In this comprehensive guide, we will dive into the complexity of GST. Here we will explore its types, history, objectives, advantages, disadvantages, and the new compliance measures it introduced. The guide has framed all the GST basic concepts in one single platform for easy understanding.
India’s introduction of the Goods and Services Tax (GST) on July 1, 2017, marked a significant shift in its taxation landscape. GST was considered a game-changer that aimed to simplify and streamline the complex web of indirect taxes. It had plagued the country’s businesses for decades.
Let’s discuss few important GST basic concepts now.
GST Basic Concepts – What is GST?
GST stands for Goods and Services Tax. It is a new tax system in India that replaced multiple indirect taxes like excise duty, service tax, and VAT. GST is a single tax that is levied on the sale of goods and services across India.
The main goal of GST is to simplify the tax structure in India and make it more transparent. It also aims to boost economic growth by removing tax barriers between states and reducing compliance burdens for businesses.
Following are a few benefits of GST:
- It simplifies the tax structure by replacing several different indirect taxes with a single tax.
- It eliminates tax barriers between states, which can boost trade and investment.
- It reduces compliance burdens for businesses.
- It makes taxation more transparent.
GST is still a relatively new tax system, and some challenges need to be addressed. However, it has the potential to be a major positive force for the Indian economy.
We hope this information will give you a general idea of basic GST concepts. Let’s move with the history behind GST.
History of GST
The Goods and Services Tax (GST) was first proposed in India in 2000. The idea was to create a single tax system that would replace the many different indirect taxes that were in place at the time. This would simplify the tax system and make it more efficient.
However, there were many challenges to implementing GST. One challenge was that the different states in India had different interests and were not always willing to agree on a common tax system. Another challenge was that the GST would require a significant amount of IT infrastructure to be built, and this was not easy to do.
Despite these challenges, GST was finally implemented nationwide on July 1, 2017. This was a major achievement, and it has the potential to simplify the tax system and promote economic growth in India.
The implementation of GST has been a major undertaking, and there have been some challenges along the way. However, it is a significant step towards simplifying the tax system and promoting economic growth in India.
Knowing the history of GST can help you understand why it was created, what problems it was meant to solve, and how it has evolved over time. This small basic concepts of GST will help you a lot in creating strong knowledge base.
Objectives of GST
To clearly understand GST basic Concepts firstly you need to understand it’s objective. Knowing the objectives of GST can help you understand how it simplifies taxation, promotes economic growth, reduces tax cascading, and ensures a more transparent and efficient tax structure. All these features ultimately benefits both the government and taxpayers.
The following are the main objectives behind GST implementation:
- Simplifying the tax structure: GST aims to simplify the tax structure by replacing multiple indirect taxes with a single, unified tax. It will make it easier for businesses to comply with tax laws and will reduce the cost of doing business.
- Creating a common market: It eliminates tax barriers between states, creating a common market for goods and services. It will make it easier for businesses to sell their products and services across India and will boost economic growth.
- Boosting economic growth: GST aims to boost economic growth by reducing the cost of production, increasing competitiveness, and attracting investment. Thus it will create jobs and improve the standard of living for all Indians.
- Decreasing tax compliance: GST will help to decrease tax compliance by introducing a robust IT infrastructure and a single platform for filing returns. It will make it easier for businesses to comply with the tax laws and will reduce the scope for tax evasion.
- Reducing the tax burden on the common man: It aims to reduce the tax burden on the common man by eliminating the cascading effect of taxes. It means that businesses will only pay tax on the value they add to goods and services, and the tax will not be passed on to consumers.
Now we hope that you have an understanding of basic concepts of GST. We will move to the next part and see How it works with real-life examples.
Even you can explore GST Course to learn complete GST basic concepts.
How Does GST Work?
Goods and Services Tax (GST) is a tax levied on the supply of goods and services in India. It is a multi-stage, destination-based tax, which means that the tax is collected at various stages of the supply chain and is ultimately paid by the end consumer.
Learning how GST works is essential for understanding its basic concepts of GST. It can help you and businesses to accurately calculate GST. Even you can claim input tax credit, and comply with GST laws and regulations.
Let’s start learning the complete process.
- Transition from Previous Tax System: Before GST, India had a complex tax system, including VAT, Excise Duty, and others, each with different tax rates and compliance procedures. GST simplified this by creating a unified tax system.
- Multi-Stage and Destination-Based Tax: GST is multi-stage because it applies at multiple stages of the supply chain, from raw material purchases to end consumer sales. It’s destination-based, meaning taxes are collected where goods or services are consumed, not where they originate.
- Understanding Value Addition: GST’s key principle is to tax only the value added at each stage of production and distribution, reducing the cascading effect of taxation.
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To understand how GST works,let’s take a look at a real-life example. Imagine you buy a television from a local electronics store. Here’s how GST is applied at various stages of this transaction
- Manufacturer: The manufacturer sells the television to a distributor. The GST charged by the manufacturer is based on the selling price of the television. If the GST rate for televisions is 18% and the manufacturer sells the television to the distributor for 20,000 rupees. The GST charged would be 3,600 rupees (18% of 20,000 rupees).
- Distributor: The distributor then sells the television to a retailer. Again, GST is charged based on the selling price. If the distributor sells the television to the retailer for 25,000 rupees. The GST charged would be 4,500 rupees (18% of 25,000 rupees).
- Retailer: You, as the consumer, buy the television from the retailer. The retailer charges GST based on the selling price of the television. If the retailer sells the television to you for 30,000 rupees. The GST charged would be 5,400 rupees (18% of 30,000 rupees).
In this example, the total GST collected throughout the supply chain for this television transaction is 13,500 rupees (3,600 + 4,500 + 5,400).
