GST Basic Concepts – Ultimate Guide for Students - ICA Edu Skills Blog
gst basic concepts ultimate guide for students

GST Basic Concepts – Ultimate Guide for Students

In today’s fast-paced and dynamic world, taxation systems play a crucial role in the economic growth and development of nations. In India, the Goods and Services Tax (GST) has emerged as a game-changer, revolutionising the way goods and services are taxed. Whether you’re a student, a business owner, or simply a curious individual seeking to broaden your understanding of taxation, it is essential to grasp the GST basic concepts.

Understanding the GST basic concepts is not only crucial for students pursuing commerce or taxation-related courses but also for entrepreneurs and individuals engaged in various businesses.

In this article, we will deep dive into the GST basic concepts that students of a GST Certification Course should go through while studying.

What is GST?

Goods and Services Tax (GST) is a multi-stage tax scheme that is levied on the selling of both goods and services. This taxing scheme is implemented based on the concept of “One Nation One Tax” or Single Indirect Tax System to be used throughout India and is primarily intended to reduce the cascading impact of a variety of previous indirect taxes prevailed earlier in India. It is a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. It was introduced on July 1, 2017.

How does GST work?

Prior to the GST system, indirect tax like VAT, Excise Duty was charged at different stages of product movement starting from manufacturers to consumers.

GST is a comprehensive, multi-stage, destination-based tax system.

Comprehensive – With the advent of GST system, there will only one tax i.e. GST (No VAT, Excise Duty) on every value addition with product movement from manufacturer to consumer.

Multi-Stage – A product moves multiple hands (multi stage) as per supply chain. Each stage like buying raw materials, selling to wholesaler, selling to retailer and selling to end consumers.

Destination based – It is based on the consumption of goods or services. The goods and services are taxed at the place where they are consumed or used but not at the place of their origin.

Different Types or Components of GST in India

Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. There are four types of GST in India:

  1. Central Goods and Services Tax (CGST): It is the tax levied by the central government on the supply of goods and services within a state. The Central Government collects CGST, and the respective state governments collect SGST.
  2. State Goods and Services Tax (SGST): It is the tax levied by the state government on the supply of goods and services within a state. The revenue collected through SGST is retained by the state government (the state of consumption of the goods/service). The Central Government collects CGST, and the respective state governments collect SGST.
  3. Integrated Goods and Services Tax (IGST): It is the tax levied by the central government on the supply of goods and services between two states or between a state and a Union territory. Both the Central Government and the State Government share the IGST revenue. The revenue collected as IGST is distributed equally between the Central Government and the government of the state to which the goods/service is supplied (the state of consumption of the goods/service).
  4. Union Territory Goods and Services Tax (UTGST): It is the tax levied by the union territory government on the supply of goods and services within a union territory. The revenue collected through UTGST is retained by the union territory government. The Central Government collects CGST, and the respective union territory governments collect UTGST.

You can also learn about the GST Return Types and add some value to your knowledge .

Overall, having a good understanding of the basic concepts of GST is crucial for businesses to effectively manage their tax compliance and minimize the impact of GST on their operations.

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History of GST

The idea of Goods and Services Tax (GST) was first proposed in India in the year 2000 by the Prime Minister Atal Bihari Vajpayee’s government. The proposal aimed to streamline the complex indirect tax system in India, which was causing inefficiencies and hindering economic growth.

The task force headed by Vijay Kelkar submitted a report to the government in 2003, which recommended the implementation of GST in India. However, due to opposition from various states and political parties, the proposal could not be implemented at that time.

In 2006, the then Finance Minister of India, P. Chidambaram, announced the government’s intention to implement GST by 2010. However, the proposed timeline was further delayed due to opposition from states over the loss of revenue they would incur under the new system.

Finally, in 2014, the Constitution (122nd Amendment) Bill was introduced in the Indian Parliament to enable the implementation of GST. After several rounds of discussions and negotiations with states, the bill was passed by both houses of Parliament in 2016.

On July 1, 2017, the GST system was implemented nationwide, replacing multiple indirect taxes such as central excise duty, service tax, value-added tax, and others. The introduction of GST was considered as one of the biggest tax reforms in the history of independent India.

The GST system has undergone several changes and revisions since its introduction, including the reduction of tax rates on various goods and services, simplification of compliance procedures, and the introduction of new provisions to address issues faced by taxpayers.

Objectives of GST

  1. Simplifying the Tax Structure: GST aims to achieve the “One Nation One Tax” system and simplify the tax structure by replacing multiple indirect taxes such as excise duty, service tax, VAT, etc., with a single tax. This simplification of the tax structure is expected to reduce the compliance burden on taxpayers and make the tax system more transparent.
  2. Creating a Common Market: GST aims to create a common market by eliminating the barriers to trade between states. Earlier there were multiple tax jurisdictions and tax rates, which used to increase the cost of doing business and hinders the free flow of goods and services across state borders.
  3. Boosting Economic Growth: GST aims to boost economic growth by promoting ease of doing business, reducing the cost of production, and increasing competitiveness. It is expected to reduce the cascading effect of taxes and make the tax system more business-friendly, which would help in attracting more investment and generating more employment opportunities.
  4. Decreasing Tax Compliance: GST aims to decrease tax compliance by creating a robust IT infrastructure and providing a single platform for taxpayers to file their returns. This is expected to reduce the scope for tax evasion and increase the tax base.
  5. Reducing the Burden of Tax on the Common Man: GST aims to reduce the burden of tax on the common man by eliminating the cascading effect of taxes. It will provide relief to the end consumer.

