Table of contents:

• What is GST Act of 2017?
• Key Features of the GST Act 2017
• Breakdown of GST Act 2017: Chapters, Schedules and Rules
• Compliance and Filing Requirements for GST Acts 2017
• Impact of GST Acts 2017 on Different Sectors
• Challenges and Criticisms of GST Act 2017
• Conclusion

What is GST Act of 2017?

The Goods and Services Tax Act (GST Act) of 2017, officially known as the Central Goods and Services Tax Act, 2017, represents one of the most significant tax reforms in India since its independence. This act, along with other related legislation, introduced a unified, multi-stage tax structure aiming to simplify the country’s complex taxation system by replacing various central and state taxes with a single tax on the supply of goods and services.

Historical Context:

• Pre-GST Tax Structure in India: India’s tax system was fragmented, with multiple central and state-level taxes leading to inefficiencies.
• Need for Tax Reform and Economic Liberalization (1990s): Economic liberalization highlighted the need for a unified tax system to boost competitiveness.
• Introduction of VAT and Preparations for GST (2000s): VAT’s introduction was a step toward simplifying taxes but underscored the need for GST.
• Policy Formation and Consensus Building (2010-2014): Achieving consensus among states was crucial for moving GST forward, leading to policy groundwork.
• The 2014 Push and Political Challenges: GST gained momentum in 2014, but political negotiations were essential to ensure state cooperation.
• Passing the GST Act and Nationwide Rollout (2017): The GST Act was passed, and GST was launched on July 1, 2017, transforming India’s tax landscape.
• Post-Implementation Adjustments: Continuous adjustments were made to address challenges and improve compliance for taxpayers.
• Significance of GST in India’s Economic History: GST unified India’s market, reduced tax burdens, and represented a major economic reform.

Objectives of the GST Act 2017

GST’s objectives include creating a unified tax regime, reducing the cascading tax effect, and making it easier for businesses to comply.

Key Features of the GST Act 2017

1. Unification of Taxes: GST combines several indirect taxes, such as central excise duty, service tax, VAT, and others, into a single tax. It eliminates the cascading effect of taxes, where taxes are levied on top of other taxes.
2. Multi-Tiered Structure: The GST system is divided into:
   • Central GST (CGST): Collected by the central government on intra-state sales.
   • State GST (SGST): Collected by state governments on intra-state sales.
   • Integrated GST (IGST): Collected by the central government on inter-state sales.
3. Input Tax Credit (ITC): The GST allows businesses to claim credit for taxes paid on inputs, which helps in reducing the overall tax liability and cost of goods.
4. Standardization of Tax Rates: The GST Council established four primary tax rates: 5%, 12%, 18%, and 28%, depending on the type of goods or services. Essential goods and services generally attract lower rates, while luxury items are taxed at higher rates.
5. GST Network (GSTN): The GST Act created the GST Network, a digital platform for registering taxpayers, filing returns, and managing tax credits. This online system enhances transparency and reduces compliance costs.
6. Reverse Charge Mechanism (RCM): Under certain conditions, the GST Act mandates that the recipient of goods or services must pay the tax instead of the supplier. This mechanism is particularly applicable to transactions involving unregistered suppliers.
7. Compliance and Filing: GST mandates regular tax filings, including monthly, quarterly, and annual returns, for businesses and individuals registered under GST. Non-compliance attracts penalties and interest charges.

