Facts about GST

1. Single Tax Structure: The basic aim of GST is to replace multiple taxes with a single tax and make the price of goods or services uniform across the country. However, in doing so, some goods or services became cheaper, while some became costly. 

2. Effect on Prices: Goods and Services Tax has made luxury goods costlier and goods manufactured for mass consumption cheaper. 

3. Consumption-Based tax: The Goods and Services Tax is not received by the state in which the goods have been manufactured, but by the state in which the goods or services have been consumed. 

4. Invoice Matching: The invoice matching mechanism will be added to the Indian GST. It means that when details of inward supply filed in by the buyer match the details of outward supplies filed in by the supplier, then only Input Tax Credit of purchased goods or services will be available to them. Besides, GST is a self-regulating mechanism, as it keeps a check on tax evasion and tax fraud and also brings more business to the formal economy. 

5. Anti-Profiteering Measure: The recently implemented GST law includes the feature of anti-profiteering measures. As the name suggests, the anti-profiteering measures prevent the companies from making excess profits. According to the rules of Anti-Profiteering, the benefit of increased input tax credit and decreased GST tax rates should reach the customers in the form of a reduced price of goods or services. These provisions are efficiently managed and administered by NAA (National Anti-Profiteering Authority).

6. Registration under GST: It is mandatory for an organization with an aggregate turnover exceeding ₹ 40 Lakhs in a financial year to register under GST. However, this limit is set at ₹ 20 Lakhs for the North Eastern and hilly states (Special category states). 

Input Tax Credit Under GST

Input Tax is the GST charged on the goods or services supplied to a taxable person. Input Tax Credit means reducing or adjusting the taxes paid by an individual or firm on the inputs from the taxes to be paid by them on the output, i.e., the final product. In other words, it means to claim the credit of the GST paid by an individual or a firm on the purchase of goods or services used as a raw material for manufacturing the finished goods or services. The suppliers at every stage of the supply chain have the permission to avail of any GST credit paid by them on the purchase of goods or services. This availed credit can be set off against the GST payable by them on the supply of goods or services to be made later. In this way, the ultimate consumer has to bear the GST charged by the last supplier of the supply chain. Therefore, the tax will be charged on the value added to the good or service only, which avoids the cascading effect, i.e., double taxation. 

For example, if a manufacturer has paid taxes on Input A, B and C of  ₹ 90, ₹ 130 and ₹ 150, respectively, and ₹ 600 on the final output, then he can claim the amount paid on input, i.e., purchase of raw material. Therefore, the manufacturer can claim (90+130+150) ₹ 370 and will have to deposit only ₹ 230 (600-370) as tax. 

The Goods and Services Tax or GST is a single, indirect tax that integrates all indirect taxes within the Indian economy. The GST Act was passed on 29th March 2017 in the Parliament of India and came into effect on 1st July 2017. The idea behind it was to replace multiple layers of taxation with one tax (GST). It has replaced 17 indirect taxes (9 State-level taxes and 8 Central level taxes) and 23 cesses of the States and Centres that existed earlier, including Central excise duty, Service tax, Value Added Tax (VAT), Luxury Tax, etc. The aim behind implementing the GST Act was ‘One Nation and One Tax’. When GST was implemented, 1300 goods and 500 services were taken into consideration. 

GST is a destination-based consumption tax as it is charged at every stage, wherever some value is added to the goods or services, and the supplier of the good or service off-sets the charge on its inputs of the previous stages. The charge is offset through the tax credit mechanism. Ultimately, the last dealer passes on the added GST to the consumer of the goods or services. The reason behind charging input credit at every stage of the value chain is to avoid the cascading effect. Cascading effect means charging tax on tax. The Government of India has eliminated the cascading effect with the expectation of reducing the prices of goods or services and benefiting the consumers. 

Cascading Effect means charging tax on tax. 

For example, 

A company is manufacturing Good X at the cost of ₹1,000 on which it has to pay Excise Duty @ 10% to the Central Government and VAT @ 12% to the State Government. 

Cost = ₹1000

Excise Duty @ 10% = ₹100

VAT @ 12% (of 1100) = ₹ 132

Therefore, the dealer’s invoice for the Good X will be ₹1,232 (1,000+100+132). 

Now, the manufacturer will sell the Good to the dealer at ₹1,100.

Cost of Good X for the dealer is ₹1,100 (Cost of Good X + Excise Duty)

Suppose the dealer adds a profit margin of ₹200 on each good. Then the VAT paid by the dealer will be 12% of ₹1,300 (1,100 + 200) = ₹156.

The invoice will be ₹ 1,456 (1,100+200+156). 

It can be seen that initially, Excise Duty is charged on the Good X, on which further VAT is levied. This is known as cascading effect, i.e., charging tax on tax. 

GST avoids this cascading effect by charging tax only once. With GST, the tax will be charged as a percentage of the cost of goods directly. 

The three types of taxes under GST are:

• Central Goods and Services Tax (CGST): GST levied by the Centre on the Intra-State supply of goods or services. 
• State Goods and Services Tax (SGST): GST levied by the State (including Union Territories with legislatures) on the Intra-State supply of goods or services by the State.
• Integrated Goods and Services Tax (IGST): GST collected by the Centre and levied on the Inter-State supply of goods or services. In other terms, IGST is the total of CGST and SGST.