In the world of taxation, the Goods and Services Tax (GST) is considered a significant tax reform that has transformed the revenue collection system of the country. GST is the globally recognised indirect tax that has impacted the tax administration of the country in the most productive ways. It has not only increased transparency in the system but has made a significant contribution to overall economic growth. In this article, we will uncover everything about GST, its types, its benefits and more!
What Is GST?
GST was the tax reform that came into effect on 1st July 2017 in India. GST was introduced with the objective of streamlining the effective procedure of taxation and refining India’s $2.4 trillion economy. The Goods and Services Tax comes in five slabs – 0%, 5%, 12%, 18% and 28% – making calculations easier at the central and state levels. This tax is levied on the goods and services on the value added to them. The advent of GST has replaced indirect taxes like VAT, excise duty, customs duty and entertainment tax.
This tax reform was the 101st amendment made to the Constitution of India. There are namely four types of GST in India: CGST, SGST, IGST and UTGST. Every other type of GST is differently levied on the goods and services, which is discussed step by step in later sections below. Every form of GST differs in the calculation, nature, scope, benefits, etc. But before plunging into different types of GST, let us understand more details about GST.
Features of Goods and Services Tax
The significant features of Goods and Services Tax are as follows-
- It has replaced 17 varied indirect taxes, such as excise tax, sales tax, import tariffs, etc., levied at the state and central levels.
- The tax is operational as a comprehensive tax levied on all goods and services mentioned under it.
- It allows the smooth transfer of input credit across the supply chain and the nation.
- It is a consumption-based tax collected at every level of the supply chain.
- It also depends on the destination of the consumption of goods.
Notable Benefits of Goods and Services Tax
Goods and Services Tax offers abundant benefits to both the general public as well as the Government of India. Some of them are stated below-
- GST decreases the price of goods and services for consumers as they now have to pay just one tax instead of many in the past.
- The products falling under the GST slab offer the same prices to the general public worldwide.
- The GST taxation system has made the purchases more transparent as a proper breakdown of prices, and GST is given in the bill receipts.
- Goods and Services Tax is more accessible to comprehend as a tax regime both for the authorities and the general public.
- With GST, the regulation of multiple taxes by the State and Central Government became seamless and transparent.
- The organised tax levy process of GST brings uniformity to the taxation system of India.
- The various types of GST reduce the probability of tax integration between the Central Government and State Government.
Types of GST in India
The Goods and Services Tax are levied in four types namely, CGST, SGST, IGST and UTGST. The main idea of segregation is to establish an independent identity and application of all these types. A detailed description of the types of GST is mentioned below:
- Central Goods and Services Tax (CGST)
Central Goods and Services Tax or CGST is the tax reform that replaced all the taxes levied by the Central Government in India. Examples of such taxes are central excise duty, central surcharge etc. The Central Government levies this tax on the movement of commodities and services within the states of India. Therefore, CGST deals with intra-state transactions wherein the revenue received is distributed between the State Government and the Central Government.
- State Goods and Services Tax (SGST)
State Goods and Services Tax or SGST is the tax regime that deals with intra-state transactions within the geographical boundaries of India. SGST has replaced the state taxes like VAT, Entertainment tax, State Sales tax, etc. The State Government of India charges this tax on intra-state supplies of products and services except for liquor. The features of this tax might vary with each state, but the valuation and classification remain the same.
- Integrated Goods and Services Tax (IGST)
Integrated Goods and Services Tax or IGST is the tax levied by the Central Government on interstate transactions in India. This type of tax is imposed when the supply of goods and services occurs between two states. These supplies are also subject to export and import duty along with IGST.
- Union Territory Goods and Services (UTGST)
Union Territory Goods and Services or UTGST is the tax levied by the Central Government on the supply of goods and services across the union territories of India like Andaman and Nicobar Island, Lakshadweep, etc. It is essential to note that the application of the UTGST is limited to Union Territories without a legislature. Therefore, Delhi, Jammu & Kashmir, and Puducherry are not applicable under UGST.
Rates of CGST, SGST and IGST on Common Commodities
The rates of CGST, SGST and IGST are subject to change with different commodities. The tabular representation of rates is represented with respect to some common commodities as given below-
|Household essentials like coffee (except for instant coffee), tea, edible oil, spices, sugar, etc.; Legal and life-saving drugs, Indian sweets, coal etc.||2.5%||2.5%||5%|
|Computers and processed food||6%||6%||12%|
|Toothpaste, soap and Hair oil; capital goods and industrial intermediaries||9%||9%||18%|
|Luxury items like premium cars, and lavish consumers durables such as air conditioners and refrigerators, aerated drinks, cigarettes, and high-end motorcycles||14%||14%||28%|
Difference Between CGST, SGST and IGST: A Tabular Representation
If you are still confused about the types of GST, then the following differentiation table is presented below for a better idea.
|Basis of differentiation||IGST||CGST||SGST|
|Scope of Applicability||Inter-state transactions in India||Intra-state transactions in India||Intra-state transactions in India|
|Collectionauthority||Central Government||Central Government||State Government|
|Benefitting Authority||Central and state Government||Central Government||State Government|
|Input Tax adjustments (Set-Off)||Input tax credit can be used against either CGST, SGST, or IGST.||Input tax credit can be used against CGST or IGST, but never against SGST||Input tax credit can be used against SGST or IGST, but never against CGST|
Goods and Services Tax is the integral service tax reform that changed the taxation system of India. It has been regulating taxation in a hassle-free manner. Out of all the four types (CGST, SGST, IGST and UGST), the first three are widely prevalent in India with pre-decided slab rates for goods and services under it. The categorisation in the GST was made with the purpose of setting apart state tax from the central tax. Such differentiation is the reason why the taxation system of India is seamless and organised.