Breakdown of GST Act 2017: Chapters, Schedules and Rules

Central Goods and Services Tax (CGST) Act, 2017

1. Chapters: The CGST Act is divided into multiple chapters, each covering a specific area:
   • Chapter I: Preliminary (definitions and scope)
   • Chapter II: Administration (authorities and officers of GST)
   • Chapter III: Levy and Collection of Tax
   • Chapter IV: Time and Value of Supply
   • Chapter V: Input Tax Credit
   • Chapter VI: Registration under GST
   • Chapter VII: Tax Invoice, Credit, and Debit Notes
   • Chapter VIII: Accounts and Records
   • Chapter IX: Returns
   • Chapter X: Payment of Tax
   • Chapter XI: Refunds
   • Chapter XII: Assessment
   • Chapter XIII: Audit
   • Chapter XIV: Inspection, Search, Seizure, and Arrest
   • Chapter XV: Demands and Recovery
   • Chapter XVI: Appeals and Revisions
   • Chapter XVII: Advance Ruling
   • Chapter XVIII: Offenses and Penalties
   • Chapter XIX: Transitional Provisions
   • Chapter XX: Miscellaneous Provisions
2. Schedules: The CGST Act includes five schedules that clarify the scope of supply, activities exempted from GST, and specific taxation circumstances.
   • Schedule I: Activities considered supply even without consideration.
   • Schedule II: Activities deemed to be supply of goods or services.
   • Schedule III: Transactions not considered supply.
   • Schedule IV: Activities with specific provisions.
   • Schedule V: Persons required to obtain compulsory registration.
3. Rules: Detailed rules have been formulated under the CGST Act for specific sections, such as registration rules, return filing rules, and invoice rules.

State Goods and Services Tax (SGST) Act, 2017

1. Chapters and Sections: The SGST Act largely mirrors the CGST Act in its structure, with similar chapters and sections. Each state has its own SGST Act, though the sections are nearly identical to those in the CGST Act.
2. Schedules: The schedules under SGST are the same as those under the CGST Act, ensuring consistency across states.
3. Rules: States may adopt rules in alignment with the CGST rules, though some minor variations might exist to accommodate state-specific requirements.

Integrated Goods and Services Tax (IGST) Act, 2017

1. Chapters: The IGST Act is organized into chapters focused on regulating interstate transactions:
   • Chapter I: Preliminary
   • Chapter II: Administration
   • Chapter III: Levy and Collection of Tax
   • Chapter IV: Determination of Nature of Supply
   • Chapter V: Place of Supply of Goods and/or Services (crucial for determining applicable tax jurisdiction)
   • Chapter VI: Input Tax Credit
   • Chapter VII: Apportionment of Tax and Settlement of Funds
   • Chapter VIII: Miscellaneous Provisions
2. Rules: Although IGST-specific rules are fewer than in CGST, rules for interstate transactions, e-commerce, and cross-border supply are defined to complement the Act.

Union Territory Goods and Services Tax (UTGST) Act, 2017

• Chapters and Sections: The UTGST Act is structured similarly to the SGST Act but is specific to Union Territories without a legislative assembly.
• Chapters include:
  • Preliminary (definitions and scope for Union Territories)
  • Levy and Collection of Tax
  • Input Tax Credit
  • Registration
  • Tax Invoice and Returns
  • Accounts and Records
• Schedules: The schedules in the UTGST Act align with those in the CGST Act, ensuring consistency in activities and transactions across different jurisdictions.
• Rules: The rules under UTGST align closely with the CGST and SGST rules, providing consistency across Union Territories.

Compliance and Filing Requirements for GST Acts 2017

The GST Act 2017 requires businesses to comply with a structured filing system:

1. GST Registration: Required for businesses above turnover thresholds, with specific rules for multi-state operations.
2. Invoicing and Record-Keeping: Standardized invoice format and e-invoicing for large businesses; records must be retained for six years.
3. Return Filing: Monthly (GSTR-3B), quarterly, and annual (GSTR-9) filings with penalties for late submissions.
4. Input Tax Credit (ITC): ITC can be claimed only on matching supplier data; reconciliation is key.
5. Reverse Charge Mechanism: Some transactions require the buyer to pay GST directly to the government.
6. E-Way Bills: Required for transporting goods over ₹50,000, with penalties for non-compliance.
7. Audits: Mandatory for businesses with turnover over ₹5 crore; requires filing GSTR-9C.
8. Penalties for Non-Compliance: Late fees, ITC denial, and penalties for fraudulent activities.
9. GST Network (GSTN): Central platform for filings, tax payments, and compliance tracking, making the process more efficient and transparent.

