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Sales Tax – GST Overview, Rules & Benefits
Sales tax is a type of indirect tax levied on items sold and purchased within India. The vendor of the products has the right to recoup sales tax from the buyer. It used to be levied at both the Central and State levels of government. The Central Sales Tax is enforced by the Central Government, whereas the Sales Tax is levied by the states. Sales Tax has now been replaced by GST!GST – Goods & Services Tax, came into effect from 1 July 2017 through the implementation of the 101st Amendment of the Constitution of India by the Indian government. GST replaced multiple existing taxes, like the sales tax, excise tax & VAT, levied by the central and state governments.
In India, the Goods and Services Tax (GST) has been promoted as a comprehensive multi-stage, destination-based tax: comprehensive because it incorporates nearly all indirect taxation, excluding a few state taxes; multi-stage since the GST is levied at various levels of the manufacturing process, but is supposed to be refunded to all parties during various points of production, other than the final customer, because, as a destination-based levy, it is collected from the point of consumption rather than the point of origin.
The GST Council, comprised of the Finance Ministers of the Central Government and all States, will govern tax rates, legislation, and regulations. The GST is designed to replace multiple indirect taxes with a centralized tax, reshaping the country's $2.4 trillion economy, but its implementation has been met with criticism. The most significant benefits of the GST include a 20% reduction in national transit time due to the elimination of interstate inspections.
Goods and services are taxed at five different rates: 0%, 5%, 12%, 18%, and 28%. However, petroleum products, alcoholic drinks, and electricity are not subject to GST and are now taxed separately by individual state governments, as was the case under the previous tax structure. Rough precious and semi-precious stones are taxed at a special rate of 0.25 percent, and gold is taxed at a rate of 3%. Furthermore, a 22% surcharge or other rates on top of the 28% A few things, such as aerated drinks, expensive autos, and tobacco products, are subject to GST. Pre-GST, the statutory tax rate on most items was around 26.5%; post-GST, most goods are likely to be taxed at around 18%.
Various Taxes Subsumed Under The GST
The major goal of GST was to consolidate numerous current taxes at the federal and state levels and develop a single taxation structure in the Goods and Services market.
The GST absorbed a number of state-imposed taxes. They are as follows:
- Central Excise Duty
- Services Tax
- Additional Customs Duty
- Surcharges
- State-Level Value Added Tax
- Octroi
Multi-stage GST
GST is levied at multiple stages of GST starting from production to supply -
- Purchase of raw materials
- Production or manufacture
- Warehousing of finished goods
- Selling to wholesalers
- Sale of the product to retailers
- Selling to the end consumers
GST On Value Addition
GST is levied on the value addition made to a raw material in order to turn it into a finished product ready for sale. For example, if we take cotton, it is cleaned and sent to mills where it is woven into yarn, which is then woven into fabric, which is then sold to wholesalers, who sell it to retailers, who then sell it to the final customer. Through different value additions, a plain cotton becomes a shirt. These value additions are subject to GST.
Advantages of GST
GST seeks to encapsulate all types of taxes under a single tent. It plays an important role in ensuring that all goods and services are taxed uniformly across the country. Here are a few more benefits of GST:
- Reduction in cascading of taxes
- Overall reduction in prices
- Common national market
- Benefits to small taxpayers
- Self-regulating tax system
- Non-intrusive electronic tax system
- Simplified tax regime
- Reduction in multiplicity of taxes
- Consumption based tax
- Abolition of CST
- Exports to be zero rated
- Protection of domestic industries – IGST
GST's advantages have resulted in the following economic implications in the Indian economy -
- Decrease in inflation
- Ease of doing business
- Decrease in “BLACK” transactions
- More informed consumer
- Poorer states to gain
- Make in India
Structure of GST
In India, GST replaced several individual taxes with a single taxing structure.
Before GST
| Central Taxes | State Taxes |
|---|---|
| Central Excise duty | State VAT / Sales Tax |
| Additional duties of excise | Central Sales Tax |
| Excise duty levied under | Purchase Tax |
| Medicinal & Toilet Preparation Act | Entertainment Tax (other than those levied by local bodies) |
| Additional duties of customs (CVD & SAD) | Luxury Tax |
| Service Tax | Entry Tax (All forms) |
| Surcharges & Cesses | Taxes on lottery, betting & gambling |
| Surcharges & Cesses |
After GST
GST | ||
| CGST | SGST/UTGST | IGST |
Goods & Services still outside the purview of GST
- The power to tax alcohol for human consumption still rests with the state
- Crude oil, diesel, gasoline, natural gas, and ATF are the five petroleum products – these have still not been brought under the GST regime
- Tobacco is taxed as per GST; however, the Central Government has the authority to levy additional excise duties
- Entertainment tax is levied by local governments
Tax administration between the Centre and State
There are 3 types of taxes under the GST; CGST, SGST and the IGST
CGST – Central GST is levied by the Central Government
SGST – State GST is levied by the State Government
IGST – Integrated GST is levied for Inter-state supply of goods and services
| Taxpayers having turnover below Rs.1.5 crores | 90% control with State Government 10% control with Central Government |
| Taxpayers having turnover over Rs.1.5 crores | 50% control with State Government 50% control with Central Government |
| GST in Territorial Waters | Shall be delegated by the Central Government to the State |
To Summarize - GST removes the cascading effect of tax
A cascading impact occurs when tax is applied on a product at each stage of the sale; this results in 'tax on tax', ultimately increasing the final price of the product. GST completely eliminates this and proves to be beneficial to the end consumer.
GST in India uses a dual approach, ensuring that taxes are overseen by both the Union and state governments. Transactions within a single state will be subject to both the national government's CGST and the state government's SGST. The central government levies an Integrated GST (IGST) on inter-state purchases as well as manufactured goods and services. GST is a consumption-based or destination-based tax, which implies that taxes are levied on the state in which the goods or services are purchased rather than the state in which they are made.
Sales Tax / GST – FAQs:
1. Does India still implement VAT?
Yes, VAT is still applied to a few selected goods & services like gold ornaments.
2. Who should pay GST?
GST is paid by every individual rendering or availing goods & services from another entity.
3. What is GSTIN?
GSTIN, which stands for Goods and Services Tax Identification Number, is a unique 15-digit identification number provided to each taxpayer, principally dealers and suppliers, as well as other corporate organizations registered under the GST regime. Your GSTIN will be assigned to you after you successfully register on the GST portal.
4. When should a taxpayer pay their GST?
GST payment is the remittance of the company's GST liability on a regular basis. According to the requirements, any registered taxpayer must pay GST on the 20th of each month, along with the submission of a GSTR-3B form. One of the most important prerequisites for a firm to be compliant is timely GST payment.
5. How can I pay my GST?
GST payments can be made online for a far more straightforward and uncomplicated transaction. There are several methods for paying GST:
- GST Portal
- At any of the registered banks at the counter or via NEFT/ RTGS
- Or through any integrated software