Whether you are a business owner or a consumer having a meal at a restaurant, it is likely you have paid the Goods and Services Tax during transactions. Let’s take a look at GST – what it means, why it was introduced, how it has benefited businesses and the government and more.

You can always learn more about the GST regime, its rules and laws, by visiting the official GST portal: //www.gst.gov.in

What is GST? Meaning and Objectives

Let’s begin by GST definition. GST full form is Goods and Services Tax. It is a comprehensive, nationwide tax, that has replaced multiple indirect taxes with one unified tax system. It is a multi-stage and destination-based tax, levied on the sale/purchase of goods and services in India.

GST was implemented on July 1, 2017, to streamline the taxation process and remove the burdens of tax complexities and cascading taxes. Under the GST framework, taxes are collected on the value it adds, thereby eliminating the need to pay multiple taxes at different touchpoints.

All businesses (i.e., manufacturers, service providers, and traders) that meet the minimum annual GST turnover threshold limit must register for GST.

The implementation and administration of GST in India is governed by the GST Council acting as the apex, constitutional body overseeing all matters related to the Goods and Services Tax in India.

What are the taxes replaced by GST?

The Goods and Services Tax was introduced as the replacement for numerous indirect taxes that increased tax burdens on taxpayers and added to administrative complexities. Today, the GST regime promotes an integrated tax payments system with multiple indirect taxes in GST.

Some of the indirect taxes subsumed by GST are:

• Value Added Tax (VAT)
• Central Sales Tax
• Service Tax
• Octroi
• Central Excise Duty
• Additional Excise Duty
• Special Additional Duty of Customs
• Luxury Tax
• Entertainment Tax
• Taxes on Lottery, Betting and Gambling
• Purchase Tax

It should be remembered that GST has replaced certain indirect taxes and not all of them. Indirect taxes, such as basic Customs Duty is still levied on goods imported into the country.

Timeline:

Post GST implementation, new elements introduced in GST to streamline the challenges like TDS provisions, e-way bill system, GSTR-8, GST for e-commerce service providers, reverse charge mechanism and many more.

What are the different types of GST in India?

A look at GST full form explains how it is applicable to all goods and services nation-wide. It requires a systematic process of tax collection to be in place, so that there is appropriate distribution of revenue across the Centre and States/Union Territories.

There are four types of GST under the current regime, each catering to a specific transaction type. It further removes ambiguity and the burden of multiple taxes.

The types of GST in India are:

• Central GST (CGST): Levied by the central government on intra-state transactions and supply of goods and services.
• State GST (SGST): Collected by the State government on intra-state transactions and supply of goods and services within the state. E.g., from Coimbatore to Chennai, that is, within the state of Tamil Nadu
• Union Territory GST (UTGST): Similar to SGST, but for Union Territories without own legislature e.g., from Chandigarh to Chandigarh.
• Integrated GST (IGST): For inter-state sales and supply of goods and services, between two or more states and/or Union Territories. Revenue is collected by the centre and later shared with the consuming state. E.g., from Mumbai to Patna, that is from the state of Maharashtra to Bihar

How is GST calculated?

In the previous section, we had a look at the different GST types prevalent in India. Based on the types and the applicable GST rates, let’s understand how GST is calculated in its basic form. We’ll use the standard GST calculation formula for the same.

What are the different GST tax slabs?

GST is designed as a progressive tax collection system. That is, not all goods and services are taxed equally. While some goods and services are exempt from GST, there are goods that are taxed nominally (e.g., essential goods) and others that levy premium charges (e.g., luxury goods).

For calculating GST, as a business owner and taxpayer, it is crucial that you understand the different GST rate structures and use the correct slab for calculations.

Note: Petroleum and fuel products do not fall under any GST slab. This is not a comprehensive list.

How to register for GST?

Now that you have an overview of the GST system in India, let’s take a look at its registration process, eligibility, fees, and other components.

GST registration eligibility: All businesses (manufacturing and services sector) with an annual turnover of over ₹40 lakhs (for goods) and ₹20 lakhs (for services) must register for GST. (Note: The figure for NE and hilly states are reduced to ₹20 lakhs for goods and ₹10 lakhs for services).

GST registration fees: All eligible businesses can visit the official GST portal (//www.gst.gov.in/) and register their business. There are no GST registration charges and businesses can register at zero-cost.

GST registration process: The GST registration procedure is straightforward and can be completed on the GST portal. There are two levels to GST registration:

• Part A: Profile creation
• Part B: Business detail update across all 10 fields

It is a time-consuming process and hence recommended that you have all the required GST registration documents with you before commencing the process. Some of the basic documents includes: PAN and Aadhaar card, photographs, business address details (e.g., utility bills), bank account details (e.g., bank statements), business incorporation certificate, partnership deed, Digital Signature Certificate, Authorised Signatory details, etc.

