Introduction
The introduction of Goods and Services Tax (GST) in 2017 was a landmark event in India’s tax regime. It subsumed a plethora of indirect taxes like excise duty, VAT, service tax, entertainment tax, and more into one unified tax system. However, GST is not a single uniform tax - it comprises several components applied in different scenarios. Understanding the nuance of these various types of GST is key for businesses and consumers to navigate India’s complex taxation landscape seamlessly. This comprehensive guide will explore the major components that make up GST in India.
Understanding GST Basics
At its core, GST or Goods and Services Tax is an indirect tax levied on the supply of goods and services within India. It aims to replace the previous cascading tax structure with a streamlined tax regime. Under the earlier system, taxes were levied separately for goods and services. GST amalgamates a multitude of Central and State taxes into a single tax applicable pan-India.
Some major goals and benefits of implementing GST in India are:
- Simplified tax structure with a common national market
- Removes cascading effect of layered taxes
- Improved tax compliance and increased revenues
- Seamless movement and supply of goods across state borders
- Enables input tax credit across the supply chain
- Boosts competitiveness of made-in-India goods internationally
In India, GST is imposed concurrently by the central and state governments on every supply chain stage from manufacture to retail. It is governed by the GST Council comprising finance ministers of Centre and all States. GST is administered via the GST Network (GSTN) which is responsible for technical infrastructure, tax calculations, filling and settlement.
Types of GST
There are 3 main types of GST in India's dual model - CGST, SGST, and IGST.
CGST - Central Goods and Services Tax
CGST is imposed and collected by the central government on all intra-state supplies, i.e. transactions within a state involving movement of goods/services. The CGST Act governs the levy and collection of this tax. CGST is applicable on the value addition at each stage.
The revenue from CGST goes to the central government's consolidated fund. The CGST rate varies from 0% to 28% depending on the type of good/service being supplied. Rates are defined under 4 tax slabs. Certain goods like unpacked food items, medical devices, etc. are exempt from CGST levy.
SGST - State Goods and Services Tax
SGST is levied and collected by the respective state governments on all intra-state transactions. It is applicable on the value addition within that state and charged at the time of supply.
The SGST Act of each state governs this tax. The revenue from SGST goes to the state government’s treasury where the transaction originated. Just like CGST, the SGST rate also ranges from 0% to 28% with some states even providing exemptions on certain essential items.
IGST - Integrated Goods and Services Tax
IGST is imposed on all inter-state movement of goods and services between two states. It is applicable on B2B transactions as well as imports. IGST amalgamates CGST and SGST components to ensure smooth movement of goods/services across state borders.
The IGST rate is the sum total of the originating state’s SGST and the destination state’s CGST rates. This tax amount is eventually apportioned between the Centre and destination state. IGST establishes financial transfers between state governments to offset losses/gains.
Special Types of GST
Some other variants of GST are applied in specific scenarios:
UTGST - Union Territory Goods and Services Tax
UTGST refers to the GST applicable to union territories in India. It is equivalent to SGST in states and charged on intra-state supplies within a union territory.
The revenue from UTGST accrues to the union territory administration, unlike SGST that goes to state governments. For instance, Chandigarh imposes UTGST while Delhi and Puducherry have adopted the regular GST framework.
Compensation Cess
The Compensation Cess is levied on certain sin/luxury goods like tobacco, cigars, cigarettes, pan masala, coal, aerated drinks, high-end cars etc. It is utilized to compensate states for any revenue loss incurred by implementing GST in the first 5 years. Compensation cess is not levied on services.
Different Tax Rates Under GST
India has adopted a 4-tier GST tax structure with rates of 5%, 12%, 18% and 28%:
- 5% GST on items of mass consumption like packaged foods, medical devices, apparel below ₹1000 etc.
- 12% GST on more processed everyday items like packaged foods, apparel above ₹1000, computers etc.
- 18% GST applies on most goods and services like electronics, stationery, AC restaurants etc.
- 28% GST is imposed on select luxury and sin items like bidis, pan masala, large cars.
The Council reviews and periodically revises the items taxed under each slab. Consumers must check current rates before purchases.
Exemptions and Zero-Rated Supplies
Certain essential goods like fresh vegetables, dairy products, bindi/sindoor, sanitary pads etc. are exempted fully from GST. Similarly, key services like healthcare, education, banking are also GST exempt. Zero-rated supplies like exports and SEZ supplies attract 0% tax under GST.
Composition Scheme
Under the composition scheme, small businesses with turnover below ₹1.5 Cr can opt to pay GST at a fixed rate of their turnover without input tax credits. This avoids complex monthly compliances. However, they cannot charge tax or engage in inter-state trade.
Reverse Charge Mechanism
In specified cases like unregistered supplier or import of services, the GST liability shifts from supplier to recipient via the reverse charge mechanism. The recipient is then liable to pay GST and claim input credit.
GST on E-commerce
E-commerce operators are required to deduct TCS at 1% on supplies made through their platforms. Sellers must comply with GST registrations, file returns, and pay taxes on such e-commerce transactions.
Conclusion
Understanding the different components of GST in India is vital for ensuring compliance, taking informed decisions and availing input tax credits for businesses and consumers. This article aimed to provide comprehensive coverage of all major GST types and concepts. Visit government portals for current rate updates. Equip yourself with knowledge of India’s GST framework to optimize your taxes and transactions!
Glossary of Key Terms
- CGST: Central Goods and Services Tax SGST: State Goods and Services
- Tax IGST: Integrated Goods and Services Tax
- UTGST: Union Territory Goods and Services
- Tax TCS: Tax Collected at Source
- GSTN: Goods and Services Tax Network
- GST Council: Top decision-making body for nationwide GST implementation