GST stands for Goods and Services Tax (a good and simple tax)
GST is an indirect tax imposed by State governments and Central governments simultaneously on each transaction of purchase of goods or services or both.
Indirect tax means a tax which is paid by customer, collected by seller and, then, paid to government by seller on behalf of its customer.
It is a destination based tax. Destination based tax means a tax earned by that State/UT where any goods or services are actually being consumed. For example: A dealer in Punjab has sold goods to a customer of Chandigarh, then, tax earning collected by Punjab government will be forwarded to Chandigarh UT and it will be an earnings of Chandigarh UT.
GST is one of the biggest tax reforms in the history of India post-Independence. It is a tax which is simply based on the concept of ‘Supply’. ‘Supply’ includes sale of goods, provisioning of services, manufacture of goods, entertainment services, or many more. Earlier, indirect taxes were imposed on the basis of nature of transaction like, excise duty on manufacture, VAT on sale of goods, Service tax on provisioning of services, Entertainment Tax on entertainment spots, etc. GST brought independence from the net of so many taxes and their different intricacies, rigid compliance systems and the biggest issue of input tax credits.
GST has subsumed following taxes imposed by Central/State governments on a dealer at different stages of transaction:
At Central level
- Central Excise Duty (including Additional Duties of Excise)
- Service Tax
- CVD (levied on imports in lieu of Excise duty)
- SAD (levied on imports in lieu of VAT)
- Central Sales Tax
At State level
- VAT/Sales tax
- Entertainment tax (unless it is levied by the local bodies)
- Purchase Tax
- Luxury Tax
- Taxes on lottery, betting and gambling
- Taxes on Advertisements
- Entry tax not in lieu of Octroi
- Cesses and Surcharges
Followings are some of taxes which are still kept out of purview of GST :
- Stamp duty on sale of Land/Building/immovable property
- Mandi tax on agriculture produce
- State Excise duty on Alcoholic Liquor for Human Consumption (Alcohol for Industrial consumption leviable under GST)
- State/Central Taxes on Petroleum Crude, Petrol, High Speed Diesel, Natural Gas and Aviation Turbine Fuel. (GST may be levied in later years on these items).
- Central Excise Duty on Tobacco Products (it will be additional to GST).
Various Taxes under GST
GST is dual model tax where Central and state governments simultaneously charge tax on same transaction. Under GST, there are four types of taxes which are based on type of Governing System of India:
- Central Tax (CGST) : This tax is levied and collected by Central Government on intra-state supply.
- State Tax (SGST) : This tax is levied and collected by respective State Governments on intra-state supply.
- Union Territory Tax (UTGST) : This tax is levied and collected by administrator/governing body of respective UT on intra-UT supply.
- Integrated Tax : This tax is collected by Central government on inter-state supply and forwarded to the State/UT in which goods/services/both are actually consumed. This tax is just a system of passing of tax credits from one State/UT to another on the basis of consumption.
In India, there are 29 state and 7 Union Territories. Out of 7 UTs, two of them have independent government (Delhi and Puducherry). So, there are total 34 GST acts (31 State GST Acts, UTGST Act, Central GST Act and Integrated GST Act) to govern GST in India.
Why One Nation One Tax even if there are 34 GST acts in India
Before GST, every State/UT had its own law in relation of sale of goods. Every State/UT had different rate of taxes on same goods. One item was dearer on one state and cheaper in another because of different rate of taxes in different states. Other than this, compliance system of every state was different from one state to another.
GST provides uniformity of tax rates and compliance systems all over in India. Now, a person doing business in Delhi has same tax rate and compliance system as of Mumbai. A person sitting in north can comply with the GST laws for the business running in a state in South. It is a biggest relaxation provided under GST.
Further, GST is applicable on every type of transaction whether it is sale of goods or it is provision of service. It is based on a common tax system to administer these transactions and it is easy to comply with this law.
Even though there are 34 GST acts, model of every law is same. Only difference is just the name of governing State/UT. All the provisions including number scheme of sections are same in every law.
GST Compensation Cess
Other than above mentioned 34 GST laws, there is one more law in relation to ‘GST Compensation Cess’. This law is implemented initially for first five years from the applicability of GST law. GST Compensation Cess is imposed like a CGST/SGST/UTGST/IGST. However, it is applicable on some items specifically mentioned so far. This cess is basically collected to compensate those state governments who will lose their revenues due to implementation of GST. As the GST is a destination based tax, states having high number of manufacturing units in their area will lose some of their revenue, so this cess will compensate that lose to states.
