What Is GST? Meaning, Features & Impact on India
GST is an acronym for goods and services tax. The GST has been introduced as a part of the reforms in India's taxation system to make the process simplified and more transparent. In this essay, we will discuss what GST is, how it is applied, the problem faced by businesses as well as common people due to GST implementation and the possible solutions that the government can take to mitigate those problems.
What is GST?
GST stands for Goods and Services Tax, and it is a tax that is levied on the manufacture, sale, or consumption of goods and services at a national level. The GST replaces all the indirect taxes that are currently being levied in India, such as service tax, value-added tax (VAT), central excise duty, etc.
The GST is levied on every transaction that takes place within India's territory, and it will be the responsibility of the buyer to pay the applicable taxes for any goods or services purchased. GST aims to do away with all indirect taxes like service tax, VAT, etc., making India a single market.
How is GST Applied?
The GST is a destination-based tax, and it will be levied on the value of the goods or services that are consumed within India's territory. The tax will be collected by the person who is responsible for the final consumption of the good or service. For example, if an item is produced in India and is sold to a consumer in another state, the GST will be levied by the state in which the final consumption takes place.
The GST is a multi-stage tax, and it will be levied at every stage of production and distribution of goods and services. The rate of GST at each stage will be based on the value addition that has taken place at that stage.
The GST aims to simplify the taxation system by ensuring a single tax rate across India's territory, thus making sure that goods and services are not taxed multiple times at different rates even if they cross through multiple states before reaching their destination.
Essay on GST
GST was firstly launched in 1954 in France. Currently, 160 countries in the world have implemented GST. As the Canadian model of GST has a federal structure, India has chosen the Canadian model of dual GST. GST stands for goods and service tax which has been applicable in India since July 1st 2017, so July 1st is declared as 'GST day. More specifically, Asam was the first state to get applied with GST. During the passing of the 'GST Bill' in the parliament, 336 votes were with it, and 11 votes were against it. The previous structure of indirect taxes in India was very complex, and quantitative taxes were levied by the central government and state government on goods and services. It has been a long-pending issue to streamline a variety of indirect taxes and implement a 'single taxation' system.
GST requires businesses who have exceeded the prescribed threshold value to register and must keep records of all inputs and outputs. It is exempted from a few products such as alcohols, natural gas, motor spirits and crude petroleum products. GST is simple in a calculation, simply multiplying taxable amount by GST rate. GST rates are covered under 5 tax slabs as 0%, 5%, 12%, 18% and 28%. Most goods fall under the tax slab of 5%, 12% and 18%, while certain services are under 18%. Cement, tobacco lies under the highest tax slab of 28%.
The GST system is categorised into Central GST, also known as CGST, State GST known as SGST and Integrated GST known as IGST. CGST is levied by the central government, SGST by the state government and IGST by the central government on inter-state supplies. In short, while selling within the same state, CGST and SGST need to be paid, and in Inter-state, IGST is.
Due to the implementation of GST, the count of incidences of tax evasion came down in the country, which brings an increase in tax collection for the government. GST has been implemented under Article 279 of the Indian Constitution. The existence of sales tax, service tax, customs duty, excise duty, VAT, Octroi tax etc., vanished. Moreover, A very common procedure for registration of taxpayers, refund of taxes, uniform format of tax returns. With minimum tax or even no tax, the exporters are encouraged to export with the best quality and increase the economy.
GST proved beneficial with more transparency, efficient compliance to central and state manufactures. GST assists in the growth of the Gross Domestic Products (GDP). GDP is expected to increase by 2%. Before the implementation of GST, the prices of the commodity were varying state to state. But, the prices became uniform throughout the country as the GST applied. The implementation of GST has proven a great decision for the country's people. The common man has gained momentum in life due to GST. True life is lived when a few changes occur in it. In addition, GST makes the Indian companies more compatible with the foreign companies and the Indian market more stable than the previous one.
GST is a country-wide tax and was introduced as The Constitution (One Hundred and First Amendment) Act 2017. GST had brought uniformity in the indirect taxation system, which had differently levied by states and centres before now. Different taxes, such as central excise duty, state VAT, etc., have been unified under one single umbrella of GST. Now, businesses do not have to pay taxes as per the state they belong to. Moreover, it has simplified tax calculation as well as returns filing. Under GST, businesses that exceed the prescribed threshold value must register themselves, keep records of input and output, and file their GST returns regularly.
