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Goods and Services Tax (GST)

Comprehensive overview of GST in India — types (CGST, SGST, IGST), input tax credit mechanism, benefits, key features, and the GST Council.

Notes

Goods and Services Tax (GST)

Class 12 Indian Economic Development — Overview, Types, ITC, Benefits, and GST Council

Overview of GST

GST (Goods and Services Tax)
A comprehensive indirect tax replacing many indirect taxes in India. GST Act passed in Parliament on March 29, 2017; effective July 1, 2017. It is a comprehensive, multi-stage, destination-based tax levied on every value addition.

One Nation, One Tax

Implemented following the credo of 'One Nation and One Tax' — wanting a unified market for smooth flow of goods and services across the country. Identified as one of the most important tax reforms post-independence.

Key Takeaways

  • GST has replaced 17 indirect taxes (VAT, Service Tax, Excise Duty, Sales Tax, etc.) and 23 cesses of Centre and States.
  • GST charged at each stage of value addition; supplier off-sets levy on inputs in previous stages through tax credit mechanism.
  • Provision of availing input credit at each stage avoids cascading effect (tax on tax) — expected to reduce prices and benefit consumers.
  • GST expected to improve ease of doing business, reduce tax burden, improve tax administration, mitigate tax evasion.

Types of Taxes Under GST

CGST

Central GST

Levied by Centre

Intra-State supply

SGST

State GST

Levied by State

Intra-State supply

IGST

Integrated GST

Levied by Centre

Inter-State supply (IGST = CGST + SGST)

Key Facts About GST

Single Tax Structure

Aims to subsume multiple taxes into one; make goods uniformly priced across India.

Effect on Prices

Luxury goods → costlier. Items of mass consumption → cheaper.

Consumption Based Tax

Tax received by the state where goods/services are consumed, not where manufactured.

Invoice Matching

Input Tax Credit available only when inward supply details match outward supply.

Anti-Profiteering

NAA (National Anti-Profiteering Authority) prevents excessive profits.

Registration Threshold

Turnover > ₹20 lakhs compulsory. ₹10 lakhs for special category states.

Total GST Collection for 2023-24: ₹20.18 lakh crore

Input Tax Credit (ITC)

Input Tax Credit = reducing taxes paid on inputs from taxes to be paid on output. When any supply is made to a taxable person, the GST charged = Input Tax.

GST to be paid = GST on Output − GST on Inputs. Result: Tax levied only on value added → avoids double taxation.

Net Tax Burden: ₹450 − ₹300 = ₹150

Tax paid by manufacturer on output (450) minus tax paid on inputs (300)

Benefits and Key Features of GST

Benefits (7)

✓Reduction in overall tax burden

✓No hidden taxes

✓Development of a harmonized national market for goods and services

✓Higher disposable income in hand, education, and essential needs

✓Customers to have wider choice

✓Increased economic activity

✓More employment opportunities

Key Features (6)

Applicability

Territorial spread = the whole country

Applicable on Supply

GST on supply of goods or services (vs tax on manufacture/sale earlier)

Consumption Based Tax

Destination-based consumption tax (vs origin-based earlier)

GST on Imports

Imports treated as inter-State supplies → subject to IGST + customs duties

GST Rates

Four tax slabs: 5%, 12%, 18%, 28%. Exports and supplies to SEZ = zero-rated.

Payment of GST

Modes include Internet banking, debit/credit card, NEFT/RTGS

GST Council

GST Council

Constitutional Body (Article 279A)

A constitutional body making recommendations to Union and State Governments on GST issues. Joint forum of the Centre and the States.

Composition

  • Chairperson: Finance Minister
  • Vice Chairperson: Chosen amongst State Ministers
  • Members: MoS (Finance) + all Ministers of Finance/Taxation of each State

Quorum

50%

of total members

Voting Weightage

Centre: 1/3
States: 2/3

Decision requires 75% majority of weighted votes