About GST and Its Purpose

Among India’s biggest indirect tax reforms, the Goods and Services Tax (GST) has brought about an unprecedented change in the indirect tax regime. On July 1, 2017 GST replaced several state and central taxes with a single tax structure with a view to simplifying the compliance process, lower the overall tax burden and making the economy more streamlined. GST avoids tax complexities that had weighed businesses and consumers down single handedly. This blog delves into the structure of GST, the roles of key bodies involved, and the comprehensive framework that supports its functioning.

1. What is GST and its structure?

Goods and Services Tax (GST), also known as destination base tax on the consumption of goods and services. GST is different from the previous regime where different authorities levied multiple taxes at different stages, and it does away with several state and central levies by bringing them under a single umbrella. Having a unified tax structure prevents the cascading effect of "tax on tax" so that taxes are applied to the final product value only.

Types of GST

• Central Goods and Services Tax (CGST): Collected by the central government on intrastate transactions, CGST applies alongside SGST within the same state.
• State Goods and Services Tax (SGST): Levied by the state government, SGST applies to goods and services sold within a state, with revenue benefiting the state government.
• Integrated Goods and Services Tax (IGST): IGST applies to interstate transactions, collected by the central government and distributed to the state where the goods or services are consumed.
• Union Territory Goods and Services Tax (UTGST): Similar to SGST, UTGST applies to sales within union territories without a legislature, like Chandigarh.

Together, these components form a balanced revenue sharing model between the central and state governments, supporting both regional and national economic needs.

2. How Many Structures Are There in GST?

CGST, SGST, IGST and UTGST are four main parts of GST structure as each piece in the GST structure addresses the way goods and services are traded and consumed within the federal India. These components are required to manage tax collection between state borders and union territories so that central and state governments have a regular source of revenue.

Each component addresses a different type of transaction:

• CGST and SGST apply within the same state.
• IGST applies to goods or services traded across state borders.
• UTGST applies to intraunion territory transactions.

This four pronged approach not only keeps revenue flowing smoothly across different governmental levels but also helps address the unique needs of various regions across India.

3. What is the GST Structure Scheme?

IGST collection is under the purview of the central authority and CGST and SGST are jointly managed by each of the respective state and central authorities in the GST structure scheme. With several key features, this scheme streamlines tax administration and compliance.

• Taxable Turnover: If your annual turnover exceeds the stated threshold (Rs. 40 lakhs for goods, Rs. 20 lakhs for services with variation for some states) then you are mandated to register for GST.
• Composition Scheme: Composition Scheme allows those having a turnover of upto Rs 1.5 crore to pay a fixed GST rate without the complex compliance. To small businesses: the scheme is light on the load — returns are made simpler and administrative tasks easier.
• Input Tax Credit (ITC): A crucial feature of GST, the ITC mechanism enables businesses to claim credit for taxes paid on purchases, effectively reducing their tax liability. ITC helps mitigate the cascading effect of taxes and keeps product prices stable for consumers.

The GST structure scheme is designed to foster a fair, transparent, and user friendly tax regime that can accommodate businesses of various sizes and types.

4. What is the Structure of GST Authority?

The GST authority structure ensures that GST’s objectives are consistently met across the country, with clear lines of responsibility and decision making.

The GST Council is the principal decision making body responsible for overseeing the implementation and functioning of GST. The Council, chaired by the Union Finance Minister and consisting of finance ministers of all the states is a body which meets periodically to review and revise GST rates; to address challenges and to frame policies to simplify GST.

Decision-Making Process:

The Council works collaboratively, requiring a three fourths majority for major decisions. This approach ensures that each state’s interests are considered while maintaining a unified approach.

Roles:

The GST Council’s main functions include setting tax rates, defining exemptions, addressing issues related to compliance, and harmonising policies between states.

5. The role and structure of the GST Council

The GST Council’s unique structure and decision-making model make it a vital component in GST’s overall success. With members representing both central and state governments, the Council serves as the bridge between federal and state interests, ensuring that GST policies meet the diverse needs of India’s economy.

Composition:

Chaired by the Union Finance Minister, the Council also includes the Minister of State for Revenue and finance ministers from each state. This balance ensures that both national and regional considerations inform policy decisions.

Function:

The Council’s job is to regularly update GST policy which is geared to India’s constantly evolving economy. It entails GST rate setting, exemptions and addressing taxpayer concerns.

Example: Recent decisions by the GST Council, such as rate adjustments and compliance simplifications, highlight the Council’s responsiveness to industry needs and economic conditions.

6. What is the Structure of the GST Network?

The GST Network (GSTN) is the digital backbone of the GST system, managing the infrastructure that supports filing, compliance, and communication between tax authorities and taxpayers.

Role:

GSTN’s main purpose is to simplify and digitise the GST compliance process. By offering a common portal for tax filing, GSTN makes it easier for businesses to complete their returns, verify tax liabilities, and access input tax credits.

Technology and Security:

GSTN’s platform is built to handle millions of transactions daily, offering secure access to registered taxpayers and authorized tax officials. Besides complementing transparency and efficiency in India’s tax administration, GSTN is capable of processing high volume of data.

Impact on Businesses:

GSTN enables small and big businesses to file returns, pay taxes and track compliance without any trouble.

7. What is the Structure of GST Rates?

GST is one of the most defining features of its tax slab structure. These slabs were designed to be taxation fair and manageable for consumers with revenue needs for the government. The GST rates are divided into different slabs onto which different classes of goods and services are placed.

Tax Slabs:

• 0%: Fresh produce, dairy products, and educational resources, basic necessities.
• 5%: Packaged foods, medicine and footwear below Rs. 1,000 are essential items.
• 12%: Mobile phones, certain other goods, and processed foods.
• 18%: Restaurants to household products, most consumer goods and services.
• 28%: are related to cars, tobacco products, and air conditioners.

The GST Council periodically reviews and revises these rates to respond to industry demands, inflation, and economic conditions. This flexibility allows the tax system to adapt to economic shifts and make adjustments where necessary.

FAQs on the Structure of GST in India

1. What is the structure of the GST, and why did it come about? The structure of GST unifies multiple indirect taxes under one regime, reducing the cascading tax effect and simplifying compliance. The introduction of GST aimed to establish a smooth market and reduce tax complexity.
2. What structures are in GST? CGST, SGST, IGST, and UTGST come under GST. Each of these taxes serves a specific purpose in the collection of taxes within states, across states, or within union territories.
3. What is the role of the GST Council? The GST Council oversees GST policies, rates, and exemptions. It assures a joint effort in tax decisions with representatives from the central and state governments.
4. How are GST rates decided? The GST Council sets tax rates based on economic requirements, industry demands, and consumer affordability. We review these rates periodically and adjust them as necessary.
5. What benefits does the structure of GST provide for businesses and consumers? GST simplifies compliance, reduces costs, promotes interstate trade, and enhances the competitiveness of Indian goods globally, benefiting both businesses and consumers.