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GST is a comprehensive, multi-stage taxation system applicable to the sale of goods and services. Its primary aim is to restrain the cascading pattern of other indirect taxes in India. GST full form is Goods and Services Tax, which replaced several indirect taxes like VAT, service tax, excise duty, etc. in 2017. Serving as a single indirect tax law in India, its primary advantages include a uniform taxation structure, streamlined process, online processing, and transparent taxation.
GST registration is mandatory for any business with a turnover of over ₹ 40 Lakh in a financial year. Manufacturers pay GST on raw materials purchase and value addition. Service providers pay it on both the purchase of products and the value earned. Retailers pay GST on their purchased products and added margins, and consumers pay it on their purchased products or services. The GST regime levies taxes at every point of sale. Now, let’s understand what is GST, and the meaning and types of GST return in detail.
The GST is a comprehensive indirect tax that would be levied on the sale, manufacture and consumption of goods and services on the national level. When implemented, the GST would replace all other indirect taxes such as the VAT, Service Tax, etc. on goods and services.
Once this tax is rolled out, the different taxes and levies imposed on all goods and services at the Centre and state level will be subsumed within a single tax. This single tax will have only two components - a central GST and a state GST. Under this system, the tax will be levied only on the value addition that happens at every stage, while the manufacturer or seller of the goods will be able to offset the taxes he incurs at every stage against the central or state GST which he has already paid to procure his material.
This effectively means that the final consumer will bear only the GST that was charged by the last dealer in the supply chain.
Also Read: Take Advantage of Lesser Known Income Tax DeductionsThe implementation of the Goods and Services Tax (GST) in India was a significant milestone in the country's taxation and economic reforms. Initially planned for April 2010, the implementation faced delays due to stakeholder differences and political issues. Finally, on 1 July 2017, after nearly a decade of intense debate, GST became a reality. GST aimed to consolidate various indirect taxes, such as Central Excise Tax, Service Tax, and VAT/Sales Tax, into a single comprehensive tax system. This destination-based, multi-stage tax brought efficiency to businesses by simplifying distribution systems and streamlining indirect taxes.
Also Read: GST And It's Various Facets
The Goods and Services Tax (GST) in India aims to establish a unified and simplified tax system. By replacing multiple indirect taxes imposed by the central and state governments with a single comprehensive tax, GST intends to streamline taxation, reduce complexities, enhance transparency, and promote ease of doing business in the country. The objective is to create a harmonized and efficient tax regime that benefits businesses and taxpayers alike. The introduction of GST aims to achieve the following objectives:
GST simplifies the complex indirect tax structure, reduces compliance costs, and enhances tax administration efficiency.
GST creates a common national market, eliminating barriers to inter-state trade and enabling a seamless flow of goods and services.
GST eliminates the cascading effect of taxes by allowing input tax credit, ensuring taxes are not levied on taxes.
GST broadens the tax base by bringing more businesses under the tax net, reducing the scope for tax evasion.
GST establishes a comprehensive and transparent tax system, promoting greater tax compliance among businesses and individuals.
GST reduces the tax burden on businesses, encourages entrepreneurship, and attracts investments, thereby fostering economic growth.
There are four different types of GST, as given below:
In most cases, the tax structure under the new regime will be as follows:
Transaction | New Regime | Old Regime | Revenue Distribution |
---|---|---|---|
Sale within the State | CGST + SGST | VAT + Central Excise/Service tax | Revenue will be shared equally between the Centre and the State |
Sale to another State | IGST | Central Sales Tax + Excise/Service Tax | There will only be one type of tax (central) in case of inter-state sales. The Centre will then share the IGST revenue based on the destination of goods. |
Every business with GST registration must file monthly, quarterly, or annual returns based on the business type. It is a document detailing all the incomes, sales, purchases, and expenses a registered taxpayer files with the tax authorities. They use these details to calculate a taxpayer’s net tax liabilities. Under the Goods and Service Tax regime, a registered taxpayer must file GST returns, broadly including purchases, sales, output GST on sales, and input tax credit on purchases.
Also Read: How Can A Salaried Woman Save Taxes?
According to the GST regime, any regular business with an annual turnover of ₹ 5 Crore or more must file two GST returns each month and once a year. That accounts for 25 GST returns every year. Some special category GST-registered taxpayers must furnish separate returns, including non-resident taxpayers, taxable persons with Composition Scheme, persons with UIN (Unique Identification Number), input service distributors, and people who collect TCS or deduct TDS.
