A Guide to Goods and Service Tax (GST) in India- Meaning, evolution, features and registration
INTRODUCTION OF GST IN INDIA
The Goods and Service Tax (GST) is an inclusive Value-Added Tax (VAT) on the supply of goods or services. The introduction of the GST in India is a historic step because it marks a major reform of the country's indirect taxation. It is expected that the consolidation of a large number of taxes (central and state) into a single tax will bring huge benefits. One of the most important advantages of this measure is to reduce double taxation or eliminate tax cascading effects.
The initiative paved the way for the establishment of a common national market. After the introduction of the goods and services tax, it should be more competitive in the domestic and international markets.
EVOLUTION OF GST IN INDIA
During the pre -GST regime, indirect taxes in India were collected by both Central and State Governments under various Taxation Laws. However, with time, it was felt that administrating various taxation laws both at Centre and State was quite a task and the dealers/manufacturers were burdened.
Thus, to provide relief to the business houses and service providers and also the Centre and well as State Government, the decision to introduce comprehensive GST laws were taken into consideration.
Some of the major events that bought changes in the GST structure of India are -
In the year 2000, the idea of adopting GST was first advised by the Vajpayee Government
In the year 2004, A special task force was ruled by Vijay L. Kelkar the advisor to the finance ministry, indicated that the existing taxation system had a lot of hurdles that would be eased by the GST system.
In the year 2005, the Finance Minister of that time P. Chidambaram stated that as discussed at the 2005-2006 budget meeting, the government’s mid-and long-term goal is to introduce a single goods and services tax structure across the country, covering the entire production-distribution chain.
In February 2006, the finance minister fixed 1 April 2010 as the introduction date of GST. This deadline for GST implementation was retained in the Union budget for 2007-08.
In the year 2011, the Constitution (115th Amendment) Bill for the introduction of GST, was put forth by the Government led by the Congress Party.
In May 2014 the Constitution Amendment Bill lapsed. Narendra Modi was in power at the Centre during this same year.
Arun Jaitley, India’s new Finance Minister put forward the Constitution (122nd Amendment) Bill, 2014 in the parliament. Jaitley in his speech indicated that the government is planning to implement the GST system by 1 April 2016.
In the year 2015, The Lok Sabha passed the Constitutional Amendment Bill. However, the same was not passed by Rajya Sabha.
In March 2016, Mr. Jaitley agreed with Congress's demand for the GST rate not to be set above 18%. But he was not inclined to fix the rate at 18% for a long term.
In August 2016, the opposition party led by Congress finally agreed to the Government’s proposal on the amendments to the Bill. The Bill was hence successfully passed in the Rajya Sabha. In the same year, the Honourable President of India provides his consent to the bill to become an Act.
In the year 2017, Four Bills related to GST to become an act were approved in the parliament with the President’s assent:
The Central GST Bill
The Integrated GST Bill
The Union Territory GST Bill
The GST (Compensation to States) Bill.
GST rates and GST rules were finalized by the GST Council.
Finally, from 1 July 2017, the government declared that GST would be applicable.
THE MEANING AND FEATURES OF GST:
Article 366 (12A) of the Constitution of India defines the Goods and Services Tax (GST) as a tax on the supply of goods and services or both, besides the supply of alcoholic liquor for human consumption.
Goods and services tax is a tax based on the consumption of goods and services from producers to consumers and is levied by the State and Union Governments for the same taxable event. It is levied in all stages from manufacturing to the final product. Thus, only value addition is taxed. The final consumer bears the burden of the tax.
THE SALIENT FEATURES OF GST
No cascading effect: The effect of taxes on taxes is known as cascading effect. In India, both the states and the center levy tax separately and this causes the cascading effect. This problem is solved by the introduction of GST, where Input Tax credit (ITC) can be availed for both Excise duty as well as for inter-state purchase.
One Nation One Tax: GST is one of the most important indirect tax reforms of India. “One Nation One Tax” means we have only one type of tax throughout the nation although multiple tax rates of different items of goods and services.
The Dual-mode: There are two components of GST – The Central GST(CGST) and the State GST (SGST). The CGST (Central goods and service tax) is levied and collected by Central Govt. on an Intrastate sale. Whereas, The SGST (State goods and service tax) is levied and collected by the State Govt. on an Intra-state scale.
GST is a destination-based Consumption taxation.
Th introduction of GST would facilitate the free movement of goods and services across the country and would create a unified national market.
The power to suggest modifications in the rules, rate structure, etc. under Article 279A is provided to GST Council. Based on the recommendations made by the GST Council, modifications relating to GST Laws, rules, etc. are made that are notified by the Government.
The Integrated Goods and Service Tax (IGST) is levied and collected by the Central Government on the inter-state supply of goods and services.
GST would help in broadening the tax base.
GST will help in ensuring a seamless flow of credit across the whole supply chain of products and service providers in all states under a common tax base.
GST will improve transparency in the indirect tax system and is expected to reduce inflation.
Under the GST regime, the collected revenue is expected to increase many fold.
GST is technology-driven. All the procedures, starting from applying for registration, filing of returns, filing for refund claims, payment of taxes, etc are done online through the common portal (GSTN).
PERSONS LIABLE TO PAY GST
People registered under GST and making taxable supplies under GST.
People registered under GST are required to make payment of tax under the reverse charge mechanism.
