Understanding the basics of GST (Goods and Service Tax) is crucial for businesses and individuals alike. GST is a unified, multi-stage, and destination-based tax that replaced numerous indirect taxes in India. Implemented on July 1, 2017, GST aims to simplify the tax structure, eliminate the cascading effect of taxes, and create a seamless national market.
Understanding Basics of GST: A Comprehensive Guide by Asire Consulting
What is GST?
GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It is designed to be a single, unified indirect tax for the entire country, making India one of the largest single markets in the world.
When Did GST Come into Force in India?
GST came into force in India on July 1, 2017. This landmark reform replaced numerous indirect taxes previously levied by both the central and state governments.
Purpose of Bringing GST in India
The primary purpose of implementing GST was to simplify the indirect tax structure by consolidating various taxes into a single tax system. This aimed to eliminate the cascading effect of taxes, promote a seamless flow of credit, and create a unified national market.
Indirect Taxes Replaced by GST
With the implementation of GST, several indirect taxes were subsumed, including:
- Central Excise Duty
- Service Tax
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Octroi and Entry Tax
- Purchase Tax
- Luxury Tax
- Entertainment Tax (except those levied by local bodies)
Structure of GST in India
GST in India is structured into four main components:
- CGST (Central Goods and Services Tax): Levied by the Central Government on intra-state supplies of goods and services.
- SGST (State Goods and Services Tax): Levied by the State Government on intra-state supplies of goods and services.
- UTGST (Union Territory Goods and Services Tax): Levied by the Union Territory Government on intra-UT supplies of goods and services.
- IGST (Integrated Goods and Services Tax): Levied by the Central Government on inter-state supplies of goods and services, as well as on imports.
What is SGST?
SGST is the State Goods and Services Tax levied by the respective state governments on intra-state transactions. The revenue collected under SGST is used by the state government.
What is CGST?
CGST is the Central Goods and Services Tax levied by the Central Government on intra-state transactions. The revenue collected under CGST is used by the central government.
What is UTGST?
UTGST stands for Union Territory Goods and Services Tax. It is levied on intra-UT supplies of goods and services in Union Territories without a legislature.
What is IGST?
IGST is the Integrated Goods and Services Tax levied on inter-state supplies of goods and services, as well as on imports. The revenue collected under IGST is shared between the central and state governments.
Difference Between CGST, SGST, and IGST
- CGST and SGST: Applied on intra-state transactions, where CGST goes to the central government, and SGST goes to the state government.
- IGST: Applied on inter-state transactions and imports. The revenue is shared between the central and state governments.
Meaning of “Goods” Under GST
Under GST, “goods” refer to every kind of movable property except money and securities. This includes tangible items such as furniture, electronics, and machinery.
Meaning of “Services” Under GST
“Services” refer to anything other than goods, money, and securities. This includes intangible offerings like consultancy, legal advice, and digital services.
Coverage of Goods and Services Under GST
While most goods and services fall under the GST regime, some exceptions include:
- Alcohol for human consumption
- Petroleum products (petroleum crude, motor spirit, high-speed diesel, natural gas, and aviation turbine fuel)
- Electricity
- Real estate (up to the point of completion certificate issuance)
GST Tax Rates in India
GST in India is structured into five tax slabs: 0%, 5%, 12%, 18%, and 28%. Additionally, certain luxury items and sin goods attract a cess over and above the 28% GST.
Who is Required to Register Under GST?
Businesses with an annual turnover exceeding ₹20 lakhs (₹10 lakhs for special category states) are required to register under GST. This includes individuals, companies, LLPs, and other entities engaged in the supply of goods or services.
What is GST Compensation Cess?
GST Compensation Cess is levied on certain luxury and sin goods to compensate states for any revenue loss due to the implementation of GST.
