Goods and Service Tax GST in India - A comprehensive Guide

What Is the Goods and Services Tax (GST)?

GST is known for Goods and services tax in India. It is a value-added tax (VAT) levied on most goods and services sold for domestic consumption. The GST is paid by end consumers of goods and services and is collected by businesses who is selling those goods and services. Liability of payment of GST to government lies with businesses and it is also called destination based taxation.

GST and Service Tax in India- A Taxation reform

GST in India is an indirect tax which has replaced many indirect taxes of earlier tax regime in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.

Under the GST regime, the tax is levied at every point of sale.

-               In case of intra-state sales, which is transfer of goods from one state to another state, Central GST is charged.

-              In case of interstate, which is transfer of goods within states from one place to another place, State GST is charged.

-               All the inter-state sales are chargeable to the Integrated GST which goes to central government directly.

Central Goods and Services Tax (CGST)

CGST applies to the goods and services considered to be standard, with the revenue collected allocated to the central government. According to the Central Goods and Services Tax Act 2016, this part of the GST includes most of the central taxations such as Central Excise Duty, Central Sales Tax, Service Tax, and Additional Custom Duty.

State Goods and Services Tax (SGST)

SGST comprises taxation and levies under the state authority as a part of one uniform taxation structure. It includes State Sales Tax, Entertainment Tax, Luxury Tax, and Levies on Lottery. The revenue from these taxes are collected by state government.

Integrated Goods and Services Tax (IGST)

IGST is applicable to the goods and services transferred from one state to another state. According to Article 269A of the Indian Constitution, IGST is for the inter-state trade and commercial activities. The revenue from these taxes goes to the Central Government.

A business registered under the GST law has to include the GST amounts charged on the value items supplied in its invoices. The GST rates in CGST and SGST are nearly the same, while IGST is approximately the sum of CGST and SGST rates.

Tax Laws before GST

In the earlier indirect tax regime, there were many indirect taxes levied by both the state and the central Government. Every state had a different set of rules and regulations.

Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was applicable in case of inter-state sale of goods. The indirect taxes such as the entertainment tax, octroi and local tax were levied together by state and centre. These led to a lot of overlapping of taxes levied by both the state and the centre.

For example, when goods were manufactured and sold, excise duty was charged by the centre. Over and above the excise duty, VAT was also charged by the state. It led to a tax on tax effect, also known as the cascading effect of taxes.

The following table list down the taxes in pre-GST regime:

Goods and Services Tax India- A Multi Stage Taxation structure

An item goes through multiple change-of-hands along its supply chain: Starting from manufacture until the final sale to the consumer.

Let us consider the following stages:

• Purchase of raw materials
• Production or manufacture
• Warehousing of finished goods
• Selling to wholesalers
• Transfer of goods from one place to another
• Sale of the product to the retailers
• Selling to the end consumers

The Goods and Services Tax is levied on each of these stages making it a multi-stage tax however tax is levied each stage on value addition and therefore making it value added tax.

GST in India also called destination based tax structure since tax is paid to that state where goods and services is finally consumed. For example goods manufactured in Delhi and sold to the final consumer in Uttar Pradesh, GST will be levied at the point of consumption and the entire tax revenue will go to Uttar Pradesh government and not to Delhi government.

Objectives Of GST

To achieve the ideology of ‘One Nation, One Tax’

GST has replaced multiple indirect taxes which were existed under the previous tax regime. The advantage of having one single tax means every state follows the same rate for a particular product or service.

To eliminate the cascading effect of taxes

Due to different indirect tax laws in previous tax regine, taxpayers could not set off the tax credits of one tax against the other. For example, the excise duties paid during manufacture could not be set off against the VAT payable during the sale. Under GST, the tax levy is only on the net value added at each stage of the supply chain. This has helped eliminate the cascading effect of taxes and contributed to the seamless flow of input tax credits across both goods and services.

To curb tax evasion

GST laws in India are far more stringent compared to any of the erstwhile indirect tax laws. GST being a nationwide tax and having a centralised surveillance system, the clampdown on defaulters is quicker and far more efficient. Hence, GST has curbed tax evasion and minimised tax fraud from taking place to a large extent.

To increase the taxpayer base

GST has helped in widening the tax base in India. Previously, each of the tax laws had a different threshold limit for registration based on turnover. As GST is a consolidated tax levied on both goods and services both, it has increased tax-registered businesses.

Online procedures for ease of doing business

GST procedures are carried out almost entirely online as every step is done with a click of a button, from registration to return filing to refunds to e-way bill generation. It has contributed to the overall ease of doing business in India and simplified taxpayer compliance to a massive extent.

An improved logistics and distribution system

A single indirect tax system reduces the need for multiple documentation for the supply of goods. GST minimises transportation cycle times, improves supply chain and turnaround time, and leads to warehouse consolidation, among other benefits.