Note: Documents required is determined by the type of business – sole proprietorship, LLP, partnership, company, societies, etc.

Once the registration process is complete, you can download the GST Registration certificate (Form GST REG-06) which comes with your unique 15-digit GSTIN number.

Compare VAT and GST

VAT (Value Added Tax) and GST are two separate entities even though they have similar functions. Let’s have a look at the differences:

How to file GST returns?

As a GST registered business, you must file GST returns based on your annual turnover and the scheme opted for (e.g., GST Composition Scheme, GST Amnesty Scheme, etc.). Timely filing of GST returns will enable your business to stay GST compliant and avoid paying an penalties or late fees, or even cancellation of registration.

There are different GST return types and forms under the regime. As a taxpayer, it’s vital that you understand the role and components of each of these forms and file the ones relevant to you.

GST return forms: Purpose and function

Listed below are some of the important GSTR forms and their purposes.

• GSTR-1: Filed to report sales or outward supply of goods and services on a monthly or quarterly basis
• GSTR-2A and GSTR-2B: Auto-populated from seller’s GSTR-1 filing, GSTR-2A is a read-only document for buyers (dynamic view) allowing them to view all inward supply of goods; GSTR-2B on the other hand is a static document required for reconciling ITC claims and any action required on invoices (Also read: Difference between GSTR-2A and GSTR-2B)
• GSTR-3B: A self-declared summary statement (monthly/quarterly) including details of sales, purchases, ITC claimed, liabilities, etc.
• GSTR-4: Applicable to taxpayers who have opted for the Composition Scheme, filed annually
• GSTR-5: Applicable to non-resident taxpayers, with details on all supplies made and received, filed monthly
• GSTR-6: Monthly statement for Input Service Distributors under GST, with specific details on ITC
• GSTR-7: Filed monthly by entities who deduct TDS under GST on payments to suppliers
• GSTR-8: For eCommerce operators registered under GST, who must collect tax at source (TCS)
• GSTR-9 and GSTR-9C: Annual return statement that consolidates data based on monthly and quarterly returns of outwards and inwards supply of goods and services; GSTR-9C is a reconciliation statement especially for businesses with over ₹5 crores in annual turnover and must submit an audited return
• GSTR-10: Final return if GST registration has been cancelled or suspended

As can be understood, these forms have been designed to enable transparency in transactions and efficient administration of the GST regime.

How has GST benefited businesses?

The benefits of the GST regime are manifold. From streamlining tax collection to increasing the tax base (e.g., GST e-Invoicing for businesses with ₹5+ crore turnover), to curbing tax evasion (e.g., bringing GST under PMLA Act), there are several ways GST has transformed how business’s transact today.  Here’s a snapshot of the main advantages of GST in India.

Goods and Services Tax in India

It’s obvious from the meaning of what is GST, that it has brought change in the taxation system. Here we discuss a simple example to understand how GST works and has enabled to transform the system of indirect taxation in India.

• Company A buys steel bars from a supplier for manufacturing
• GST on steel bars is 18% which will be levied on the goods value during the sale (input)
• When Company A sells the manufactured goods to its buyers, it will charge 18% GST again during sales (output)
• With GST, this cascading effect of paying taxes at different times can be offset (i.e., via ITC claims, by offsetting taxes paid during purchase with those during sales)
• While return filing, both buyer and seller must list these transactions in the respective GSTR forms, the benefits of which can be utilised by all
• If the tax authorities find discrepancies, they can issue GST demand notices or show cause notices, while the taxpayer can apply for GST appeal, thereby ensuring that there is fairness and transparency

This guide on GST meaning will help you understand the basics of the GST system in India.

What are the new compliances under GST?

Key new GST compliances include:

• E-invoicing extension: Mandatory for businesses with turnover exceeding ₹5 crore from April 1, 2024.
• TCS on OIDAR Services: Tax Collected at Source (TCS) applicable on OIDAR (Online Information and Database Access or Retrieval) services from October 1, 2023.
• Revised GST Return Filing Timelines: Several changes in due dates for filing GSTR-1, GSTR-3B, and GSTR-8.
• Amnesty Schemes: For late filers of GSTR-4, GSTR-9, GSTR-10, etc.

*This article is for information purpose only. For more details, please visit the official GST portal and other government sites or consult with a GST practitioner/CA or any other for relevant professional advice.

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