Benefits of GST
GST brings several benefits, including:
- Simplification of the tax structure
- Elimination of the cascading effect of taxes
- Seamless flow of input tax credit
- Creation of a unified national market
- Enhanced transparency and compliance
GST Abbreviations and Their Full Forms
- CGST: Central Goods and Services Tax
- SGST: State Goods and Services Tax
- UTGST: Union Territory Goods and Services Tax
- IGST: Integrated Goods and Services Tax
- GSTIN: Goods and Services Tax Identification Number
- HSN: Harmonized System of Nomenclature
- SAC: Services Accounting Code
Navigating GST Compliance: Key Processes and Tools
GST Registration
GST registration is a mandatory requirement for businesses with an annual turnover exceeding ₹20 lakhs (₹10 lakhs for special category states). This process involves obtaining a unique Goods and Services Tax Identification Number (GSTIN) from the government. The GSTIN is crucial for legalizing the business operations under the GST regime. Registration can be completed online through the GST portal, where businesses need to submit essential documents such as PAN, proof of address, and bank account details. Timely GST registration ensures compliance and avoids penalties, allowing businesses to avail input tax credits and streamline their tax obligations.
GST Return Filing
GST return filing is a critical aspect of GST compliance, involving the submission of various forms that detail the sales, purchases, and tax paid by a business. Regular filings include GSTR-1 (outward supplies), GSTR-3B (summary return), and GSTR-9 (annual return). Businesses must file these returns monthly, quarterly, or annually, depending on their turnover and specific circumstances. Accurate and timely filing is essential to avoid penalties, ensure smooth input tax credit claims, and maintain good standing with tax authorities.
GST LUT Filing
GST LUT (Letter of Undertaking) filing is essential for businesses that export goods or services without paying IGST. By filing LUT, exporters can enjoy tax-free exports and avoid the cumbersome refund process. The LUT is valid for a financial year and must be submitted online through the GST portal. It involves declaring that the exporter will comply with all the conditions and provisions under GST. This filing simplifies the export process, making it more efficient and cost-effective for businesses engaged in international trade.
GST Registration Cancellation
GST registration cancellation is required when a business ceases operations, transfers ownership, or falls below the turnover threshold for registration. The cancellation process can be initiated by the taxpayer or the tax authorities and involves submitting an application through the GST portal. Upon approval, the GSTIN is deactivated, and the business is no longer liable to file GST returns. However, the business must settle any outstanding tax liabilities and submit final returns to complete the cancellation process.
GST Annual Return
The GST annual return (GSTR-9) is a comprehensive summary of a business’s annual transactions, including sales, purchases, and tax payments. Filing this return is mandatory for all registered taxpayers, except those under the composition scheme. The annual return provides a consolidated view of the financial year’s activities and helps reconcile the monthly and quarterly returns filed. Accurate and timely filing of GSTR-9 ensures compliance and helps identify any discrepancies that may need correction.
GST Software
GST software is an indispensable tool for businesses to manage their GST compliance efficiently. These software solutions automate various tasks such as invoice generation, return filing, and record keeping. They provide real-time updates on tax regulations, ensure accuracy in calculations, and reduce the risk of errors. By streamlining the compliance process, GST software saves time, enhances productivity, and ensures that businesses meet their tax obligations without hassle.
GST eInvoicing
GST eInvoicing is a system where businesses generate invoices electronically through the government’s portal. This ensures standardization, reduces errors, and improves transparency in transactions. eInvoicing applies to businesses with a turnover above a certain threshold and involves submitting invoice details to the Invoice Registration Portal (IRP), which then issues a unique Invoice Reference Number (IRN). This system enhances efficiency, facilitates seamless input tax credit claims, and helps curb tax evasion by ensuring that all transactions are recorded in real time.
Frequently Asked Questions on GST
- Is GST applicable to all businesses?
- Yes, businesses with an annual turnover above the specified threshold must register for GST.
- Can I claim input tax credit under GST?
- Yes, GST allows businesses to claim input tax credit for the tax paid on purchases.
- What are the penalties for non-compliance with GST?
- Penalties for non-compliance include fines and interest on unpaid taxes, and in severe cases, legal action.
- How often do I need to file GST returns?
- GST returns are typically filed monthly, with an annual return also required.
For more detailed information and personalized assistance with GST registration and compliance, contact Asire Consulting Top CA Firms in India. Our experts are here to help you navigate the complexities of GST and ensure smooth, hassle-free compliance.