An Easy Guide on Goods and Services Tax (GST) for Beginners

Goods and Services Tax is India’s most extensive indirect tax reform since Independence. It was implemented on July 1 2017. It subsumes nearly 17 indirect taxes including sales tax, VAT, etc.

This reform has helped the government to unify the taxation system and make it more organised. GST has reduced the earlier statutory tax average of approximately 30% to 18%.

This year, April recorded the highest GST revenue of about Rs. 1,14,000 Crore. However, the figures dwindled in August, which showed a revenue of Rs. 98,000 Crore.

GST is a multi-level taxation system, where the tax is levied at the point of consumption, unlike the previous indirect tax system which imposed tax at the origin point. The tax collected is refunded back to the taxpayers at their selling points except for the final consumer. 

GST is a significant part of the Indian economy and affects the consumption and production pattern of every individual. Here’s all you need to know about GST. 

Indirect tax brackets

There are four primary GST rates in India – 5%, 12%, 18%, 28%. Most goods and services fall under the 18% tax bracket. Precious stones and metals like gold, silver, and platinum are however taxed at a rate of 3%. Rough and semi-precious stones, on the other hand, are taxed at a minimal 0.25% rate.

Alcoholic beverages, petroleum products, and electricity, however, are exempt from GST and are taxed according to the previous tax regime by the state governments.

Other than these, a CESS of 22% applies to products such as aerated beverages, tobacco products, and luxury cars in addition to the 28% tax already applied to them.

GST applicability

The simplification and reduction of the indirect tax system and statutory tax rates respectively have been relieving for businesses. It has eased the process of initiating start-ups by subsuming the various registration processes one had to go through. The impact of GST on small and medium businesses, therefore, has been positive for businesspersons.

However, not all businesspersons require GST registration for their businesses. Only the following list of individuals needs to register for GST –

1. Individuals who run businesses with an annual turnover of Rs. 40 Lakh or above mandatorily need to apply for GSTIN. This threshold is Rs. 20 Lakh in North-eastern and hilly states such as Himachal Pradesh.
2. Individuals who were registered under the previous tax regime.
3. An individual who supplies goods across states needs to register for GST.
4. Individuals who sell their products through an e-commerce website.  
5. Supplier agents.
6. An individual who supplies information, database access, and retrieval services online from any place outside of India to an individual residing in India.
7. Any individual residing in India who is an occasional supplier of goods/services and does not have a permanent space of business.
8. Any individual outside of India who occasionally supplies goods/services to GST applicable areas and does not have a permanent territory of business.

If any of the above clauses apply to you, register for GST online, in case you have not already registered.

What is the GST framework and how it works?

In the current GST framework, there are primarily two levels of tax which will be imposed on goods and services – inter-state and intra-state. 

The intra-state level consists of two taxes – Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). 

The inter-state level consists of one tax – Integrated Goods and Services Tax (IGST). 

Import of goods is considered for inter-state level GST whereas export is exempt from tax. 

It will also provide the cascading effect, which was present in the previous tax system. Cascading effect suggests that individuals receive tax credits on paying tax on inputs. 

Businesses have largely benefited from the several advantages of GST. It has reduced the tax burden on individuals. Along with that, logistic costs have significantly reduced due to the abolishment of taxes on toll booths.

The government is also investing extensively in the sector directly and indirectly via subsidised financing programmes such as Start-up India, CLSS, etc.

A business owner planning to expand their current setup or an entrepreneur about to initiate one can refer to such financial institutions and NBFCs who extend business loans via such schemes.

Business loans are exempt from indirect tax, therefore making the tax system more convenient for businesspersons. You can know how to file your GST return through GST login by visiting the official website.