An Overview of the GST Regime and India’s Taxation System

Taxation is one of the most important functions of a country. They are the main sources of income for the government, which it uses to manage the overall operation and growth of the nation. The Central Government implemented the GST regime as a new tax system in 2017. The government imposes the Goods and Services Tax, or GST, on the supply of all goods and services covered by the GST regime. Let’s immediately dive into the complex terms related to the GST Full Form and the Indian tax system to learn more about the GST system.

What is GST?

GST, or good and services tax, is its full name. The Central Government levies a consumption-based tax known as the Goods and Services Tax. It is assessed on the supply of all goods and services that are taxable in India under the GST system. The nation’s operations and administration are managed by the Central Government with the help of this money. GST is a tax that will be paid by each consumer who adds value to the supply chain.

Taxation System of India

The Tax Rule of India is divided into two sections: direct taxes and indirect taxes. These taxes are listed below:

Direct Taxes

The assessee’s income from a variety of sources is subjected to these taxes directly. Anyone who must pay taxes to the government under the tax system is considered an assessee. He could be any person, group, business, HUF, or other entity. Based on his income, the assessee pays these taxes directly to the government. Examples of direct taxes include income tax, wealth tax, and estate tax.

Indirect Taxes

These taxes are imposed on the buyer’s purchases of goods and services in an indirect manner because the buyer pays the tax to the sellers, who then pay the government with the money they have collected. These taxes are indirect because they are being paid to the government through the buyers. There are numerous indirect taxes, such as central excise duty, additional custom duty, entertainment tax, VAT, service tax, and others.

India’s Tax System Before the GST Regime

Prior to the introduction of GST,  there were several state and central taxes and the tax system was based on production, which caused a great deal of confusion. Because the taxes levied differed across the country, the tax system was difficult to understand. As a result of tax changes, corruption increased and consumers experienced serious difficulties. Before the introduction of the GST, there were a number of indirect taxes, including excise, VAT, service, and entertainment taxes.

History of GST

In order to improve India’s tax system, the prime minister at the time, Shri Atal Bihari Vajpayee, formed a committee and it recommended the implementation of this tax regime. GST was first proposed by the union ministry in 2006, but it wasn’t officially announced until 2011 due to some changes. The GST law was passed by the Central Government on March 29, 2017 and came into effect in July of that year.

Tax System of India After the GST Regime

Numerous indirect taxes were eliminated after the Goods and Services Tax system was put into place, leaving only the GST system in place. In order to reduce the administrative burden of taxes, GST has replaced 17 of the levied taxes by state and central governments. The tax system changed into a consumer-based tax system after the GST era, which favored greater tax system simplification.

Why was GST implemented?

The introduction of GST aimed to streamline the tax system while reducing the number of taxes levied by the central and state governments. One Nation, One Tax was the overarching idea that guided the implementation of the GST regime. The introduction of GST succeeded in bringing consistency to the tax system, which was essential. It is now simpler for consumers to understand taxes because every state has a fixed and consistent tax structure. The public was benefited by the GST system because it decreased the likelihood of corruption. The elimination of the tax-related cascading effects is the main objective of implementing the GST system.

Cascading Effect of Taxes 

When a tax is imposed on a product at each stage of the sale, this results in a cascading effect. As a result, tax is repeatedly paid. The tax is assessed on a value that includes the tax paid by the prior buyer, resulting in the final consumer paying “tax on already paid tax.” The government introduced the GST as a single tax that the entire country would pay in order to avoid this repetitive tax payment.

Components of GST

There are four parts or types of GST, according to the GST regime:-

CGST

The full form of CGST is Central Goods and Services Tax. It is a tax levied by the central government on the supply of goods and services within the state.

SGST

SGST stands for State Goods and Services Tax. It is a tax levied by the state government on the supply of goods and services within the state.

IGST

IGST stands for Integrated Goods and Services Tax.  It is the tax that the central government levies on the supply of goods and services across state lines. All taxes are collected by the central government in the form of IGST, which is then distributed to the various states. Additionally, it is levied on imported goods.

UTGST

UTGST stands for Union Territory Goods and Services Tax. This tax is levied by the government on the supply of goods and services in the country’s Union Territories.  Union territories include Andaman and Nicobar Islands, Lakshadweep, and Chandigarh, among others. Along with this tax, the CGST is levied.

Slabs of GST

Many people are unfamiliar with the GST and its tax slabs. There are five tax brackets for GST: 0%, 5%, 12%, 18%, and 28%. While all luxury items are taxed at higher rates, all necessities are taxed at lower rates. The GST Council has divided more than 500 services and nearly 1300 goods into four main tax brackets.

The GST Council

Although you may be familiar with the full form of the GST, you should also be aware of the organization responsible for its regulation. The body that oversees GST is called the GST Council, and it has 33 members.

• Finance Minister of the Union (as chairperson)
• The Union State Minister in charge of revenue or finance and the State Minister in charge of finance or taxation are the other members, along with other ministers chosen by the governments of each state.

Benefits of GST

• GST has brought uniformity and simplification to the tax collection process by requiring consumers to pay only one tax, eliminating the cascading effects of taxes.
• The elimination of the requirement to pay taxes on a regular basis has resulted in lower prices for goods and services. 
• According to the Indian government, service providers and business owners with a turnover of Rs. 20 lakhs or less are exempt from paying GST, which is a significant benefit to such businesses.  
• GST prohibited the practice of selling without providing customers with receipts, thereby eliminating corruption.
• Tax filing has become much simpler as GST registration and GST returns can now be completed entirely online.
• The implementation of GST benefits small businesses because they only have to pay one tax. Similarly, GST has enabled people to save a significant amount of money by eliminating the cascading effect of taxes.
• By participating in composition schemes and paying only 1% of the turnover amount, all businesses with a turnover of up to INR 75 lakhs can benefit from GST.
• The country’s unorganized sectors have improved in terms of accountability and transparency since the implementation of the GST. As a result of the implementation of GST, many compliances and provinces pertaining to online payments have been added to the unorganized sectors.

GST Registration

Every company with a yearly revenue of more than Rs. 40 lakhs is required to register with the GST administration. Conducting a business without first registering for GST is a violation of GST law. Furthermore, each GST taxpayer is assigned a unique identification number known as a GSTIN (Goods and Services Tax Identification Number) during the registration process.

Using the online GST portal, one can register for GST online. As it is essential to fill out the correct information, you can use the experts to complete your form. GST registration has many advantages, including legal recognition, lower tax rates, exemptions from double taxation, the ability to use e-way bills, and protection from paying fines.

GST Returns

An official record of all purchases, sales, taxes paid on purchases, and taxes collected on sales is known as a GST return. After submitting the GST Return, the taxpayer must make the necessary tax payments.

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