Impact of GST Acts 2017 on Different Sectors

The GST Act of 2017 has significantly reshaped India’s economic sectors, introducing a unified tax structure that has both streamlined processes and presented new challenges. Here’s an overview of its impact across key sectors:

• Manufacturing: Reduced costs with input tax credits; improved competitiveness but faced initial compliance challenges.
• Retail & E-Commerce: Simplified inter-state operations; increased transparency with tax collected at source (TCS) for e-commerce; compliance burdens for small retailers.
• Logistics & Supply Chain: Faster goods movement with removed state-border checks; reduced warehousing costs; compliance with e-way bills essential.
• Real Estate & Construction: Simplified tax structure for under-construction properties; increased transparency; initial compliance issues.
• Services Sector: Unified tax rate benefiting multi-state service providers; helped telecom and IT sectors but posed new compliance requirements.
• Agriculture: Lowered logistics costs and tax on farm equipment; improved market reach; compliance remains challenging for small traders.

Also read our blog on: GST Registration Charges and Fees

Challenges and Criticisms of GST Act 2017

The GST Act of 2017, while transforming India’s tax landscape, has faced several challenges and criticisms:

• Complex Compliance Requirements: Despite intentions to simplify, GST introduced multiple returns (GSTR-1, GSTR-3B, etc.), extensive record-keeping, and frequent deadlines, posing challenges, especially for small businesses with limited resources.
• High Compliance Costs for Small Businesses: Smaller businesses, particularly in rural areas, have struggled with the need for digital filing and e-way bills. The cost and complexity of compliance have been burdensome for these enterprises.
• Evolving Rules and Frequent Changes: GST laws have seen numerous amendments, rate changes, and clarifications, which create uncertainty and disrupt business planning. These frequent updates have required businesses to constantly adjust and adapt.
• Cash Flow Issues Due to Delayed Refunds: Many businesses, particularly exporters, have experienced delays in GST refunds, impacting cash flow and operational capital. This delay has been a significant pain point for businesses relying on prompt refunds.
• Reverse Charge Mechanism (RCM) Confusion: RCM’s complexity, requiring buyers to pay tax on behalf of unregistered suppliers, led to confusion and operational difficulties, particularly in sectors dealing with numerous unregistered vendors.
• Concerns Over Tax Rates and Classification: The multiple GST rates (0%, 5%, 12%, 18%, 28%) and the classification of goods and services into these slabs have been criticized for creating complexity, sometimes leading to disputes over categorization.
• Impact on Working Capital: With GST being paid at each stage of production or service delivery, some businesses, particularly in manufacturing, face a higher working capital requirement, which can impact cash flow and financial flexibility.
• State Revenue Loss Concerns: Several states have expressed concerns over revenue losses under GST, as the previous state-specific taxes allowed greater control over local revenues.

Conclusion

The GST Act of 2017 marks a pivotal shift in India’s taxation, replacing a complex, multi-tax system with a unified structure that streamlines compliance, provides GST exemptions in specific cases, and reduces the tax burden on businesses. By consolidating various state and central taxes, the GST Act has simplified tax administration, improved transparency, and fostered a more integrated national market.

However, challenges like compliance complexities, evolving regulations, and cash flow issues have impacted small businesses and specific sectors. Despite these hurdles, the GST framework represents a significant reform aimed at boosting economic efficiency and facilitating ease of doing business in India. As the system continues to evolve, it promises further alignment with industry needs and a positive trajectory for India’s economic growth.

Author: Anirban Sinha

A product manager with a writer’s heart, Anirban leverages his 6 years of experience to empower MSMEs in the business and technology sectors. His time at Tata nexarc honed his skills in crafting informative content tailored to MSME needs. Whether wielding words for business or developing innovative products for both Tata Nexarc and MSMEs, his passion for clear communication and a deep understanding of their challenges shine through.