To promote competitive pricing and increase consumption

Having uniform GST rates have contributed to overall competitive pricing across India and on the global front due to removal of multiple taxation under old tax structure. This has hence increased consumption and led to higher revenues, which has been another important objective achieved.

Advantages of GST

GST has mainly removed the cascading effect which is also called double taxation on the sale of goods and services. Removal of the cascading effect has impacted the cost of good which has decreased cost of goods and services significantly.

Also, GST is mainly technologically driven. All the activities like registration, return filing, application for refund and response to notice needs to be done online on the GST portal, which accelerates the processes.

• Ease of Doing Business: Simplified tax compliance and a unified tax system have made it easier for businesses to operate across different states, promoting ease of doing business in India.
• Reduction in Cascading Effect: By subsuming various indirect taxes into a single tax, GST has eliminated the cascading effect of taxes, reducing the overall tax burden on goods and services.
• Increased Tax Revenue: The GST regime has widened the tax base and improved tax compliance, leading to increased tax revenue for both central and state governments.
• Economic Integration: GST has facilitated the creation of a common national market by removing inter-state trade transaction barriers, thereby promoting economic integration and growth.
• Consumer Benefits: The reduction in the overall tax burden has led to lower prices for many goods and services, benefiting consumers through increased purchasing power.

GST Rates Slabs 2024 for Goods

GST Rates Slabs 2024 for Services

Exemptions from GST

Besides the good and services taxed on the aforementioned rates under the GST Act, there are some exemptions from GST. Here are the lists of goods and services exempted from GST.

List of Exempted Services

New Compliances under GST

E-Invoicing in GST

E-invoicing, or electronic invoicing, in GST, is a system where B2B invoices are electronically authenticated by the Goods and Services Tax Network (GSTN) for use on the common GST portal. This system aims to standardise the invoicing process, reduce errors, and streamline the flow of input tax credits. The key features of E-Invoicing include:

• Standardization: A uniform invoice format across businesses.
• Automation: Real-time reporting and reduced manual intervention.
• Compliance: Ensures compliance with GST regulations and reduces the risk of tax evasion.

E-Invoicing Applicability & Turnover Limit

E-invoicing is applicable to businesses based on their annual turnover. The applicability and turnover limits are as follows:

• Turnover Limit: Initially, e-invoicing was mandated for businesses with a turnover exceeding ₹500 crores. Over time, this limit was reduced to ₹50 crores. As of 2024, businesses with an annual turnover of ₹5 crores and above are required to generate e-invoices.
• Exemptions: Certain entities such as SEZ units, insurers, banks, financial institutions, and NBFCs are exempt from e-invoicing requirements.

E-Way Bill

GST introduced a centralised system of waybills by the introduction of “E-way bills”. This system was launched on 1st April 2018 for inter-state movement of goods and on 15th April 2018 for intra-state movement of goods in a staggered manner.

Under the e-way bill system, manufacturers, traders and transporters can generate e-way bills for the goods transported from the place of its origin to its destination on a common portal with ease. Tax authorities are also benefited as this system has reduced time at check -posts and helps reduce tax evasion.

The E-Way Bill is an electronic document required for the movement of goods valued above ₹50,000. It is generated on the GST portal and contains details of the goods, their consignor, consignee, and the transporter. Key points about this Bill system include:

• Purpose: To track the movement of goods and ensure compliance with GST laws.

• Components: Details of the supplier, recipient, goods, and transporter.

• Validity: The validity of the E-Way Bill depends on the distance the goods need to be transported. For instance, it is valid for one day for a distance of up to 100 km.

GST Audit

A GST audit is an examination of records, returns, and other documents maintained by a taxpayer to verify the correctness of turnover declared, taxes paid, refund claimed, and input tax credit availed. The key aspects of a GST audit include:

Applicability: Applicable to businesses with an annual turnover exceeding ₹5 crores.

Turnover-Based Audit: Conducted by a Chartered Accountant or a Cost Accountant.

Special Audit: Directed by the GST authorities based on discrepancies.

Departmental Audit: Conducted by the tax authorities.

Reverse Charge Mechanism in GST

The Reverse Charge Mechanism (RCM) in GST is a system where the recipient of goods or services is liable to pay the GST instead of the supplier. This mechanism is applicable in specific cases as notified by the government. Key points about RCM include:

Applicability

• Specified Goods and Services: Certain goods and services are notified under RCM.

• Unregistered Supplier: When a registered dealer procures goods or services from an unregistered supplier.

• Compliance: The recipient must issue a payment voucher and a tax invoice for the goods or services received under RCM.

• Input Tax Credit: The recipient can claim input tax credit on the GST paid under RCM, subject to normal input tax credit rules.

