Goods & Services Tax

Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India.

GST was introduced in India on 1 July 2017, replacing multiple indirect taxes imposed by the Central and State Governments.

Before GST, businesses could encounter several taxes, including:

• Central Excise Duty
• Service Tax
• Value Added Tax (VAT)
• Central Sales Tax (CST)
• Entry Tax
• Luxury Tax
• Entertainment Tax
• Various state-level indirect taxes

GST brought many of these taxes under a unified framework.

The basic principle is that GST is charged at different stages of the supply chain, while eligible businesses can generally claim Input Tax Credit (ITC) for GST paid on business purchases. This helps reduce the cascading effect of taxes.

GST has several important characteristics:

• Destination-Based Tax: GST is generally a destination-based consumption tax. Tax revenue is ultimately associated with the place where goods or services are consumed, subject to the applicable GST provisions.
• Indirect Tax: GST is an indirect tax because businesses generally collect it from customers and deposit it with the government.
• Tax on Supply: GST is primarily structured around the concept of supply, rather than simply manufacturing or selling a particular product.
• Input Tax Credit: Eligible registered businesses can generally claim credit for GST paid on eligible business inputs, subject to the conditions prescribed under GST law.
• Multiple Tax Rates: GST does not have one universal rate for every product and service. Different goods and services can fall into different tax categories.
• Technology-Based Compliance: GST registration, invoicing, return filing and several other compliance processes are conducted electronically through the GST ecosystem.

There are four major components commonly associated with GST in India:

1. Central Goods and Services Tax (CGST)

The Central Government levies CGST on intra-state supplies of goods and services.

For example, if a seller and buyer are located within the same state and the transaction qualifies as an intra-state supply, CGST may be charged along with SGST.

2. State Goods and Services Tax (SGST)

SGST is collected by the respective State Government on eligible intra-state supplies.

For an intra-state transaction, CGST and SGST are generally charged together.

For example, if a taxable product attracts an 18% GST rate, an intra-state invoice may generally show:

The exact tax treatment depends on the nature and classification of the supply.

3. Integrated Goods and Services Tax (IGST)

IGST generally applies to inter-state supplies and certain other specified transactions, including eligible imports.

For example, if a business in Maharashtra supplies goods to a registered customer in Karnataka, the transaction may attract IGST rather than CGST and SGST.

The IGST mechanism facilitates the settlement of tax between the Centre and states.

4. Union Territory Goods and Services Tax (UTGST)

UTGST applies to eligible intra-UT supplies in Union Territories where the UTGST framework applies.

It generally operates alongside CGST in a manner similar to the combination of CGST and SGST for intra-state supplies.

GST rates vary depending on the classification of goods or services.

Common GST rate slabs include:

• Nil rate
• 5%
• 12%
• 18%
• 28%

There are also special rates and compensation-related provisions for certain specified products.

GST registration is the process through which an eligible business obtains a GST registration number, known as the GSTIN (Goods and Services Tax Identification Number).

A GSTIN is generally a 15-character identification number issued to a registered taxpayer.

GST registration requirements depend on factors such as:

• Aggregate turnover
• Nature of business
• State or location
• Type of supply
• Inter-state supplies
• E-commerce activities
• Specific categories of taxpayers

Not every business automatically needs GST registration merely because it sells goods or services. Applicability depends on the provisions and thresholds relevant to the taxpayer.

Businesses should therefore check the latest GST rules applicable to their circumstances.

A GST-registered business must issue appropriate tax invoices for taxable supplies where required.

A proper GST invoice helps establish:

• Nature of supply
• Taxable value
• GST amount
• Supplier identity
• Buyer identity
• Eligibility for input tax credit, where applicable

Businesses should avoid manually creating invoices without checking the applicable GST requirements.

Digital accounting or invoicing systems can reduce calculation errors and make record keeping easier.

GST-registered taxpayers may need to file periodic returns or statements depending on their registration type and applicable scheme.

GST return compliance allows taxpayers to report information such as:

• Outward supplies
• Tax liability
• Input tax credit
• Tax payments
• Other required details

The applicable forms, frequency and deadlines depend on the taxpayer category.

Businesses should maintain a GST compliance calendar so that returns and payments are not missed.

Late filing can result in applicable late fees, interest or other consequences.