GST is a 'one country-one tax' system. It requires businesses that have exceeded the prescribed threshold value to register and keep records of all inputs and outputs. There are five tax slabs under GST, that is 0%, 5%, 12%, 18% and 28%. Most goods fall under the 5%, 12%, and 18% tax slab, while certain services are subject to 18%. Cement, tobacco lies under the highest tax slab of 28%.
GST is governed by three different acts: The Central Goods and Services Tax Act 2017, Integrated Goods and Services Tax Act 2017, and Union Territory Goods and Services Tax Act 2017. It includes central excise duty that falls under One Hundred and the First Amendment of the Constitution of India.
FAQs on GST Essay: Goods and Services Tax Explained for Students
1. What is GST in simple terms for a student?
GST, which stands for Goods and Services Tax, is a single, comprehensive indirect tax applied on the supply of goods and services across India. Think of it as a single tax that replaces many older, complicated indirect taxes like VAT, Service Tax, and Excise Duty. It was implemented on July 1, 2017, to simplify the Indian tax structure under the principle of 'One Nation, One Tax'.
2. What are the main types of GST levied in India?
In India, GST is structured into three main types to manage taxes between the Central and State governments. The type of GST applied depends on whether the transaction is within a state (intra-state) or between states (inter-state).
CGST (Central Goods and Services Tax): Collected by the Central Government on an intra-state sale.
SGST (State Goods and Services Tax): Collected by the State Government on an intra-state sale.
IGST (Integrated Goods and Services Tax): Collected by the Central Government on an inter-state sale and imports.
For example, if a product is sold within Maharashtra, it will be subject to both CGST and SGST. If it's sold from Maharashtra to Karnataka, only IGST will be applied.
3. What is the importance of GST for the Indian economy?
The implementation of GST is important for the Indian economy because it created a unified common market. Its key benefits include the removal of the cascading effect (tax on tax), which reduces the cost of goods. It has also increased tax compliance, brought more transparency to business transactions, and made the overall tax system more efficient, which helps boost the country's GDP.
4. What is the difference between 'goods' and 'services' under the GST Act?
Under the GST Act, the distinction is straightforward:
Goods refer to every kind of movable property. This includes tangible items like electronics, furniture, cars, and food products. It excludes money and securities but includes actionable claims, growing crops, and grass.
Services refer to anything other than goods. This includes intangible activities like banking, teaching, software development, transportation, and consultancy. Any transaction that is not a supply of goods is considered a supply of services.
5. How does GST prevent the 'tax on tax' effect?
GST prevents the 'tax on tax' problem, also known as the cascading effect, through its system of Input Tax Credit (ITC). In the previous system, taxes paid on raw materials (inputs) were included in the cost, and then the final product was taxed again. Under GST, a manufacturer or seller can claim a credit for the tax they already paid on their inputs. This means tax is levied only on the value added at each stage, not on the full price which already includes previous taxes, thereby lowering the final cost for the consumer.
6. Why is GST called a 'destination-based' tax?
GST is called a destination-based tax because the tax revenue goes to the state where the goods or services are finally consumed, not the state where they are produced. For example, if a car is manufactured in Haryana but sold to a customer in Tamil Nadu, the GST collected on this sale will be given to the Tamil Nadu government. This is a major change from the previous tax system, which was largely 'origin-based'.
7. Does the introduction of GST mean all items have become cheaper?
Not necessarily. While GST was designed to make many goods and services more affordable by eliminating the cascading effect of taxes, the final price of an item depends on the GST slab it falls into (0%, 5%, 12%, 18%, 28%). Some items, especially luxury goods and services placed in the highest tax slab (28%), may have become more expensive than before. However, most essential items and common-use goods have become cheaper or remained at a similar price.
8. Can you provide a simple example of how GST is calculated for an essay?
Certainly. Imagine a manufacturer makes a notebook. The cost of raw materials (paper, ink) is ₹50. Let's say the value added by the manufacturer (labour, profit) is ₹20. The total value is now ₹70. If the notebook falls under the 12% GST slab, the tax would be 12% of ₹70, which is ₹8.40. The final price the retailer pays the manufacturer is ₹70 + ₹8.40 = ₹78.40. The manufacturer gets to claim a credit for any GST they paid on the raw materials, ensuring the tax is only on the value they added.