These elements of the GST system ensure a streamlined, transparent, and efficient tax compliance process for businesses in India.

Input Tax Credit (ITC)

Input Tax Credit (ITC) is a fundamental feature of the Goods and Services Tax (GST) system, allowing businesses to reduce their tax liability by claiming credit for the GST paid on purchases. This mechanism prevents the cascading effect of taxes/double taxation and ensures that tax is paid only on the value addition at each stage of the supply chain.

Eligibility: Registered businesses can claim ITC for GST paid on goods and services used for business purposes

Conditions:

• The recipient must possess a valid tax invoice
• Goods or services must be received
• Tax must have actually been paid to the government
• Returns must be filed correctly and timely

Exclusions: ITC cannot be claimed for personal use, exempt supplies, or goods/services specified in the blocked credit list.

Output Tax under GST

Output Tax under GST refers to the tax that a registered business is required to collect from customers on the supply of goods or services. It is calculated based on the applicable GST rates on the value of the goods or services supplied

Calculation: Output tax under GST is calculated by applying the GST rate to the transaction value of the supply.

Payment: Output tax collected must be paid to the government by filing monthly or quarterly GST returns.

Adjustment: Businesses can adjust their output tax liability by claiming ITC for the GST paid on their purchases.

GSTIN

The Goods and Services Tax Identification Number (GSTIN) is a unique 15-digit identification number assigned to every registered taxpayer under the GST regime. It is used for all GST-related activities, including filing returns, claiming ITC, and paying taxes.

Structure:

• The first two digits represent the state code.

• The next ten digits are the PAN of the taxpayer.

• The 13th digit is based on the number of registrations within a state.

• The 14th digit is Z by default.

• The 15th digit is a check code.

Importance:

• GSTIN is mandatory for businesses with an annual turnover exceeding ₹40 lakhs (₹20 lakhs for special category states).

• It is required for issuing tax invoices, filing GST returns, and availing ITC.

• It ensures compliance with GST laws and facilitates the seamless movement of goods across states.

These components—Input Tax Credit (ITC), Output Tax, and GSTIN—are crucial for businesses to understand and manage their GST obligations effectively.

GST Council : The GST Council is a constitutional body responsible for making recommendations on issues related to GST, including rates, exemptions, and administrative policies. Key features of the GST Council include:

Composition: Chaired by the Union Finance Minister and includes the Finance Ministers of all states and union territories.

Functions: Determines GST rates for goods and services, drafts rules and regulations, and resolves issues related to GST implementation.

Decision-Making: Operates on the principle of consensus, with each member having one vote irrespective of the size of their state's economy.

Meetings: Meets regularly to discuss and decide on GST-related matters, ensuring cooperative federalism and uniformity in tax policies across states.

GST Registration and Process

GST registration is mandatory for businesses engaged in the supply of goods or services with an annual turnover exceeding ₹40 lakhs (₹20 lakhs for special category states). The registration process includes:

• Application: Businesses apply for GST registration online through the GST portal by submitting required documents such as PAN, Aadhaar, business address proof, and bank account details.

• Verification: The application is verified by the GST authorities, and a GSTIN (Goods and Services Tax Identification Number) is issued upon approval.
• Filing Returns: Registered businesses must file monthly or quarterly GST returns depending on their turnover, detailing their sales, purchases, and tax liability.
• Compliance: GST registrants must comply with GST rules and regulations, issue tax invoices, collect GST from customers, and maintain proper records of transactions.

GST Registration FAQs

What is an E-way Bill?

An E-way Bill is a document required for the movement of goods worth over a specified value between different states. It ensures tax compliance and facilitates the smooth transportation of goods by providing details about the consignment.

What is the HSN Code?

The HSN Code, or Harmonised System of Nomenclature, is a standardised coding system for classifying goods internationally. It simplifies the identification of products for tax and regulatory purposes, aiding in smooth trade.

Can a salaried person apply for GST?

 Yes, a salaried person can apply for GST registration if involved in business activities beyond their employment. Registering is mandatory if the aggregate turnover exceeds 40 Lakh per annum for goods and 20 Lakhs per annum for services.

What is the full form of SAC Code?

The full form of SAC Code is ‘Service Accounting Code.’ It is a system of classification for services under GST, helping in uniform taxation and simplifying compliance for service providers.

How to handle GST compliance if my GSTIN was cancelled and I didn’t file the final return?

If your GSTIN was cancelled without filing the final return, rectify by filing the pending return immediately. Failure to do so can lead to penalties and compliance issues.

What is the GST Annual Return?

The GST Annual Return is a summary of a taxpayer's financial activities for a fiscal year, including details of sales, purchases, and taxes paid. It provides a comprehensive overview of the taxpayer's GST transactions.

