What is the concept of Goods and Services Tax (GST)?

Introduction

The Goods and Service Tax (GST) shall consist of the Central Goods and Services Tax Act, 2017, State Goods and Services Tax Act, 2017, Integrated Goods and Service Tax Act, 2017, Union Territory Goods and Services Tax Act, 2017, Goods and Services (Compensation to States) Act, 2017. Goods and Service Tax (GST) is a destination-based tax on the consumption of goods and services. It is levied at all stages starting from manufacturer to final consumption with credit of taxes paid at previous stages available as set-off. In India, we have adopted a dual GST model in which states and union governments impose taxes simultaneously. The federal structure of the Constitution is also retained under this model, to ensure a seamless flow of credit throughout the territory of India a link Act was necessary and hence the IGST Act, 2017 was passed. Compensation to States for the loss due to implementation of GST is provided under the GST (Compensation to States) Act, 2017.  Where the tax is imposed concurrently by the Centre and States, for an intra-state sale, the GST is equally divided between the Centre and State (CGST+ SGST), and the GST is collected by the Centre (IGST). Sections 7 and 8 of the IGST Act, deal with the criteria for determining whether the supply is inter-state or intra-state. Goods and Service Tax (GST) subsumes several indirect taxes such as Value Added Tax (VAT), Service Tax, Excise Duty, etc, under a single tax regime.

Meaning of Goods and Service Tax (GST)

Goods and Service Tax (GST) is a destination-based tax on consumption of goods and services. It is levied at all stages starting from manufacturer to final consumption with credit of taxes paid at previous stages available as set-off. In a nutshell, only value addition will be taxed and the burden of tax is to be borne by the final consumer. It is a single, unified tax on every value-addition, right from manufacturer to sale to consumption of goods and services.

Key Features of Goods and Service Tax (GST)

• Dual GST Model: The dual GST model refers to a concept where both the Centre and States simultaneously levy taxes on the supply of goods and services while the administration is run separately. India has adopted a dual GST model, i.e., where the tax is imposed concurrently by the Centre and States. For an intra-state sale, the GST is equally divided between the Centre and the States (CGST+SGST), and the GST is collected by the Centre (IGST).
• Comprehensive Tax: Goods and Service Tax (GST) subsumes several indirect taxes such as under Central taxes; Excise Duty, Service Tax, additional customs duty, and other taxes, and under State taxes; Value Added Tax (VAT), entertainment tax, and others. The goal is to eliminate the cascading effect on taxes.
• Destination-Based Tax: Goods and Services Tax (GST) is a destination-based tax on consumption of goods and services. It is levied at all stages right from manufacture to final consumption with credit of taxes paid at previous stages available as set-off. It is different from origin-based taxation because origin-based tax is levied where goods or services are produced.
• Input Tax Credit (ITC): Taxes paid on the inward supply of inputs, capital goods and services are called input taxes. These may be Integrated GST, Central GST, State GST, or Union Territory GST. Taxes paid under the reverse charge mechanism are also input taxes. The credit of these taxes is called input tax credit, that is, the taxes paid on inputs are available as a set-off against the taxes payable on outward taxable supplies.
• Goods and Service Tax Network (GSTN): Goods and Service Tax Network (GSTN) has been set up to cater to the needs of the GST processing system. It shall provide a shared IT infrastructure and services to Central and State Governments, taxpayers, and other stakeholders for the implementation of GST. The function of GSTN would include; facilitating registration, forwarding the returns to Central and State authorities, matching tax payment details with banking network, matching of tax payment details with banking network, etc.

Structure of Goods and Service Tax (GST)

The Central and State Governments have simultaneous powers to levy the GST on intra-State supply. However, the Parliament alone has exclusive power to make laws concerning the levy of goods and services tax on inter- state supply. Thus the Goods and Service Tax are classified into the following categories:

• Central Goods and Service Tax (CGST): Central Goods and Service Tax (CGST), levied by the Centre Government under the Central Goods and Services Tax Act, 2017. This is collected by the Central Government on intra-state (within the same State) supply of goods and services. For example; Mr. X a GST Registered person in Lucknow (Uttar Pradesh) provides consultancy services to Mr. Y a GST Registered person in Noida for Rs. 8 lakhs. The place from where the supply is made is Lucknow and the place where the supply is received is Noida. The supply in this situation is an intra-state supply.
• State Goods and Service Tax (SGST): State Goods and Service Tax (SGST), levied by the State Government under the State Goods and Services Tax Act, 2017.  This is collected by the State Government on intra-state (within the same State) supply of goods and services.
• Integrated Goods and Service Tax (IGST): Integrated Goods and Service Tax (IGST), levied by the Central Government under the Integrated Goods and Service Tax Act, 2017. It is an inter-State (from one State to another State) supply of goods and services. For example; Mr. X a GST Registered person in Lucknow (Uttar Pradesh) provides consultancy services to Mr. Y a GST Registered person in Indore (Madhya Pradesh) for Rs. 8 lakhs. The place from where the supply is made is Lucknow and the place where the supply is received is Indore (Madhya Pradesh). The supply in this situation is an inter-State supply.

Challenges of Goods and Service Tax (GST)

• Multiple Tax Slabs: The presence of multiple tax rates i.e. 0 to 28%, has led to some confusion and dissatisfaction, compared to Value Added Tax (VAT).
• Complex Compliance Burden: In comparison to Value Added Tax (VAT), the Goods and Service Tax are more complex. In GST the compliance burden is with frequently filing returns and maintaining digital records. The complexity can be overwhelming for small business firms.
• Technical Issues with GST Portal: The GST portal faced some technical glitches, leading to delays in filing returns and creating a barrier to the smooth operation of the tax system.

Conclusion

The Goods and Services Tax (GST) in India represents a significant transformation in the country's tax system, designed to simplify indirect taxation. India has adopted a dual GST model, i.e., where the tax is imposed concurrently by the Centre and the States. For an intra-state sale, the GST is equally divided between the Centre and the State (CGST + SGST), and for inter-state sales, the GST is collected by the Centre (IGST). Goods and Service Tax (GST) does away with the cascading effects of taxation, by providing a comprehensive and continuous chain of tax credits, end to end, and taxing only the value-add at every stage. Despite its many benefits, the GST system faces some challenges. The presence of multiple tax slab rates has led to confusion among businesses and consumers alike, while the complexity of compliance, especially for small business firms, can be overwhelming. Additionally, technical glitches in the GST portal have occasionally hindered the smooth functioning of the system, delaying return filings and creating barriers for taxpayers.