GST stands for Goods and Services Tax. It is an indirect tax system that came into existence on July 1st, 2017, following the enactment of the GST Act by the Indian Parliament. The act came by replacing most of the indirect taxes in the country and is one of the most comprehensive tax reforms after independence. This article will introduce the concept of GST, its objectives, components, and different types of GST in India.
What is GST?
Goods and services tax came into force in India by replacing many indirect taxes that prevailed before. It is a value-added tax levied on goods and services that are supplied in the country for domestic consumption. This tax came into existence by replacing various indirect taxes like VAT, entertainment tax, and services tax.
The GST law, thus, introduced a single indirect tax law that applies to the entire country. Are you wondering what the meaning of indirect tax is? It is a type of tax that is passed on to another individual or entity. Consider the example of sales tax. Sales tax is usually levied on the supplier or manufacturer. As a consumer, are you not paying sales tax? So, how can you say it is imposed on the supplier?
You, as a consumer, are not directly paying the tax amount to the government. On the other hand, it is the manufacturer or supplier who directly pays the tax to the government. But they transfer the burden of the tax to the consumer.
Hence, GST is an indirect tax.
According to the GST Act, every company with a revenue of twenty lakhs or more should register and abide by the GST rules. Different Types of GST in India are destination-based taxes where taxes are paid at each stage from production to purchase. However, only the final consumer is required to pay tax.
The consumer pays the GST to the seller. However, it is remitted to the government by businesses that sell goods and services.
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Objectives of GST
Different types of GST in India are an attempt to simplify the tax system in the country by removing the need to pay taxes at each stage of business. Hence, the main objectives behind the introduction of GST are to bring the whole country under a single tax regime and to remove different layers of taxation.
It also aims to make the free flow of goods and services throughout the country by diminishing the state-specific tax regimes.
The reduction of the price of goods and services by eliminating cascading effects is another objective of GST. Before the introduction of GST, the final consumers had to pay ‘tax on tax’ where they needed to take the burden of multiple layers of taxes to receive goods and services.
GST also aims to increase the compliance of businesses with the GST Act mandatory, the eventual aim of which is to increase government revenue.
The simplification of the tax system by the introduction of different types of GST also aims to bring about ease of doing business. It will make the logistical and compliance requirements of the companies that operate across various states.
Taxes that are Replaced by Different Types of GST
Different types of GST were introduced in India by replacing various other taxes that prevailed before. Let us see the list of some important taxes that are subsumed under GST. It is not an exhaustive list.
- Value Added Tax
- Entertainment Tax
- Tax on Lottery
- Octroi
- Luxury Tax
- Service Tax
- Purchase Tax
- Central Excise Duty
- Additional Excise Duty
Types of GST in India
On the basis of the jurisdiction of the transaction and the level of government responsible for tax revenue, GST in India is classified as SGST, CGST, and IGST. Let us discuss the specifications of different types of GST in India in detail.
Various types of GST are levied in India on the basis of transactions. Some goods and services are produced and sold within the same state. On the other hand, certain products or services originate in a state, and the final consumer will be in a different state.
Integrated Goods and Services Tax (IGST)
IGST is levied on interstate transactions or between states and union territories. It is collected by the central government but shared between the central government and the destination state.
For example, suppose a supplier from Karnataka supplies gold from Karnataka to West Bengal. Here, the GST received is distributed among the central government and the West Bengal government.
State Goods and Services Tax (SGST)
SGST is levied and collected by the state government on the supply of goods and services inside a state. Let us see an example of an intrastate transaction.
Suppose the same supplier in Karnataka sells gold from Bangalore to Mangalore. Here SGST is levied and collected by the state government at the destination, in this case, Mangalore.
Central Goods and Services Tax (CGST)
CGST is the tax levied by the central government on the intrastate supply of goods and services. It applies when both buyer and seller are located within the same state. The revenue from the CGST goes to the central government.
