Taxes are one of the most important functions of a country. They are the major sources of revenue for the government to conduct the overall functioning and development of the country.The new tax regime, introduced in 2017 by the Central Government, was the GST regime. The full form of GST is the Goods and Services Tax and the government levies it on the supply of all goods and services that comes under the GST regime. To understand more about the GST system, let us dive right into the deep terminologies associated with the GST Full Form and the tax system of India.
What is GST?
The full form of GST is Goods and Services Tax. The Goods and Services Tax is a consumption based tax charged by the Central Government. It is levied on the supply of all the goods and services taxable under the GST system in India. The Central Government then uses this money in the functioning and administration of the nation. Every consumer who is adding value in the supply chain will have to pay GST.
Taxation System of India
There are two segments in the Tax Rule of India- Direct Taxes and Indirect Taxes. You can see these taxes below-
These taxes are levied directly on the assessee’s income from various sources. An assessee is any individual who is liable to pay taxes to the government under the tax system. He can be any individual, firm, company, HUF or any other person. These taxes are paid directly to the government by the assessee based on his earnings. Income tax, wealth tax, and estate tax are examples of direct taxes.
These taxes are levied indirectly on the buyer’s purchases of goods and services because the buyer pays the tax to the sellers, who then pay the collected tax to the government. These taxes are indirect because the buyers are indirectly paying taxes to the government. Many indirect taxes exist, including central excise duty, additional custom duty, entertainment tax, VAT, service tax, and so on.
Tax System of India Before the GST Regime
Prior to the introduction of GST, the tax system was based on production, and there were several state and central taxes, which caused a great deal of confusion. The tax system was difficult to understand because the taxes levied differed across the states of the country. Corruption increased as a result of tax variations, and consumers faced significant difficulties. There were several indirect taxes prior to the GST era, such as customs duty, excise duty, VAT, service tax, entertainment tax, and so on.
History of GST
The discussions of implementing this one single tax were ongoing for a long time. This tax regime was implemented in India in 2000, after the Prime Minister at the time, Shri Atal Bihari Vajpayee, organised a committee as he wanted to improve India’s tax structure. The union ministry proposed the introduction of GST in 2006, but after some amendments, it was finally announced in 2011. The Central Government passed the law of GST on March 29, 2017 and was implemented in July, 2017.
Tax System of India After the GST Regime
After the implementation of the GST system, the n number of indirect taxes were discontinued, leaving only the Goods and Services Tax in effect. GST has replaced 17 of the taxes levied by state and central governments, removing the administrative burden of taxes. Following the GST era, the tax system evolved into a consumer-based tax system that promoted greater simplicity in the tax system.
Why has GST been Introduced?
GST was implemented to reduce the number of taxes levied by the central and state governments and to simplify the tax system. The central concept underlying the GST regime’s implementation was ‘One Nation, One Tax.’ It was critical to bring consistency to the tax system, and the implementation of GST did just that. Each state now has a fixed and uniform tax structure, which makes it easier for consumers to understand taxes. The GST system also reduced the likelihood of corruption, which benefited the general public. However, the primary and most important reason for instituting the GST system is to eliminate the cascading effects of taxes.
Cascading Effect of Taxes – A cascading effect occurs when a tax on tax is levied on a product at each stage of the sale. This results in tax paid repetitively. The tax is levied on a value that includes the previous buyer’s tax, causing the end consumer to pay “tax on already paid tax”. To avoid this repetitive payment of taxes, the government introduced the GST as a single tax to be paid by the entire nation.
Components of GST
According to the GST regime, there are four components or types of GST:-
Central Goods and Services tax is the full form of CGST. It is the tax levied by the central government on the intra-state (within the state) supply of goods and services.
State Goods and Services tax is the full form of SGST. It is the tax levied by the state government on the intra-state (within the state) supply of goods and services.
Integrated Goods and Services tax is the full form of IGST. It is the tax levied by the central government on the inter-state supply of goods and services. The central government collects all the tax in the form of IGST and distributes it amongst the various states. It is also charged on import of goods.
The full form of UTGST is Union Territory Goods and Services tax. The government levies this tax on the supply of goods and services in the Union Territories of the country. The Union territories are Andaman and Nicobar island, Lakshadweep, Chandigarh etc. The CGST is also chargeable along with this tax.
Slabs of GST
Many people are unaware of the GST full form and its tax slabs. GST has five tax brackets: 0%, 5%, 12%, 18%, and 28%. All necessary items come in lower tax slabs while all luxury items come under the higher tax slabs. The GST council has classified nearly 1300 goods and over 500 services into four major tax brackets.
|Percentage of items falling under the tax slab
|Types of items placed under the tax slab
|Regular consumption goods
|Household necessities and daily essentials
|Relatively essential items
The GST Council
You may be aware of the GST full form but you should also know about the regulatory body of GST administration. The GST Council has 33 members and is the GST regulatory body.
- Finance Minister of the Union (as chairperson)
- Other members are – Union State Minister in charge of revenue or finance and State ministers in charge of finance or taxation, as well as other ministers appointed by each state’s government.
Benefits of GST
- GST has eliminated the cascading effects of taxes by requiring consumers to pay only one tax, bringing uniformity and simplification to the tax collection process.
- The elimination of the need to pay taxes on a repetitive basis has resulted in lower prices for goods and services.
- According to the Indian government, service providers and business owners with a turnover of Rs. 20 lakhs or less will not have to pay GST, which is a significant benefit to such companies.
- GST eliminated the practise of fraud selling or selling without providing receipts to customers, thereby eliminating corruption.
- Because GST registration and GST returns can be completed entirely online, tax filing has become much easier.
- Small businesses benefit from the implementation of GST because they only have to pay one tax. Similarly, by eliminating the cascading effect of taxes, GST has enabled people to save a significant amount of money.
- All businesses with a turnover of up to INR 75 lakhs can benefit from GST by participating in composition schemes and paying only 1% of the turnover amount.
- Following the implementation of the GST, the country’s unorganised sectors have improved in terms of accountability and transparency. As a result of the implementation of GST, many compliances and provinces regarding online payments have been added to the unorganised sectors.
Every business with a yearly turnover of more than Rs. 40 lakhs is required to register under GST administration. It is an offence under GST law to conduct a business without first registering for GST. Furthermore, during the registration process, each GST taxpayer is assigned a unique identification number known as a GSTIN (Goods and Services Tax Identification Number).
GST Registration can be done online using the online GST portal. You can use the experts to fill your form as it is crucial to fill the correct information. You can get many benefits because of GST registration such as lawful recognition, lower tax rates, exemptions from double taxations, facility of e-way bill and protection from paying penalties.
A GST return is an official document that details all purchases, sales, tax paid on purchases, and tax collected on sales. You will have to file the GST Return, after which the taxpayer must pay the tax liability.