Can I avail input tax credit against a 5% GST liability for goods sold by my LLP?

No, input tax credit cannot be availed against a 5% GST liability for goods sold by your LLP. Input tax credit is typically applicable for higher tax rates, and the limited 5% tax rate may not provide eligibility for claiming input tax credit in this scenario.

What should a business do about GST when not registered and dealing with GST-charging entities?

If not registered for GST and dealing with GST-charging entities, consider registering to avail input tax credits. Without registration, businesses might bear the entire tax burden, impacting profitability.

How to resolve error code SB001 in GST export through ICEGATE?

Resolve GST export error code SB001 on ICEGATE by verifying data accuracy, ensuring proper document submission, and seeking assistance from ICEGATE or GST support for technical guidance

How to deal with negative amount errors in GSTR3B due to credit notes?

To address negative amount errors in GSTR3B due to credit notes, rectify the values, report corrections in subsequent returns, and maintain accurate documentation to reconcile discrepancies

What is the difference between the effective date of GST registration and the date of GST registration?

 The effective date of GST registration is when you become liable to pay GST, while the date of registration is when you are officially registered. Understanding this difference is important for determining when your GST obligations commence.

Is issuing a tax invoice and tax collection mandatory for voluntary GST registration?

 Yes, issuing a tax invoice and tax collection is mandatory for voluntary GST registration. Even if your turnover is below the threshold, compliance with invoicing and collection requirements is necessary to meet legal obligations and maintain transparency in your transactions.

What is cess in GST?

Penalties for not registering for GST on time include late fees and interest charges. It's crucial to adhere to registration deadlines to avoid financial implications and ensure compliance with tax regulations.

What is GST act and rules?

GST is primarily governed by the following 4 acts:

1. Central Goods and Services Tax Act, 2017 (CGST)
2. Integrated Goods and Services Tax Act, 2017 (IGST)
3. State Goods and Services Tax Act, 2017 (SGST)
4. Union Territory Goods and Services Tax Act, 2017 (UTGST)

Additionally there are rules framed covering various aspects of GST, which helps in smooth implementation and enactment of the act.

How is GST calculated?

The GST rates shall be multiplied by the assessable value of the supply to arrive at the GST amounts in a tax invoice.

How many GST slabs are there in India?

The primary GST slabs for any regular taxpayers are presently pegged at 0% (nil-rated), 5%, 12%, 18% & 28%. There are a few lesser-used GST rates such as 3% and 0.25%.

What is the GST rate in India?

GST rates refer to the percentage rates of tax imposed on the sale of goods or services under the CGST, SGST and IGST Acts. A business registered under the GST law must issue invoices with GST amounts charged on the value of supply.

The GST rates in CGST and SGST (For intrastate transactions) are approximately the same. Whereas, the GST rate in the case of IGST (For interstate transactions) is approximately the sum total of CGST and SGST rate.

What is GST number and how to check it?

GST number or GST Identification number, popularly known as GSTN is a 15-digit PAN-based unique identification number allotted to every registered person under GST. One can check GSTN by visiting the GST portal at www.gst.gov.in, and entering the same in the "Search Taxpayer" option 

What does GST means?

GST stands for Goods and Services Tax. The Act governing the same came into effect on 1st July 2017.

How Is GST Calculated?

The goods and services tax (GST) is computed by simply multiplying the price of a good or service by the GST tax rate. For instance, if the GST is 5%, a $1.00 candy bar would cost $1.05.

Who Has to Pay GST?

In general, goods and services tax (GST) is paid by the consumers or buyers of goods or services. Some products, such as from the agricultural or healthcare sectors, may be exempt from GST depending on the jurisdiction.

Are VAT and GST the Same?

Value-added tax (VAT) and goods and services tax (GST) are similar taxes that are levied on the sale of goods and services. Both VAT and GST are also indirect taxes, which means that they are collected by businesses and then passed on to the government as part of the price of the goods or services.

However, there are some key differences between the two. VAT is primarily used in European countries and is collected at each stage of the production and distribution process, while GST is used in countries around the world and is collected only at the final point of sale to the consumer. VAT is generally applied to a wider range of goods and services than GST, and the rates of VAT and GST can vary depending on the type of goods or services being sold and the country in which they are sold.

Which services cost nil GST tax?

Nil GST tax is applicable to services offered on Basic Savings Bank Deposit (BSBD) opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY). Additionally, some services and goods counted under the most basic needs cost nil GST tax.

What are HSN wise GST rates?

Harmonized System of Nomenclature code (HSN Code) is a system of coding used to classify goods under GST in India. The codes are issued by the World Customs Organization (WCO) and help with the classification of commodities that belong to the same nature under different chapters, sections, headings, and sub-headings.