E-Commerce operators registered with GST and through whom certain categories of notified supplies are made.
People registered under GST and required to deduct Tax (TDS)
E-Commerce operators registered with GST and required to collect tax (TCS)
Generally speaking, goods or services registered suppliers must pay GST; although in special cases, like imports and other supplies, the responsibility is bore by the recipient according to the reverse charge mechanism. The "Reserve charge" refers to the obligation to pay taxes on the recipient of the taxable supplies rather than the supplier. Moreover, in some reported cases of intra-state services, the liability to pay GST may be taken by an e-commerce operator who provides the service.
Since GST is a tax on "supply", all suppliers that levy taxable supplies must be registered. However, small businesses with a total turnover of fewer than 20 lakhs (Rs 10 lakh in Assam, Manipur, Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Meghalaya, Tripura, Himachal Pradesh, and Uttarakhand) don't need to register for GST.
The total turnover includes all supplies done by the supplier, comprising on behalf of his principals, but does not include the value of the job-worked goods. However, an agriculturist, to the extent of supply of produce out of cultivation of land or the persons involved exclusively in the business of non-taxable or exempt supplies is not subject to registration under GST.
A registered person who receives goods and services from an unregistered person is taxable on such receipt of supply. Small businesses below the threshold can volunteer to register, pay the tax, and act as ordinary taxpayers. In this way, businesses have the right to credit all purchases made and can also approve a tax credit is paid to the customers.
Under GST, some government agencies are required to deduct Tax (TDS) from the amount they pay to suppliers. When the total value of such supplies under the contract exceeds 2 Lakh and 50 thousand rupees, a tax would be deducted at 2% of the payment made to the suppliers of taxable goods or services or both. Hence, customized shipments may be less than Rs. 2.50.000 /, but if the limit of contact value is exceeded, TDS will be deducted.
THE ADVANTAGES OF GST
The final tax on purchased goods and services is paid by consumers under the GST administration. GST is levied only on the value of goods and services. This eliminates the cascading effect.
Goods and services taxes help reduce legal disputes by clarifying the tax sovereignty between the central and state governments. GST provides seamless tax assessment.
GST has helped in creating a common National market and helped to boost the economy.
As GST has reduced the difficulties in the Indirect tax mechanism, it made it easy to do business.
GST has helped in the abolition of payment of multiple taxes but formulating “One Nation, One Tax” mechanism
GST has regulated some of the unorganized sectors such as the textile and construction industries.
Using the GST online portal, taxpayers can directly register, submit tax returns, and pay taxes without interacting with tax authorities. A mechanism has been planned to match the supplier and customer of the invoice. Not only can it control tax fraud and tax evasion, but it can also bring more businesses into the formal economy.
THE DISADVANTAGES OF GST
Before the introduction of GST, small and medium enterprises were needed to pay excise duty only if it exceeded a turnover of Rs. 1.5 crore every financial year. However, after the introduction of GST, businesses whose turnover is more than Rs 40 lakhs are liable to pay GST.
Since the GST administration relies heavily on information technology, the Government officials have not been fully trained in the practical use and implementation of such systems.
Insurance premiums have become more expensive with the introduction of GST.
With the increase in transaction fees due to GST (from 15% to 18%), the financial sector has become more expensive.
The increased cost of software purchases that can contribute to the GST filing process made its way to increased operational costs for many businesses.
GST is being criticized and named as a “Disability tax” as it taxes articles such as wheelchairs, hearing aids, etc.
REGISTRATION UNDER GST
GST registration is pan-based and specific to each state. The supplier has to register in each of such States from where he supplies. However, a person registered in one state is considered “unregistered” in another state. During the registration, a person is provided with a 15-digit GST identification number known as “GSTIN” and a certificate of registration. However, it must be noted that there is only a single registration for all the taxes i.e., CGST, UGST/SGST, IGST, and cess.
There would be only one GSTIN per State of a PAN-based legal entity, which means a business entity with its branches in different States will need to take separate State-wise registration for the branches in multiple States. In case of a person having multiple places of business in State or Union, the territory may be granted a separate registration for each such place of business. All registrants must display their registration certificate and GSTIN in a prominent location at their principal place of business and every additional business place.
TIME LIMIT FOR APPLYING FOR THE REGISTRATION UNDER GST-
An application must be submitted online within 30 days from the date when the liability to register took place, common portal (GSTN)
At least 5 days before the commencement of the business, the casual and non-resident taxable persons need to apply.
The liability for the transferee of a business to register arises on the date of transfer.
PENALTY UNDER GST REGISTRATION
Chapter XIV of the Goods and Services Tax Act 2017 says about the search, inspection, seizure, and arrest after GST registration.
Under Section 67 If any person evaded tax liability, or ran from the payment of the tax, or claimed the input tax, credit in excess, or has kept in accounts in such a manner that indicates the evasion of tax under this act shall liable for the penalty.
Under Section 69, If any person has committed any offense mentioned in Section 132 of the act he is liable for the arrest by the central tax officer in charge.
GST's introduction has reformed the indirect taxation system and brought prosperity to the economic sector of the country. Its different features like “One Nation One Tax”, eradication of cascading effect, dual-mode of GST, etc. have eased the problems that were present in the previous taxation system.
GST will see more changes in the coming years as it is subject to India's economic and political developments all the time. We will be updating our coverage of the same as we receive them.