What is GST (Goods and Services Tax) in India?

This post explain what is GST (Goods and Services Tax) in India, its benefit, what type of taxes are levied, different tax rates and role play by GSTN.

What-is-GST-in-India

GST is a destination based consumption tax levied by the Government of the supply of goods or services. It is an indirect tax which allows a comprehensive and continuous chain of tax credits from the producer’s/service provider’s stage up to the retailer’s/consumer’s stage. Thus, taxing only the value addition at each stage of the supply chain.

Also Read : Guide on Reverse Charge under GST

Benefits of GST

The implementation of GST in India include the following benefits:

  • Reduction in Multiple Taxes
  • Mitigation of Cascading Effect
  • Reduction in Double Taxation

  • Buoyancy to the Government Revenue
  • Make National Products more Competitive
  • Uniformity in Procedures and Provisions

Also Read : GST on Blogger’s Earnings from WordAds or AdSense

Type of Taxes under GST

There are 3 taxes that are levied under gst which are as follows:

  • CGST: This tax is paid to the Central Government on the intra-state supply (i.e. supply of goods within the state)
  • SGST: This tax is paid to the State Government on the intra-state supply (just like CGST)
  • IGST: This tax is paid to the Central Government on the inter-state supply (i.e. supply of goods from one state to another)

Tax Structure under GST

In most cases, the tax structure under gst shall be as follows:

Basis GST will be applicable on Description
Goods / Services All Goods and Services (other than 5 petroleum products and Alcoholic Liquor for Human Consumption)
Intra – State Supply SGST + CGST Both the Central and State govt. shall equally shares the tax amount
Inter – State Supply IGST Central will first receive the whole tax and then will equally share it with the govt. of destination state.

Simple Example to understand the difference between the three –

Let say, a dealer in Delhi had sold goods worth Rs. 40,000/- to another dealer in Gujarat. The tax rate on the same is 18%.

In this case, Delhi’ s dealer has to additionally collect Rs. 40,000 x 18% = Rs. 7,200/- as the IGST from Gujarat’s dealer.

Now, let say, dealer in Delhi sold the same goods to another dealer within Delhi.

Delhi’s dealer now has to collect CGST and SGST of Rs. 40,000 x 9% = 3,600/- each from the another dealer.

Tax Rates under GST

Since its implementation from 1st July 2017, gst has different tax rates which are as follows:

0%, 0.25%, 3%, 5%, 12%, 18%, and 28% tax rate are applied in gst on the different goods and services.

Out of which 0% tax rate is generally on the goods or services on which is a necessity for the survival, or in the public interest not to tax them. However, goods or services under this list can be shifted to the higher brackets.

28% tax rate is for the luxuries or sinful goods or services.

Rest of the tax rates are as per the consumption power or requirement of the particular industry.

How to Calculate GST?

Taxable Value is a value on which tax is to be charged and an Invoice Value is a Total Value.

  • Invoice Value = Taxable Value + GST Amount

Case 1 – Ascertain Invoice Value from the Taxable Value

If we already know the Taxable Value, then in order to ascertain Invoice Value we need to find out GST Amount.

It can be ascertain by the following formula,

  • GST Amount = Taxable Value x GST Rate

So, GST Amount in case of,

  • Intra State Supply – GST Amount = Taxable Value x (CGST Rate + SGST Rate)
  • Inter-State SupplyGST Amount = Taxable Value x IGST Rate

Case 2 – Ascertain Taxable Value from the Invoice Value

If we know the Invoice Value, then we can find out Taxable Value by the following formula,

  • Taxable Value = {Invoice Value/(100+GST Rate)} x 100

So, Taxable Value in case of,

  • Intra State Supply –
    Taxable Value = {Invoice Value/(100+CGST Rate+SGST Rate)} x 100
  • Inter-State Supply
    Taxable Value = {Invoice Value/(100+IGST Rate)} x 100 

Also Read : What is Foreign Inward Remittance Certificate (FIRC)?

What is GSTN?

Goods and Services Network (GSTN) is basically a special purpose vehicle which has been set up to facilitate a shared IT infrastructure to different stakeholders. GSTN help to provide services to the Central and State Government, taxpayers and other stakeholders.

The functions of the GSTN, inter alia, include:

  • Facilitating GST registration of different stakeholders,
  • Forwarding the filed GST returns to Central and State authorities,
  • Computation and Settlement of IGST among Central and State governments,
  • Running the matching engine for matching, reclaim, or even reversal of Input Tax Credit, and
  • Providing various MIS reports to the central and state governments based on the taxpayers return information.

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