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The proper foundation of taxation was laid in India in 1922. The entire tax structure has undergone a sea of change within a century. This includes the introduction of Indirect Tax, which was in 1944 when excise duty was introduced.
Since then, many indirect taxes have been introduced. This is no longer the case, as most indirect taxes on several goods and services are now taxed under the Goods and Service Tax.
Did you know that most of us, directly or indirectly, pay GST?
Though most of us have a general idea of what is GST and need no introduction to GST, it is imperative to know the basics and objectives of GST.
What Is GST (Goods and Service Tax)
Goods and Service Tax is an indirect tax levied on all value-added goods and services. GST was prevalent in several countries, spearheaded by France in 1954. However, in India, the concept was introduced in the late 1990s. In 1999, then Prime Minister Atal Bihari Vajpayee and his team of economic advisors set up a panel to design a new taxation model, which is the Goods and Service Tax (GST) model.
However, it wasn’t until 1st July 2017 that GST was launched and it was stated that all indirect taxes would be subsumed. The reason for the implementation of GST was that it would make Indian products more competitive domestically as well as in the international market since there would be complete neutralisation of input tax across production and distribution. Though GST rates are periodically revised and reviewed by the GST council, as of date, the rates are divided into various slabs: 0%, 3%, 5%, 12%, 18%, and 28%.
So which taxes were replaced by GST?
Taxes that GST replaced are listed below:
- Service tax
- Excise duties (central and additional)
- Additional Custom duties (incl. special additional)
Taxes that were included in the purview of GST are:
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entertainment Tax
- Entry Tax
- State Cess and Surcharges
- Taxes on advertisements
- Taxes on lotteries, betting, and gambling
Here is a diagram that explains how GST works; the left side represents the older taxation, and the right side shows how GST is calculated.
Benefits of GST
Following are the advantages of GST:
- “One nation, one tax” – GST has allowed for standardisation and helped monitor tax compliance across states for products and services. This also makes it easier for taxpayers to follow a standard process to file tax returns.
- Inclusion of many indirect taxes into one – Most indirect taxes under the State and Central Government have been included under GST. It made tax administration simpler for the Government and compliance easier for taxpayers.
- online – Paying taxes and filing returns for one single tax is simpler and has reduced paperwork complications. Today, a centralised online portal is used for e-invoicing, e-way bills, and GST returns filing. This has increased the efficiency of the process.
- Reduce tax evasion and corruption – A centralised monitoring system for taxpayers has significantly reduced loopholes that defaulters and fraudsters can misuse. E-invoicing has also made it more authentic since fake invoices cannot be uploaded into the system.
- Eliminate cascading of taxes – Earlier, multiple taxes were levied between stages, which could not be offset against one another. For example, the excise duties paid during manufacturing could not be offset against the VAT payable during the sale. GST eliminates the tax on tax, and therefore the cost of goods decreases.
Types of GST
State Goods and Service Tax (SGST)
This tax is levied by individual states. It is applicable when the sale of goods or services is intra-state and is collected by the State Government. The tax percentage depends upon the service type used or the goods sold. It is charged along with Central Goods and Service Tax, and the total tax is split between the state and the centre.
Integrated Goods and Services Tax (IGST)
When the sale of goods or supply of services takes place between two separate states, Integrated Goods and Services Tax (IGST) is applicable. The central government charges this.
Union Territory Goods and Services Tax (UTGST)
This type of GST is similar to SGST and applies to the supply of goods and services in union territories.
Central Goods and Services Tax (CGST)
Central Goods and Services Tax (CGST) is the indirect tax that the Central Government imposes. This tax is charged along with State Goods and Service Tax (SGST), where half of the tax amount is deposited with the state government and the other half with the central government.
How to Go About with GST registration
The registration of GST is PAN-based and state specific. Information can be filled in online by entering the following details:
- PAN of the business and Aadhaar details of the owner or director
- Proof of business registration or incorporation certificate
- Address proof of the business
- Identity and address proof of promoters/director with photographs
- Bank statement/cancelled cheque
- Letter of authorisation
All the information can be signed off with a digital signature.
Who Is Eligible for GST?
Registration under GST allows a business to collect tax on behalf of the Government and to avail of input tax credits for its supplies.
- A business that supplies goods and has a turnover of more than Rs. 40 lakhs under the Normal Category must register for GST. If the business falls under Special Category, the turnover must be over Rs. 20 lakhs.
- A business that provides services and has a turnover of more than Rs. 20 lakhs under the Normal Category must register for GST. If the business falls under Special Category, the turnover must be over Rs. 10 lakhs.
- All suppliers (inter-state) and distributors, except agriculturists or businesses exempt from tax, must register.
- E-commerce operators must also register for GST.
How Do I Calculate GST?
To calculate the GST amount, you will need to know the cost of the goods and the tax slab under which it falls. Based on this, the formula for adding GST is:
GST Amount = (Original Cost x GST %)/100
Gross Price = Original Cost + GST Amount
What Is the Applicable GST Rate on My Policy?
The GST for term insurance premiums is 18%. For endowment plans, it is 4.50% for the first year and 2.25% subsequently. For ULIPs, the GST rate is 18% and includes fund management charges as well as the premium.
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