Everything You Need To Know About GST

Everything You Need To Know About GST

Goods and services often include costs at every step of production. Earlier, these were added at every step of the production stage and taxed simultaneously. However, in order to simplify the system of multiple taxation and complications of filing several indirect taxes, the Government of India on July 1, 2017, introduced the Goods and Services Tax (GST). This is a cumulative tax on the costs of production. It is a single tax, which is typically levied on the seller and ultimately transferred to the government.  

Need for GST

The Indirect Tax regime in existence prior to the introduction of GST was inefficient and opaque. Disproportionate taxation was present. States had their own taxation requirements. Problems were made worse by the presence of cascading taxes. Taxes were collected at every stage, inevitably making the commodity’s price higher. The tax burden was pushed on to the final consumer. 

It became common to practise to evade taxes. Sales used to take place without an invoice, creating the problem of tax evasion. Value Added Tax (VAT) was brought in to tackle this problem but it had flaws of its own which prevented it from completely achieving its objective. 

The complex taxation structure was a problem for many foreign companies. Many companies sought to produce their own spare parts as to preclude the probable taxes that could become payable. Essentially the prior model was very restrictive for effective growth of trade it created more problems than it solved.

Working of GST

With the advent of GST all the various state and central taxes were replaced. A uniform tax rate was introduced across the Union of India 

As per this new regime, the Centre now collects the Central GST (CGST) and the States levies State GST (SGST) on the supply of goods within the state. The Integrated GST (IGST) is levied on interstate supply of goods and services within the state, though collected by the Centre this is distributed equally amongst the Centre and State. These taxes are levied according to the tax slab heads under which a good or a service falls. The same is decided by the GST Council.

The GST council is headed by Union Finance Minister acting as the Chairperson. Union Minster of State of Finance is a member from the Centre.  The states can nominate any Minster of their government as members to this council, it usually happens to be the Minster in charge of Finance.

This body takes all the key decisions with regards to amendments and changes in GST. Their constitutionally mandated role is to recommend to the Union and the States on various issues surrounding the GST like slab rates and goods falling within the same. 

Benefits gained from GST

GST created a uniform taxation system, removing the indirect tax barriers put in place effectively dealing with the problem of the multiple taxes present in states. The destination-based taxation model envisioned under GST helped in dealing with the challenge of cascading taxes. This led to lowering of the end costs and consequent reduction in the tax burden.   

The uniform and streamlined tax model is beneficial to the businesses as well. Less complexity surrounding investment decision making and other financial processes. Companies are now more willing to outsource the production of commodities/services enabling the creation of MSMEs generating further employment. 

One of the best aspects of this particular Tax model is reliance on Digital services. Compliances are filed digitally now and the details are available to a host of investigative agencies thereby reducing the prevalence of tax evasion. And more compliance results in more financial resources available at the disposal of the State, allowing it to carry out its functions efficiently.

 

Criticisms of GST

The well-intentioned reform is not without faults. Constant amount of changes that have been bought about since the rollout of GST have made compliance difficult. Many small businesses are not in a position to afford accountants to do such compliances, as they work in a very ad hoc manner. Even the big businesses are affected by the regular changes proposed. If compliance is the aim, then the entire procedure needs to be simplified otherwise the objective would never stand realised.

 

GST Rates in 2023

Key modifications to GST rates were passed in the final week of 2022 and took effect at the start of the new year. The GST Council also adjusted the 2022 GST rates for a number of high-priority items during recent meetings. Some changes were made to address the current backwards tax system, while others were made to increase revenue. Changes to GST rates in India as of the new GST rates 2023 are summarised below.

Tax Rates Products

0% Milk Kajal

0% Eggs  

Educations Services

0% Curd

Health Services

0% Lassi

Children’s Drawing & Colouring Books

0% Unpacked Foodgrains

Unbranded Atta

0% Unpacked Paneer

Unbranded Maida

0% Gur Besan

0% Unbranded Natural Honey Prasad

0% Fresh Vegetables

Palmyra Jaggery

0% Salt

Phool Bhari Jhadoo

5% Sugar Packed Paneer

5% Tea Coal

5% Edible Oils Raisin

5% Domestic LPG

Roasted Coffee Beans

5% PDS Kerosene

Skimmed Milk Powder

5% Cashew Nuts

Footwear (< Rs.500)

5% Milk Food for Babies

Apparels (< Rs.1000)

5% Fabric

Coir Mats, Matting & Floor Covering

5% Spices Agarbatti

5% Coal

Mishti/Mithai (Indian Sweets)

5% Life-saving drugs

Coffee (except instant)

12% Butter Computers

12% Ghee

Processed food

12% Almonds Mobiles

12% Fruit Juice

Preparations of Vegetables, Fruits, Nuts or other parts

of Plants including Pickle Murabba, Chutney, Jam, Jelly

12% Packed Coconut Water Umbrella

18% Hair Oil Capital goods

18% Toothpaste

Industrial Intermediaries

18% Soap Ice-cream

18% Pasta Toiletries

18% Corn Flakes Computers

18% Soups Printers

28% Small cars (+1% or 3% cess)

High-end motorcycles (+15% cess)

28% Consumer durables such as AC and fridge

Beedis are NOT included here

28%

Luxury & sin items like BMWs, cigarettes

and aerated drinks (+15% cess)

 

Conclusion

GST is the most massive change brought about in the Indian Tax system since Independence. The system is not without flaws, but they do not outweigh the positive aspects of the Act. In the long run this would indeed be successful in achieving its objectives.