Taxpayers with GST registration must follow these activities to file returns under GST:
Goods and Services Tax (GST) and Generation-Skipping Transfer Tax (GSTT) are two distinct taxes with different purposes. GST is a comprehensive tax system in India that aims to streamline indirect taxes, while GSTT applies to gifts or inheritances given to beneficiaries significantly younger than the giver. GST ensures taxation of assets placed in a trust, with beneficiaries receiving amounts over the tax credit. In contrast, GSTT addresses the transfer of assets across generations, exempting direct children or grandchildren from the "generation skipping" category. These taxes serve distinct objectives within their respective jurisdictions.
There are more than twenty types of GST return filings designed for different types of business corporations. Each return type has its unique schedule and filing due date. However, only eleven of these GSTR types are active. These include the following:
The GSTR 1 division contains details of the outward sales of a business. The last date to fill out the form is the 11th of a month for the preceding month or the 13th of the current month for a quarter.
It denotes the total outward and input tax credit. A business must fill it every month.
Composition vendors fill this form every year by around April 30.
It deals with returns from NRIs doing business with Indian citizens. The returns contain details of all the sold services, amenities, and imports along with other information about the taxpayer. The 20th is the due date for the current month to pay for the previous month.
It pertains to the Input Service distributor and includes all taxpayer-related information along with other supply details from the 1st GSTR category. The last date to file this GSTR is the 13th of the current month.
This type of GST return includes TDS or Tax Deducted at Source. It includes penalty and personal details to be filled in before the 10th of the current month.
It is the return category for E-commerce brands registered under the GST laws. Primary information includes biodata, return details, and information about tax amounts, customers, etc. The last date for filing is the 10th of each month.
All members of the Composition Scheme must fill this GSTR before December 31 every year.
This is another annual GSTR type to be filled before December 31. Individuals working on behalf of E-commerce firms must fill out this form to collect tax money.
This is a special case GST return, as it is the ultimate filing before the GST registration cancellation or suspension. It must disclose all basic data, tax amount, payable and collected liabilities, etc. The business must fill out this form three months before cancellation.
This is the only GSTR that individuals with a UIN or Unique Identification Number must fill. Usually, they are delegates or dignitaries residing in India but working with international bodies. The last date to fill out this form is the 28th of a month.\
Other than these major types of GST returns, there are a few others, like GSTR 3A, that a tax defaulter receives from the authorities. Some auto-drafted GSTR types include GSTR2A, 2B, and 4A, which are self-generated based on incomplete information submitted on the portal. Taxpayers with a turnover of over ₹ 5 crores must fill out new forms like GST ANX1 and GST ANX2.
The GST bill is obviously intended for the long run. However it would definitely be changing what the common man pays for almost everything. The only categories exempted from the GST for now are alcohol and petroleum.
Goods like FMCG items, SUVs, luxury cars, consumer durables, electronic items, and readymade garments will get cheaper. For those of you planning to buy a car for yourself or a two-wheeler, this might be the right time. With the implementation of the GST, prices of automobiles are set to become affordable. A Crisil Research predicts a spike in demand for two-wheelers, especially those in the 100 to 125cc category.
On the other hand, mobile phones, banking services, insurance services, telecom bills, air travel, travelling expenses, hiring of cabs, eating out, broadband services, movies, branded jewelry and all other services are set to get costlier.
However, raw food, ambulance service, cultural activities, pilgrimages and sports activities are all exempted from GST.
Interestingly, this concept of co-operative financial federalism was first discussed by the Kelkar Committee 13 years back. Also, the GST has already been implemented by over 160 countries all over the world in one form or another and has proved to be a success. So let's see why this tax, if implemented correctly, can be a good idea.
The Centre and states will levy the Double GST on a parallel basis. Majorly, it will be divided into CGST (Centre levied), SGST (state levied), and IGST (Integrated GST). IGST is an Interstate tax that will be levied to fuel the supply chain mechanism. This will cut down the compliance scrutiny and will facilitate the seamless movement of goods between states by eliminating unnecessary elements. According to the proposal, the tax percentage will vary form 18-20%, but this has to be discussed and decided mutually. Subsequently, the CGST, SGST and IGST will follow suit.
Once rolled out next year, even if it is in a watered down avatar, the GST is set to merge all sorts of taxes levied. These are the list of taxes which are collected by the Centre currently and are soon to be replaced by the GST.
State taxes which are to be covered by the GST are:
Alcohol for human consumption, Electricity and Real Estate are exempted from GST.
The concept of this tax offers quite a relief from all sorts of hassles, and will give way to an easy compliance of online registration, returns and payments, thereby avoiding the clerical and bureaucratic delays for businessmen and industrialists. This will, in turn, accelerate the "Make in India" dream too. Further, the paper-less system is supposed to achieve transparency, as it will be a fully electronic process. It is expected that the single point interface for all sorts of challan generation will surely pump up overall efficiency and output.
