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What is GST (Goods and Services Tax)?

GST (Goods and Services Tax) is an indirect tax that has replaced many Central and State taxes like excise duty, VAT and service tax. It is a single comprehensive tax levied on all goods and services produced in India as well as those imported from other countries. The new tax regime came into effect on July 1, 2017, after years of deliberation – with the Atal Bihari Vajpayee Government first suggesting it in the year 2000.

History of GST

Several nations across the world have already implemented GST. To name a few - Canada replaced the Manufacturer’s Sales Tax with GST in the year 1991, Australia replaced the Federal Wholesale Tax with GST in the year 2000 and New Zealand replaced their sales taxes for some goods and services with GST in the year 1986. India implemented its dual GST system (a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST)) in 2017 to cut red tape and increase tax revenues, which in turn would fuel economic growth.

The Vajpayee Government, in the year 2000, began talks on GST and set up a committee, headed by Asim Dasgupta, Finance Minister of the West Bengal Government. The committee was given the responsibility of designing the GST model and managing the IT back-end preparedness for its rollout. In Budget 2006-07, Union Finance Minister Shri P. Chidambaram proposed implementation of Goods and Services Tax (GST) by April 1, 2010. The committee of State Finance Ministers, however, only released its First Discussion Paper on the tax regime in November, 2009.

The new tax regime finally came into effect on July 1, 2017. Here is a look at the timeline of ‘one nation, one tax’ system:

  • 2000: The Vajpayee Government begins talks on GST. An empowered committee is set up, headed by Asim Dasgupta, Finance Minister of the West Bengal Government.

  • 2003: A task force is formed under Vijay Kelkar to suggest tax reforms.

  • 2004: Vijay Kelkar recommends replacing the existing tax regime with GST.

  • 2006: In Budget 2006-07, Union Finance Minister Shri P. Chidambaram proposed implementation of Goods and Services Tax (GST) by April 1, 2010.

  • 2008: The Empowered Committee hands over a report on the roadmap of GST in the country.

  • 2009: The committee presents a discussion paper on GST, welcoming debate. Finance Minister Pranab Mukherjee announces the basic structure of GST.

  • 2010: Finance Ministry commences mission-mode computerization of commercial taxes in states. GST postponed to April 1, 2011.

  • 2011: Congress party introduces Constitution (115th Amendment) Bill to implement GST. After protests by the opposition, the Bill is passed to a Standing Committee.

  • 2012: Meetings held with state finance ministers. Deadline for issues to be resolved set at 31 December, 2012.

  • 2013: In his Budget speech, Chidambaram, makes provision for Rs. 9,000 crore to compensate states for losses suffered due to GST.

  • 2014: Standing Committee clears GST Bill, however, lapses as Lok Sabha dissolves. Finance Minister, Arun Jaitley, introduces the Constitution (122nd) Amendment Bill at the Lok Sabha.

  • 2015: New deadline for rollout of the new tax regime set as April 1, 2016. GST bill passed in Lok Sabha, but not Rajya Sabha.

  • 2016: Rajya Sabha passes the Constitution Amendment Bill. GST Council agrees on four slab tax structure (5%, 12%, 18% and 28%) along with an added cess for luxury as well as sin goods.

  • 2017: Final GST implemented on July 1, 2017. Four supplementary GST bills passed.

GST Bill

The GST Bill is officially referred to as The Constitution (One Hundred Twenty Second Amendment) Act, 2016. The bill has been aimed at creating an integrated market and subsuming most of the indirect taxes like services tax, central excise, vat, entertainment, luxury, lottery tax, cess implied on goods and services and surcharge etc., into a single integrated tax.

Some of the noteworthy points concerning the GST bill are as under:

  • GST is a uniform indirect tax, levied on goods and services produced in and imported into a country. India has four GST rate structure - 5%, 12%, 18% and 28%.

  • State Tax GST has replaced taxes on advertisements, entertainment & amusement tax and luxury tax, among others.

  • Central Taxes GST has subsumed service tax, central excise duty and additional duties of excise (goods of special importance), among others.

  • One of the primary objectives behind the implementation of GST is to eliminate the cascading effects of tax.

How is GST Calculated?

The current GST rates in India are 5%, 12%, 18% and 28%. Businesses, wholesalers, manufacturers and retailers can ascertain their GST amount by using the below formula:

GST Calculation

  • Add GST:

    GST Amount = (Original Cost x GST%)/100

    Net Price = Original Cost + GST Amount

  • Remove GST:

    GST Amount = Original Cost - [Original Cost x {100/(100+GST%)}]

    Net Price = Original Cost - GST Amount

To understand how this works, consider this example: A product is being sold at Rs. 400 and the GST rate on it is 18%. The gross amount of the product will be 400 + (400 x (18/100) = Rs. 472.