It is important to note that the actual GST rates and calculations can vary based on product categories, locations, and applicable tax rates. However, this example illustrates the process of how GST is levied at different stages of the supply chain. Here we can analyze, how it eventually contributes to the final price paid by the end consumer.
If you are a student all these GST basic concepts will help to boost your knowledge and confidence. As a business owner, this guide helps you to understand the complex GST easily.
You can also explore GST courses to learn complete concepts on GST
Moving forward take a look at the different types of GST in India. All GST types are contributing to Indian economic growth.
What are the 4 types of GST?
There are four types of GST implemented in India as mentioned below:
- Central Goods and Services Tax (CGST): The CGST is a tax levied by the central government on the supply of goods and services within a state. The revenue from the CGST goes to the central government.
- State Goods and Services Tax (SGST): The SGST is a tax imposed by the state government on the supply of goods and services within a state. The revenue from the SGST goes to the respective state government.
- Integrated Goods and Services Tax (IGST): The IGST is a tax charged by the central government on the supply of goods and services between two states or between a state and a Union territory. The revenue from the IGST is shared between the central government and the state of consumption.
- Union Territory Goods and Services Tax (UTGST): The UTGST is a tax levied by union territory governments on the supply of goods and services within union territories. The revenue from the UTGST goes to the respective union territory government.
Advantages of GST
- Unified tax system: GST eliminates multiple levies, such as excise duty, service tax, and VAT, and offers a single tax structure across India. This makes it easier for businesses to comply with tax laws and reduces the cost of doing business.
- Reduced compliance burden: GST simplifies compliance for businesses by introducing consolidated returns and automated processes. It means that businesses only have to file one return for all their GST transactions, and they can do so online.
- Easy accessibility: The GST system is accessible online, making it easy for businesses to file their returns and stay up-to-date on the latest tax laws.
- Improved logistics efficiency: GST eliminates the need to pay state-level taxes during interstate movement of goods. It reduces the time and cost of transporting goods across India.
- Support for “Make in India”: GST promotes “Make in India” by simplifying the taxation of manufacturing. It makes it more attractive for businesses to set up manufacturing operations in India.
- Elimination of cascading effect: GST eliminates the cascading effect of taxes, which means that businesses only pay tax on the value they add to goods and services. It ultimately reduces the overall cost of goods and services.
- Increase in revenue: GST reduces tax evasion, increasing overall tax revenue. It can be used to fund government programs and services.
- Enhanced transparency: The new GST return filing process enhances transparency in tax administration. It makes it easier for businesses to track their tax payments and for the government to monitor tax compliance.
Disadvantages of GST
- Cost increases for businesses: Businesses had to incur additional costs when transitioning to GST. Businesses have upgraded to GST-compliant software and hiring tax experts increases the business cost.
- Higher software costs: Businesses had to upgrade to more expensive GST-compliant software, which increased their operating costs.
Till now we have seen the GST basic concepts in terms of its working structure, benefits, and disadvantages. Now we will discuss its comparison with the previous tax system and VAT.
Difference Between GST and VAT
||Goods and Services
||Goods only (not services)
||Both goods and serviceable
||Sales of goods only
||Uniform across all states different
||t rates and rules by state revenue
||Shared between Central & State
||Collected by the state
||Varies from state to state
Difference Between GST and Older Tax System
||Previous Tax System
|Number of taxes
||Single tax system
||Multiple taxes (excise, VAT, etc.)
|The cascading effect was eliminated
||Eliminated through input tax credit presented
||Present (tax on tax)
|Uniform tax rates
||Standardized rates for goods and services varying
||Varying rates across states
|Ease of compliance
||Common nationwide online platform separate
||Separate filings and compliance
||More transparent and technology-drives
||Less transparent, manual processes
||Streamlined with IGST
||Central Sales Tax (CST) in place boost
|Boost to manufacturing and exports lower
||Lower manufacturing costs, export boost higher
||Higher manufacturing costs, less competitive exports
|Tax credit on inputs
||Allowed, reducing tax liability limited
||Limited or no tax credit on input tax
|Tax collection efficiency
||Improved with real-time tracking less
||s efficient, prone to evasion
|Tax structure complexity
||Complex and layered
|Transparency and compliance
||Enhanced due to digital records
||More challenging due to manual records
New Compliances Under GST
- E-Invoice: E-invoicing is a system of generating and transmitting invoices electronically. It aims to improve efficiency and accuracy in the invoicing process by eliminating the need for paper invoices. E-invoices are also more secure and can be easily tracked by the tax authorities.
- QR Code Implementation: Some businesses must implement QR codes on their invoices. QR codes are scannable codes that contain information about the invoice, such as the invoice number, date, and amount. QR codes allow tax authorities to verify invoice information quickly and easily.
- Annual Return (GSTR-9): Every registered entity under GST must file an annual return summarizing all transactions during the financial year. The annual return is a comprehensive document that provides a detailed overview of the taxpayer’s GST compliance.
- E-Way Bill: An e-way bill is a document that is required for the movement of goods across India. It is a digital document that contains information about the goods being transported, such as the consignment number, value, and destination. E-way bills are mandatory for the movement of goods costing more than Rs. 50,000, regardless of the consignment size.
Goods and Services Tax (GST) has simplified India’s taxation landscape by replacing multiple indirect taxes with a single tax system. It has also fostered a unified market by eliminating tax barriers between states.
We hope that this guide will empower businesses and individuals with the knowledge they need to thrive in India’s GST-driven economy. As GST continues to evolve and adapt to the changing economic landscape, staying informed is key to success.
You can stay updated and learn GST under the ICA expert’s guidance. Check out the GST course
Hopefully, all these articles will help you clear your basic concepts of GST. Stay connected with our article for more information and tips.