What Is GST and How Does It Work – Detailed Guide With Infographics

GST Implementation in India and Its Impact

GST is proposed to be implemented with effect from 1st Aril 2017. Implementation of Goods and Services Tax (GST) in India is one of the biggest reforms in the field of taxation. It is estimated that implementation of GST will boost the GDP by 1.5% to 2%. GST will subsume more than 10 existing indirect taxes to convert India into a common market and ensure ‘ease of doing business’.

issues and challenges in implementation of gst

For more details on GST implementation and its impact, read these articles:

Why Is GST Important – Existing Indirect Tax System In India and Its’s Limitations
Taxes to be subsumed in GST
GST Impact on Industry, Economy, Supply Chain, Logistics, Consumers
Benefits of GST For Business, Industry, Government and Consumers
How to Implement GST In Your Business

 

What is Goods and Service Tax (GST)

GST is an integrated indirect tax which is levied on ‘supply‘ of Goods and Services. The main objective of implementation of GST Bill is to consolidate all types of indirect taxes into a single comprehensive tax – GST. The Goods and Service tax will provide a uniform market by integrating the existing Central and State indirect taxes into a single comprehensive tax.

Goods and Service Tax (GST) will replace the various types of present indirect taxes such as Excise Duty (levied on Manufacture of Goods), Service Tax (levied on Services), State VAT (levied on Sale of Goods), octroi, entertainment tax, luxury tax and all other types of Central and State Indirect tax levies except customs.

How Does GST Work – Salient Features

Info graphics Explaining GST

Dual GST Structure – CGST, SGST & IGST

Type of TransactionTax to be levied
Intra-State Transactions1. CGST (Central Goods and Services Tax)

2. SGST (State Goods and Services Tax )

 

Inter-State TransactionsIGST (Integrated Goods and Services Tax)

It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on intra-State supply of goods and / or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST). Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

Why is Dual GST required?

India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

Centre will levy and administer CGST & IGST while respective states will levy and administer SGST

For details on Dual Structure of GST read – Tax Scenario Under GST (With Examples)

 

Taxable Event Under GST – Supply

The taxable event for levy of GST is “Supply of Goods and/or Services. The definition of ‘supply’ is inclusive and has four parts:

  • Part I:  It covers transactions such as sale, transfer, barter, exchange, license, rental, lease or disposal made in the course of business for a consideration.
  • Part II: It covers deemed transactions of supply made without consideration listed under Schedule – I.
  • Part III: It covers transactions of importation of service even for personal use. The threshold limit will be provided in respect of import of services for personal use.
  • Part IV: It covers the list of transactions which shall be deemed as “supply” (Schedule -II)

For more details on Supply, please read – Concept of Supply Under Goods and Services Tax

Who Is Liable to Pay GST – Threshold Limit

Under the GST regime, tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the threshold exemption limit, i.e. Rs.20 lakhs (Rs. 10 lakhs for NE States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit.

GST Registration

Important: Migration/Registration process for existing taxpayers (VAT, Excise, Service Tax etc.) has been started and they are required to provide their details at GST Common Portal (gst.gov.in) for the purpose of migrating themselves to the GST regime. Right now, the migration process is started for registered VAT taxpayers and other taxpayers will be migrated later. For more details – GST Migration Process For Existing Taxpayers (VAT, Service Tax, Excise).

New GST Registration

  • GST registration is required if annual aggregate turnover exceeds threshold exemption limit i.e. Rs. 20 Lakhs (Rs, 10 Lakhs in North East States)
  • Schedule-III provides the category of persons for which GST registration is mandatory irrespective of the threshold limit.
  • The time limit for taking GST registration is 30 days.

For more details on GST Registration, read following articles:

GST Registration Requirements – Section 19 of GST Law

GST Registration Procedure: Goods and Service Tax Registration Rules

Application Forms Related TO GST Registration

GST Registration/Migration Process For Existing Taxpayers (VAT, Service Tax, Excise )

 

GST Returns

Return Filing Requirements for Regular Taxpayers – 3 Monthly Return and 1 Annual Return

ReturnFormDue Date
GSTR 1Outward Supplies10th of next month
GSTR 2Inward Supplies15th of next month
GSTR 3Finalized Details of Outward and Inward supplies along with details of tax payment20th of next month
GSTR 9 (Annual Return)Details of ITC availed and GST paid which includes local, interstate and import/exports.31st Dec of next fiscal

The special feature of GST is that the final input credit is available only if the inward details filed by the recipient are matched with the outward details furnished by the supplier in his valid return.

For this purpose, the auto-populated details of outward supplies and inward supplies will be made available in the following manner:

  • GSTR 1A (Outward Supplies – effects of changes made by recipient) :  Details of outward supplies as added, corrected or deleted by the recipient  in Form GSTR-2 will be made available to supplier ( by 20th of the next month after filing GSTR-1)
  • GSTR-2A: (Inward Supplies – information furnished by suppliers) The details of inward supplies will be auto-populated on the basis of the details furnished by the counterparty supplier in his GSTR-1. (by 11th of the next month before filing GSTR-2)

For more details on GST Returns, please read: Filing of GST Returns – Detailed Guide with Infographics

 

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