GST and Indirect Taxation Regime in India

Understanding GST and Indirect Taxation Regime in India

GST is an indirect tax. It is levied on the supply of goods as well as services. There are certain key elements in GST, let’s understand: ²

1. GST is comprehensive:

   It has subsumed almost all the indirect taxes (a few state taxes are an exception). In the pre-GST times, there were several indirect taxes such as the Value Added Tax (VAT), service tax, Central Excise, etc. These taxes were levied at various stages of the supply chain, some by the central government and some by the state government. Subsuming major taxes into GST has resulted in a significant reduction in compliance burden and has streamlined tax administration and collection.

   • Additional Duties of Customs
   • Additional Duties of Excise
   • Central Excise Duty
   • Central Sales Tax ( Certain taxes, like the GST applied to inter-state purchases at a reduced rate of 2% through the issuance and use of ‘Form C,’ are still in effect.)
   • Cess
   • Duties of Excise
   • Entertainment Tax
   • Entry Tax
   • Luxury Tax
   • Purchase Tax
   • Special Additional Duty of Customs
   • State VAT
   • Taxes on advertisements
   • Taxes on lotteries, betting, and gambling.

   Take a look at the various taxes that GST has subsumed:

2. GST is multi-staged:

   it is charged at all stages of production. To understand how it affects the supply chain, let's take a look at this simple example. A local baker purchasing flour, yeast, and other ingredients incurs costs at the first stage. When these ingredients are mixed, kneaded, and baked into bread, their value increases. A wholesaler then packages and labels the bread, further increasing its worth before selling it to a retailer. The retailer repackages and markets it, adding even more value. GST is levied at every stage until the final sale to the consumer.

3. GST is destination-based:

   it is levied at the place where goods or services are consumed rather than where they originate. For example, if a particular product is made in Punjab and sold to a consumer in Rajasthan, the GST is collected at the point of consumption, which will be Rajasthan.

The objectives of GST and indirect taxation in India

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Let us understand the aim behind the setting up of GST:

1. One nation, one tax

   A single tax ensures uniform rates across states. GST simplifies administration and improves compliance with common rules like e-way bills and e-invoicing. This further reduces paperwork and makes the tax system more efficient.

2. Elimination of cascading effect of tax

   Another major objective of GST is reducing the cascading of taxes. Before GST was introduced, taxpayers could not offset one tax against another. This led to a cascading effect of tax. With GST, a seamless flow of input tax credits across goods and services is ensured, which decreases the overall tax impact.

3. Checking tax evasion

   GST laws are much more stringent than those of the tax system earlier. Features like claiming an claiming input tax credit only on invoices that are uploaded by respective supplier, the introduction of e-invoicing and the formation of a centralised surveillance system have been able to minimise tax evasion.

4. Expanding the taxpayer base

   Earlier, there were different taxes that had different turnover limits for the purpose of registration. However, when GST taxation started covering goods as well as services, more businesses became a part of the tax network.

5. Creation of an online portal

   For a long time, taxpayers faced hardships, confusion, and hassle when dealing with different tax laws. Thankfully, the digitalisation of the taxation system completely changed the scenario. With the GST portal, GST procedures and return filing can all be done in a few clicks.

Types of GST in India

There are four main types/ components under the GST. These include:

Conclusion

Understanding how indirect taxes work is important. Whether you are an entrepreneur, a salaried employee or self-employed, knowing how GST affects your everyday transactions is important.

FAQs

1. What is the difference between SGST and CGST?

   CGST stands for Central Goods and Services Tax, while SGST stands for State Goods and Services Tax. SGST is levied by the state government. While CGST is levied by the central government.⁴

2. Which taxes are still prevalent along with GST?

   ⁵

   The following taxes are still present:

   • Tax on Tobacco and Alcohol
   • Tax on Petrol and Diesel
   • Electricity Duty
   • Vehicle Tax
   • Property Tax
   • Stamp Duty on Property
   • Basic Customs Duty.