GST is indeed a great idea, but implementation is definitely not going to be a cakewalk from what has been seen till now. With several state governments opposing the move, fearing a drop in tax revenue, proper implementation of the GST could turn out to be long drawn process. Policymakers and stakeholders will have to pass the service quality test by all the states to ensure a win and wow situation. The wide lacunae in the implementation have to be decoded and all the states must join in hands for the seamless implementation of the GST.
For starters, the Constitution Amendment Bill has to be approved by more than half of the state legislatures, which is expected to be achieved in a month's time.
Inflation is expected to spike in the short run, right after the implementation of GST, as has been observed globally. However, in the long run, with the absence of double taxation, zero cascading effect of taxes, and lesser logistic costs, inflation is expected to drop. On the other hand, with the enhanced ease of conducting business in the country, reduced production costs, and increased profit margins for companies, experts say that the GDP is likely to rise by at least 1 to 2%. The resultant reduction in the size of the unorganized sector in India is also expected to augment GDP growth too.
Advantages of GST | Disadvantages of GST |
---|---|
Increase in Foreign Investment The implementation of GST has made India a single market, attracting foreign investment and increasing competitiveness in the global market. | Increased Costs Businesses incur expenses in upgrading accounting software and hiring tax professionals to become GST-compliant. |
One Tax System GST replaces various forms of taxes with a single tax, simplifying the tax structure. | Increased Software Expenses Transitioning to GST-compliant software leads to higher operating costs for businesses. |
Less Compliance to be Followed GST reduces compliance burden by requiring only one unified return to be filed by taxpayers. | Increased Tax Burden on SMEs Small and medium-sized enterprises face increased tax burdens under GST, although a composition scheme exists for those with revenue below a certain threshold. |
Simple Access GST portal provides easy access for filing returns, benefiting all types of organisations. | Difficult Migration to Online Filing System Transitioning to an online tax system may be challenging for small enterprises with limited digital capabilities. |
Efficiency in Logistics GST eliminates state-level taxes during interstate movement of goods, improving logistics. | Compliance Burden Businesses must register, issue compliant invoices, and file returns in multiple states, increasing the compliance burden. |
The Goods and Services Tax (GST) in India consists of four key components: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST). These components determine the type of tax to be paid based on the nature of the supply, whether it is within a state or across states. Understanding the different components of GST is essential to grasp the taxation system and its implications. Let's delve into the tax structure to gain a comprehensive understanding of how GST operates in India.
GST has played a significant role in reducing prices by introducing the concept of input tax credit. Under GST, businesses can claim credit for the taxes they have already paid on inputs or purchases. This credit is then used to offset the taxes they need to pay on their final products or services. As a result, the overall tax burden on businesses is reduced, enabling them to lower their prices. The benefit of input tax credit is ultimately passed on to the consumers, as reduced tax liabilities lead to lower cost prices for goods and services. This mechanism promotes price reduction, making products more affordable and contributing to consumer savings.
To sum up, it is always crucial to clear GST dues before the due dates. Anyone failing to do so has to pay hefty penalties along with the Business Loan interest rate. In case a business is going through a financial crunch, business owners can also apply for a Business Loan online and get the necessary funds instantly.
1. What is the purpose of GST?
The purpose of GST is to create a unified and simplified tax system by replacing multiple indirect taxes with a single comprehensive tax.
2. How does GST differ from the previous tax system?
GST differs from the previous tax system by replacing multiple indirect taxes with a single comprehensive tax, streamlining the taxation process.
3. Do all businesses need to register for GST?
Yes, all businesses with an annual turnover above the threshold limit specified by the government are required to register for GST.
4. What are the penalties for non-compliance with GST regulations?
Non-compliance with GST regulations can result in penalties such as fines, interest on late payments, and suspension or cancellation of GST registration.
5. How does GST impact small businesses?
GST impacts small businesses by introducing compliance requirements, but also provides benefits like simplified tax structure and input tax credits.
6. What is the main difference between CGST and SGST?
The main difference between CGST and SGST lies in their authority and collection: CGST is levied by the central government on intra-state supplies, while SGST is imposed by state governments on the same transactions.
7. What is the main difference between Direct Tax and Indirect tax?
The main difference between Direct Tax and Indirect Tax lies in how they are imposed. Direct taxes are levied directly on individuals or businesses based on their income or profits. Indirect taxes are imposed on goods and services, with the burden passed on to consumers through prices.
8. What is GSTR 2A and 2B?
GSTR 2A and 2B are auto-generated GST return forms that provide details of purchases. 2A is a read-only document reflecting vendor's sales, while 2B includes input tax credit availability.
The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.
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