A number of tax calculators are available across different portals that can help you find out the GST. Some of the details that you will be required to input for calculating the GST are return filing month, due date of filing return for the month, filing date, total tax liability during the month and purchases where reverse charge mechanism is applicable.

What are the Benefits of GST?

The key advantages of GST implementation are as under:

  • Creation of a unified common market.

  • Tax structure simplified with lesser exemptions.

  • Eliminates cascading effect of tax. Consumer gets the end-product at cheaper rates.

  • Taxpayers will have a common portal (GSTN).

  • Helps build a transparent tax administration.

  • Uniformity in SGST and IGST rates reduces tax evasion to a large extent.

  • Buying input goods and services for production from other states becomes cheaper.

  • Boost to the economy in the long run. Increased supply and demand of goods and services.

E-Way Bill

An e-Way Bill is an electronic document/bill generated for transporting goods worth Rs. 50,000 or more (single Invoice/bill/delivery challan) in a vehicle. A registered person cannot transport of goods whose value is more than Rs. 50,000 in a vehicle unless he or she has an e-Way bill. This rule, which has been mandated under the current GST regime, came into effect on April 1, 2018.

Part A of the e-Way bill contains details like GSTIN, place of delivery (PIN code), the value of goods, HSN code, invoice of challan number and date, transport document number and the purpose for transportation, while Part B mentions details of the transporter like the vehicle number. The bill can be generated (and cancelled) on the e-Way Bill Portal, Site-to-Site Integration (through API), SMS or Android app. On generating the bill, a unique e-way bill number (EBN) will be assigned. The transporter and the receiver of the consignment shall be given access to the EBN.

FAQs

What is GST?

GST (Goods and Services Tax) is an indirect tax that has replaced many Central and State taxes like excise duty, VAT and service tax. It is a single comprehensive tax levied on all goods and services produced in India as well as those imported from other countries.

When did GST come into effect?

The new tax regime came into effect on July 1, 2017, after years of deliberation – with the Atal Bihari Vajpayee Government first suggesting it in the year 2000.

Who decides the slabs of GST?

The GST Council is the key decision-making body for all matters related to GST. The council, headed by Finance Minister, consists of the members of both Centre and State. The GST Council makes recommendations concerning the tax slabs, tax issues, rebate in tax and other provisions therein.

What are the benefits of GST implementation?

The key advantages of GST implementation are as under:

  • Creation of a unified common market.

  • Tax structure simplified with lesser exemptions.

  • Eliminates cascading effect of tax. Consumer gets the end-product at cheaper rates.

  • Taxpayers will have a common portal (GSTN).

  • Helps build a transparent tax administration.

  • Uniformity in SGST and IGST rates reduces tax evasion to a large extent.

  • Buying input goods and services for production from other states becomes cheaper.

  • Boost to the economy in the long run. Increased supply and demand of goods and services.

What are the features of the GST Bill?

The GST Bill is officially referred to as The Constitution (One Hundred Twenty Second Amendment) Act, 2016.

Some of the noteworthy points concerning the GST bill are as under:

  • GST is a uniform indirect tax, levied on goods and services produced in and imported into a country. India has four GST rate structure - 5%, 12%, 18% and 28%.

  • State Tax GST has replaced taxes on advertisements, entertainment & amusement tax and luxury tax, to name a few.

  • Central Taxes GST has replaced central excise duty, service tax and additional duties of excise (goods of special importance), to name a few.

  • One of the primary objectives is to eliminate the cascading effects of tax.

What are the rates of GST for banking and financial services?

The GST rate, which has been notified by the government for banking and financial services, is 18%.

Which taxes are replaced by GST?

The following taxes are replaced by GST:

  • Central Excise Duty

  • Additional Excise Duty

  • Service Tax

  • Additional Customs Duty (commonly known as Countervailing Duty)

  • Special Additional Duty of Customs

  • State Value Added Tax/Sales Tax

  • Entertainment Tax

  • Central Sales Tax (imposed by the Centre and collected by the State)

  • Octroi and Entry tax

  • Purchase Tax

  • Luxury Tax

  • Taxes on lottery, betting and gambling

What is an e-way bill?

An e-Way Bill is an electronic document/bill generated for transporting goods worth Rs. 50,000 or more (single Invoice/bill/delivery challan) in a vehicle. A registered person cannot transport of goods whose value is more than Rs. 50,000 in a vehicle unless he or she has an e-Way bill. This rule has been mandated under the current GST regime and came into effect on April 1, 2018.

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