Taxation has always been a crucial topic to understand, to understand how much you need to pay to the state for each and every service or product you consume. And since its introduction in the Indian tax system, GST has become a crucial element that you need to know about to make sure all your finances are in order. For this purpose, we will tell you all about the GST system, including what it means, its benefits over the previous tax system, the implementation challenges, the types of GST you may come across, goods exempt from GST, and the state code list. This will make you more knowledgeable and informed about the GST process and make it much easier for you when you wish to file for returns and interact with GST charges more.
GST Full Form
GST stands for Goods and Services Tax. It is the extra charge you pay when you indulge in any goods or services, collected by the government to be used for various forms of governance, public maintenance, and essential government tasks. For efficiency in paying taxes through GST, it is divided into jurisdictions based on the state you have purchased the goods or services in. It is a form of indirect Tax levied on entities in India and is payable by the consumer of specific goods or services, charged alongside the price of the product, increasing its price in the process.
Despite initial reservations among citizens regarding letting go of the former tax system and introducing GST, there are many clear advantages that we can see. Here are some of the clear advantages of GST:
- A singular standard of taxation: Prior to GST, goods and services were taxed on the basis of service tax and VAT regulations, increasing the net tax amount individuals and businesses had to pay. However, GST is the singular taxation standard, implying that you need to pay it once and you are done. Also, this reduces the amount of tax paid, providing consumers with more monetary benefits as well.
- Increased threshold for entity registration: GST has raised the threshold for registering businesses, exempting small businesses with turnover less than Rs 20 Lakhs from paying taxes mandatorily. This is in contrast to the previous structure, where any business with a turnover higher than Rs. 5 lakhs had to pay VAT. Moreover, GST also entitles small businesses with turnovers between Rs 20 Lakhs and Rs 75 Lakhs to benefit by using the composition scheme.
- A much simpler process: The entire GST process, starting from registration to filing returns, is done online, making it much more convenient for entities to pay taxes and file for returns on time. In a move to make India more digital, this process has also played a crucial part in making the lives of individuals and business owners alike much easier.
- Reduced number of compliances required: Much like the reduced registration threshold, the compliances associated with paying taxes and filing returns have also been reduced with the introduction of GST. While earlier, it included monthly compliances for Excise duties, quarterly/monthly compliances for service tax and similar compliances for VAT, it has become unified under GST.
Implementation challenges of GST
While it has become incredibly convenient, there are many challenges associated with implementing GST as well. Here are a few:
- Immense reliability on IT and technology: One of the major challenges that have been faced is the fact that it relies solely on technology and digital means of taxation. While it can be considered a positive aspect, one that will help India grow digitally, it must be considered that a huge portion of India is still in poverty. In light of this, introducing a digital-only system can possibly restrict many small businesses in rural locations. Furthermore, India’s IT structure itself is not yet robust, implying that it may lead to issues amid the massive digital shift being attempted by the government.
- Multiple statutes to be enacted: There are multiple kinds of taxes that need to be levied, such as CGST, SGST and IGST. When creating any invoice, clear distinctions between such is crucial to ensure that the documentation is accurate, as opposed to just a single statute that had to be followed in the past.
Three different types of GST
There are primarily three kinds of GST that are levied when using the GST taxation system. With distinctions being on the GST code relevant to the consumer, it is crucial to make sure that such types are carefully paid attention to in the billing process. These types are CGST, SGST, and IGST, which have been explained below.
- CGST (central goods and services tax): CGST, or Central Goods and Services Tax, is the first of the intra-state GST types. This is levied when the location of the vendor and the consumer is in the same state. In the case of both being from the same state, half of the total GST levied is paid to the Central Government, hence named as the Central GST. The other half is the SGST, which needs to be paid to the State Government and has been addressed below.
- SGST (state goods and services tax): SGST, or State Goods and Services Tax, is the other intra-state GST type. When any intra-state transaction occurs, it is crucial for both CGST and SGST to be charged. In this case, the total GST is broken into two parts, where one half goes to the Central Government and the other goes to the State Government. For instance, if the total GST is 18%, then 9% is levied as CGST and the other 9% is levied as SGST.
- IGST (integrated goods and services tax): IGST stands for Integrated Goods and Services Tax and is the only inter-state GST charge. This kind of GST is charged when the vendor and buyer belong to different states, implying the need for an integrated charge that can be transferred across states fluidly. In this case, the total GST is charged collectively, rather than breaking them into two, as seen in CGST and SGST. Therefore, if the GST charge for a particular service is 18%, then the IGST charge would be the entire 18% and it would be reflected as such on the invoice.
- GST Exempted Goods: Exemption from GST allows many businesses to steer clear of any GST charges levied on their products and services. In this regard, the following goods are exempted from the GST charge:
- Fresh produce and vegetables, such as onions, potatoes, and other vegetables.
- Food items recognised as daily essentials, such as milk, eggs, fish, etc.
- Unprocessed fruits, beans, and ingredients, such as green tea leaves, melons, fresh coffee beans, garlic, ginger, grapes, and many more.
- Loose food items not packaged in branded packaging, such as rice, wheat, corn, hulled cereal grails, etc.
- Life-saving components, such as human blood.
- Unspun fibres, such as jute, khadi, and raw silk, among many others.
- Handloom goods, chalk, slates, and essential medical equipment parts, such as manufacturing parts for hearing aids, among other similar goods.
While these are exempt from GST, they will attract the relevant charges once they are processed.
GST State Code List
GST codes are assigned to each Indian state, and these are the first two digits in any GST registration code of any GST-registered business or vendor. Going in chronological order, given below is the list of all Indian states with their respective GST codes:
|Serial No.||Name of State||State GST Code|
|1||Jammu and Kashmir||01|
|25||Dadra and Nagar Haveli and Daman and Diu||26(Prior to merging of the two UTs, Daman and Diu had been 25)|
|27||Andhra Pradesh (Prior to division)||28|
|34||Andaman and Nicobar Islands||35|
|36||Andhra Pradesh (Newly added)||37|
|37||Ladakh (Newly added)||38|
GST has been a transformation in the way taxation was done in India. With many benefits that are expected to make the taxation system easier and more beneficial for citizens, it has indeed been a positive change. However, becoming more familiar with the system can help individuals and businesses alike to stay aware of the different GST rates, GST types, as well as goods exempt from GST. Furthermore, gaining further knowledge can also help entities to be more efficient when filing for returns at the end of the financial year. Therefore, the concepts addressed here can act as a starting point for further research into the topic of GST, including CGST, SGST, IGST, filing GST returns, and such.