What is GST?
Goods and Services Tax or GST is an indirect tax regime in India that has brought all indirect taxes under a single umbrella. The GST Act was passed in the Parliament on 29th March 2017 and came into effect from 1st July 2017. GST represents a single indirect tax for the entire country, this article presents some terms and exciting facts about it.
GST tax slabs and GST Council
GST has four tax slabs under which various goods and items are placed. They are 5%, 12%, 18% and 28%. The GST Council governs GST rates, rules and regulations and this constitutional body is chaired by the Union Finance Minister along with ministers in charge of finance and taxation of all the respective states.
Components of GST
There are three components of GST in India. They are:
- Central Goods and Services Tax (CGST): This tax is levied on the intra-state supply of goods and services and is collected by the central government.
- State Goods and Services Tax (SGST): This tax is levied on the intra-state supply of goods and services and is collected by the state government.
- Integrated Goods and Services Tax (IGST): It is the combination of CGST and SGST and is collected by the central government. This is applicable on the inter-state supply of goods and services.
Important GST terms
With India unified by GST, it’s essential for you to know about certain GST terms which would help you better understand GST’s framework. Some of the key terms related to GST are:
- Goods and services tax network (GSTN)
A non-profit private limited company governed under section 8 of the Companies Act 2013, the primary responsibility of GSTN is to provide IT infrastructure and services to the central and state governments and taxpayers to ensure smooth implementation of GST. GSTN allows taxpayers to register and file GST returns online.
- GST identification number (GSTIN)
GSTIN is a 15-digit alphanumeric number allotted to every registered taxpayer under GST. The first two digits of GSTIN represent the state code, as per Census 2011. The next 10 digits comprise the PAN number of the taxpayer, while the 13th digit represents the number of registrations the business entity has within the state for the same PAN. The 14th digit is Z by default and the 15th digit is a check code, which can be an alphabet or number.
- Input tax credit (ITC)
ITC refers to the tax a business pays on purchase which can be used to reduce tax liability when it sells the finished product. For instance, if your tax paid on purchase is Rs. 500 and the tax payable on the final product is Rs. 700, you can claim an input tax credit of Rs. 500 and deposit just Rs. 200 as taxes. To claim ITC, you must have a GST-compliant invoice.
- Reverse charge mechanism (RCM)
Though GST needs to paid by suppliers of goods and services, there are cases when this tax needs to be paid by the buyer. When this happens, it’s known a reverse charge mechanism. RCM is applicable when a business buys goods or services from an entity, which is not registered under GST. Also, in case of imports, an importer is liable to pay GST under RCM.
GST benefits encompass bringing uniformity in indirect taxation along with removing cascading tax effects. It also promotes free movement of goods, thereby boosting production and consumption, thus bolstering the economy as a whole. Still in the process of stabilisation, there is still some way for GST to go before it strikes a chord with all sections of the economy.