Advantages of GST

A. Unified Tax System

Eliminating multiple levies from the Indian tax system was one of the main objectives of the GST’s implementation. There were many taxes such as VAT, service tax, and others before the GST was established. Almost all such taxes have been abolished with the introduction of the GST. Nowadays, there is only one tax.

B. Reduced Compliance to be Obeyed

There were a number of different indirect taxes in place before the GST statute went into effect in 2017. Naturally, each of these taxes had its own set of compliance requirements, which was a time taking process .

There has only been one consolidated return for taxpayers to file from the start of the new tax system. For regular dealers only the main GSTR-1 must be manually filled out when completing these forms; the GSTR 2A, GSTR 2B and GSTR 3B are filled out automatically.

C. Easy Access

The GST site is accessible to anyone at any time sitting anywhere. The filing of taxes is made easier by this. For all different kinds of businesses, this is quite advantageous.

D. Logistics Efficiency

Several prior tax structures, including VAT, have been replaced by GST. Therefore, there is no need to pay state-level taxes during interstate movement (the firm previously used to pay to the center and state before the transportation of products) which improves logistics and operations.

E. India’s “Make in India” Program

Promoting “Make in India” items was one of the main goals of the Goods and Services Tax’s implementation. Manufacturing competitive products is made easier by the GST. However, the government has not yet clarified how the GST helps with this initiative.

F. Elimination of cascading effect

“One Nation One Tax” or “Single Indirect Tax System” used throughout India is intended to reduce the cascading impact of a variety of previous indirect taxes prevailed earlier in India.

G. Increase in Revenue

There is no option of tax evasion under the new GST. More suppliers will pay the tax amount if the tax terms are made simpler. Hence ultimately increasing revenue levels.

H. Transparency

The tax administration has started operating more efficiently. The new GST Return filing process has improved transparency.

Disadvantages of GST

In Spite of multiple benefits there are certain issues with GST. Let’s discuss few of them.

A. Cost increases

To continue operating, businesses must upgrade from their outdated accounting software to ERP or GST-compliant software. The cost of obtaining, setting up, and training workers to use GST-compliant software should be considered by businesses. Additionally, as both big and small businesses now need to retain tax experts in order to comply with GST, operating costs have increased.

B. An increase in software costs

Most Indian firms used basic ERP or accounting software to conduct their daily operations prior to the adoption of the GST system. Due to the introduction of GST, businesses are now required to upgrade to more expensive GST-compliant software or specialized GST software. This suggests that as a result of software purchases and personnel training, operating expenses will increase.

Difference Between GST and VAT

GST VAT
Applicable to Goods and Service Applicable to goods only (not services)
Charged on supply of Goods as well as on Services Charged on sale of Goods only
Tax rates are the same uniform across all states in India . There were different rates and rules in each state.
The State and Central governments share the tax revenue equally. The tax is collected by the state in which the sale occurs.
Compliance for the movement of goods between states is uniform across the country. Compliances for the movement of goods between states vary from one state to another.

New Compliances under GST

Businesses must adhere to a number of compliance obligations under the Goods and Services Tax (GST) system. Following are a few of the new regulations that the GST has introduced:

  1. E-Invoice: E-invoicing is the process of electronically creating an invoice in a format that is recognised by the Invoice Registration Portal (IRP) of the government. The e-invoicing system was developed to improve efficiency and lower mistake rates in the invoicing process.
  2. QR Code: As part of the new GST compliance, certain companies must create a QR code to print on their invoices. The tax authorities may scan and verify the vital information on the invoice included in the QR code.
  3. Dynamic QR: Dynamic QR codes for B2C transactions: a taxpayer having Turnover of more than 50 crores is required to generate a dynamic QR code for enabling digital payments on all B2C invoices. Information about the invoice, including the GSTIN, invoice number, and invoice date, must be included in the dynamic QR code.
  4. Annual Return: Form GSTR-9, (which contains a summary of all the transactions made during the financial year) is needed to be filed by every registered entity under GST. However few prescribed persons and entities are not required to file GSTR 9.
  5. E-way Bill: Electronic Way bill is generated on the e Way Bill Portal for movement of goods. It is necessary for the transfer of items costing more than Rs. 50,000 regardless of the size of the consignment, enterprises must provide an e-way bill. However, few prescribed persons and entities are not required to prepare E-way Bill.
Sanjiv Kumar Giri
Disclaimer: The content posted in this weblog is intended for general information purposes only and does not include any professional accounting, tax, legal or financial advice. We strive to provide accurate and up-to-date information based on laws, regulations, and best practices which may vary by jurisdiction, industry, and individual circumstances.

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