Union Territory Goods and Services Act (UTGST)
UTGST is a type of GST in India levied by union territories for the supply of goods and services within the union territory. Respective union territory governments collect the UTGST.
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Limitations of GST
GST has been successfully implemented across the country for the past seven years. The government brought various changes as and when a new challenge arose. However, GST in India faces some challenges and poses limitations to the people. Let us list some of the limitations of different types of GST in India in detail.
Small Business
Most of the small businesses, especially if they are located rurally, are not familiar with the online services. They find it complicated to do and require a lot of effort to keep up with the GST rules.
Increase in the Cost of Services
As the tax for services has gone up, eating out or watching movies cost more than before. Even services that are considered essential have become expensive with the added service tax(GST)
Technical Challenges
GST services are mostly accessed and updated using the internet. It requires good computer skills and an internet connection. Businesses that are located in places with less internet connectivity or run by people without computer knowledge struggle to follow GST rules and mandates.
Problem with Services Across States
The supply of goods, moving products from one state to another state has become easier with the introduction of different types of GST in India. However, in the case of services across states, the confusion remains.
Who Should Pay GST in India?
You are now familiar with different types of GST in India who collects those taxes, and who uses the revenue earned. Now let us move on to who all are paying GST in India.
Do you pay GST in India?
Let us list the participants of the goods and services market who pay GST in India.
- Manufacturers or producers of goods are required to pay GST on the sale of their products.
- Individuals or businesses providing services need to pay GST on the service rendered.
- Retailers and other traders collect GST from the end consumer and pay it to the government.
- E-commerce platforms need to collect and remit GST from the consumers on behalf of the sellers.
- Individuals or businesses with a prescribed turnover and above need to register with GST and pay tax on the supply of goods and services by them.
- Consumers indirectly pay GST when they purchase goods or services. The GST amount is included in the price of the product or service they buy.
Goods Exempted From GST
The four types of GST mentioned above came into effect in the recent past. Therefore, it was difficult to include all taxes and products within the purview of GST. So, there still exist some indirect taxes apart from GST, and there are products for which the state government was given the opportunity to levy taxes. The list of products exempted from GST is extensive. Let us see some of them below.
- Basic or Essential Products: Items such as fresh fruits and vegetables, unprocessed grains, milk, eggs, and bread are exempt from GST.
- Healthcare Services: Healthcare services provided by hospitals, clinics, and medical practitioners are exempt from GST.
- Education Services: Services provided by educational institutions, including school fees, are exempt from GST.
- Public Transportation: Services provided by public transportation agencies like buses and metro rail are exempt from GST.
- Books and Newspapers: Printed books, newspapers, and journals are exempt from GST.
- Postal Services: Services provided by India Post are exempt from GST.
- Agricultural Products: Various agrarian products such as fresh fruits and vegetables, cereals, and pulses are exempt from GST.
- Contraceptives: Contraceptives, including condoms, are exempt from GST.
- Handloom Products: Handloom products, including fabrics and carpets, are exempt from GST.
- Services Provided by Charitable Organizations: Services provided by charitable organizations for religious, cultural, or social welfare purposes are exempt from GST.
FAQs About Types of GST in India
What are the types of GSTs in India?
Central GST, State GST, Integrated GST, and Union Territory GST are the various types of GST that exist in India at present.
List the primary GST slabs in India and their rates.
Primarily, there are five GST slabs in India. The rates are 0%, 5%, 12%, 18%, and 28% respectively.
How to do GST registration in India?
Visit the GST website: https://www.gst.gov.in/
Follow the instructions to register for GST in India.
What is the GSTIN?
GST number, also known as GSTIN (Goods and Services Tax Identification Number), is a unique identification number assigned to businesses registered under the Goods and Services Tax (GST) regime in India. It serves as a means of identifying taxpayers and is used for various GST-related transactions and compliance activities.
What are the components of the GST Identification number?
GSTI number is a 15-digit number. The number represents the state of the business as well as the PAN of the taxpayer.
