service tax, excise duty, VAT, entry tax, and entertainment tax, among others. This reform was aimed at streamlining tax processes, reducing tax evasion, and making compliance easier for businesses.
Objectives of GST:
GST was introduced with several key objectives:
1. Eliminate cascading tax effects: By taxing only the value added at each stage, GST prevents the “tax on tax” scenario. Simplify the tax system: It replaces multiple indirect taxes with one unified tax, reducing complexity.
2. Increase tax compliance: GST aims to bring more businesses, especially in the unorganized sector, under the tax net, thereby increasing government revenue.
3. Promote transparency: With input tax credits available and clear guidelines, GST aims to reduce corruption and tax evasion.
Types of GST:
There are four types of GST in India:
1. Central Goods and Services Tax (CGST):
CGST stands for Central goods and services tax. It is levied by the central government on the intrastate movement of goods and services, i.e., transactions within one state. The Central goods and services tax Act 2017 govern CGST, which applies to the entire country except Jammu and Kashmir. In an intrastate movement, both CGST and SGST are applicable, with the revenues collected going to the central and respective state governments, respectively.
For instance, if a manufacturer sells a product within Maharashtra, SGST and CGST will be levied, with revenues shared between the state and central governments.
2. State Goods and Services Tax (SGST):
SGST stands for State Goods and Services Tax. It is an indirect tax imposed by state governments on intrastate supplies of goods and services. As part of the GST framework, SGST ensures that state governments receive their share of tax revenue for intrastate transactions, contributing to a unified tax system across India. SGST replaces earlier state-level taxes such as purchase tax, luxury tax, VAT, and octroi, simplifying the tax system.
For instance, if a manufacturer sells a product within Maharashtra, SGST and CGST will be levied, with revenues shared between the state and central governments.
3. Integrated Goods and Services Tax (IGST):
IGST stands for Integrated Goods and Services Tax. It is a type of tax in India under the Goods and Services Tax (GST) system, applied on interstate transactions. When goods or services are supplied from one state to another, IGST is levied by the central government. It ensures that the tax is shared between the state of origin and the state of consumption.
Example: Suppose a company in Maharashtra sells goods to a customer in Karnataka. In this case, IGST will be charged on the transaction because it is an interstate sale.
For instance, if the value of goods is ₹10,000 and the applicable IGST rate is 18%, the IGST charged would be ₹1,800.
4. Union Territory Goods and Services Tax (UTGST):
UTGST stands for Union Territory Goods and Services Tax. It is levied on the supply of goods and services within a Union Territory (UT) in India. It is similar to SGST (State Goods and Services Tax), which applies within states, but UTGST applies specifically to Union Territories that do not have their own legislature. The Union Territories where UTGST is applicable are Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, Chandigarh, and Ladakh.
Example: If a shop in Chandigarh sells goods worth ₹10,000 within the Union Territory, UTGST and CGST (Central Goods and Services Tax) will both be charged. If the GST rate is 18%, UTGST would be 9% (₹900), and CGST would also be 9% (₹900), making a total tax of ₹1,800.
How is GST is Calculated ?
GST is calculated using a simple formula: GST Amount = (Original Price × GST Rate) / 100
Net Price = Original Price + GST Amount
For instance, if you sell an item for Rs. 10,000 with a 12% GST, the GST amount would be Rs. 1,200, making the total price Rs.11200.
