GST was introduced to mainstream all the untoward taxes in one. It can be defined as one tax for one nation. There were many taxes such as service, central exercise, and state value-added tax (VAT). GST has replaced all of the tax. GST is classified into three subcategories-IGST , SGST , and CGST-that depends on whether the performed transaction is intrastate or interstate.
What is GST?
There were many indirect taxes applied in the country. GST was introduced with the sole purpose of directing all the untoward taxes and streamlining them into one. GST was upheld to simplify to replace indirect taxes. The parliament has passed the Goods and Services Tax Act on 29th of March in 2017. Although the ACT came into effect only on the 1st of July, 2017.
Goods and services tax can be defined as a value addition at each stage which has comprehensive as well as continuous chain set of benefits to offer. GST is value addition, destination-based, comprehensive and multi-stage in nature. The mentioned elements are explained below:
- Value addition: GST is posed on any value addition before the completion of the product. This can be explained better with value addition in the monetary worth of every item added at every step which will lead to the final value of the product consumed by the end customer.
- Destination-based: it means that tax is posed on the product based on its destination and consumer. In simpler words, it means that the tax imposed at the point of consumption, not at the phase of production.
- Multi-stage: Since the product goes to a string of supply chains before reaching to the end-point. The stages may include a collection of raw material, production exercise and transportation and the tax is levied at each one of those stages, therefore, it is multi-stage.
What are the advantages of GST?
One of the most important roles of GST is to remove the cascading tax effect on the sale of goods and services. This will also have a direct impact on decreasing the overall cost of the product. If GST will streamline the unwanted taxes, it would help in saving the original amount.
There is a GST Portal that has activities like registration, return filing, and others. The online portal makes the process swift and fast.
Following are the major advantages of GST:
- Elimination of the cascading tax effect
- Fewer compliance processes
- A composition scheme for small businesses
- Higher registration threshold
- Increased logistics efficiencies
- Digitization
- Regulation of the extra-legal sector
- Definition of treatment for e-commerce
Categories of GST
Under Goods and services tax, the following are the three taxes applicable on the products.
- CGST – Which the Central Government collects for an intra-state sale.
- SGST – Collected by the State Government for an intra-state sale.
- IGST – Collected by the Central Government for an inter-state sale.
Bill of Entry
Importers or their agent would be filled a declaration form known as a bill of entry to the customs department.
The client must fill the declaration forms for the customs clearance formalities, a bill of entry is filled along with other requisite documents on or before the arrival of the goods. After that, the bill of entry is filled, and an authorised Customs Officer checks it. Although for full clearance, the importer is obligated to pay the basic customs duty, IGST, and GST Compensation.
If the importer is failed to file the bill of entry within 30 days from the day receiving goods, then the commodity will be subjected to auction by the relevant authorities.
Classifying the products
Once the product reaches the Customs department, then they are majorly classified into three main categories. Following are the major classification of the available goods.
- Free Goods: These products are not subjected to customs duty.
- Home Consumption Goods: These products are solely imported for self-consumption.
- Bonded Goods: These commodities are subjected to customs clearance, therefore, it wouldn’t be released until and unless duty is paid.
Contents of a bill of entry:
The bill of Entry contains the following information:
- Import license number
- Name and address of the importer
- Name and address of the exporter
- Name of the port where goods are to be cleared
- Rate and value of import duty payable
- Value of goods
- Description of goods
Factors determining the application of tax categories:
Before claiming the category, it is essential to determine whether the transaction is an intrastate or interstate supply of goods and services. Types of transactions are mentioned below;
- Intrastate Supply (SGST and CGST): implies that we are talking about the same state. When the destination of the buyer and location of the buyer happen to be in the same state then the transaction is known as Intrastate. In similar cases, the seller is advised to collect both SGST and CGST from the buyer. Although, SGST goes to the state government, whereas CGST goes to the central Government.
- Interstate Supply (IGST): the word itself implies that we are considering two different states. In interstate supply buyer and the supplier are situated in two different states. The same situation can be found in the exporting business where the commodity/product is sent to a different state. In cases where a seller would have to collect IGST from the buyer.
What is IGST?
IGST comes under as a category under GST, but this form of tax is majorly applied on interstate transaction of goods and services. Although the tax shared between the central and state government is zero-rated.
IGST is governed by the GST act.
Integrated GST which is also known as IGST comes under the GST domain. IGST is mainly collected by the centre or inner state supply of goods and services. Article 269A of the constitution states that GST supplies in the practice of interstate trade or commerce should be imposed and collected by the Indian Government itself. The effective distribution of IGST between union and states shall happen under the provision of parliament’s law by the recommendations of Goods and Services Tax Council.
What is SGST?
Moving forward to intrastate supplies of goods and services, the tax on these commodities are imposed by the state government.
SGST comes under the GST regime, therefore, for its operation, some of the untoward tax should be included in it. Taxes like VAT, state sales tax, entertained tax, luxury tax, entry tax, taxes on lottery, gambling, and betting and state cesses and surcharges.
Although if there is any tax liability, it can only be set off against SGST or IGST input tax credits.
Highlights:
- SGST is levied by the State Governments through a statute on all transactions of supply of goods and services.
- SGST would be paid to the accounts of the respective State Government.
What is CGST?
If one is looking for the final or last category of GST regime, then it would be CGST. CGST is collected and levied by the central government and governed by the CGST ACT. As mentioned SGST falls under intrastate supply, similar CGST is handled by the Central Government.
Likewise, for the introduction of CGST, some taxes had to be subsumed. Taxes like (CST), additional customs duty—countervailing duty (CAD), central excise duty, service tax, special additional duty of customs (SAD), and surcharges and cesses.
Highlights:
- Central Government would levy and collect IGST instead of CGST or SGST.
- Levied on inter-state supply of goods and/or services.
- Includes import of goods and/or services.
- Exports would be zero-rated.
- IGST would be shared between the Central and State Government.
Why split into different Taxes?
Since India enjoys federalism, which means that both the central and the states have been assigned the authority and power to collect tax on their respective levels. As per the constitution of our country, both the governments have responsibilities to perform for which they need to raise the tax revenue.
Therefore, Central and State governments are implying GST simultaneously.
The reason behind following the three types of tax structure implementation is to assist taxpayers to take the credit, against each other. Ensuring the “ONE NATION, ONE TAX” reform.
