Understanding GST in India: Definition, Types, and Advantages

Goods and Services Tax (GST), is an indirect tax levied on the supply of goods and services in India. It simplifies the country’s tax structure and facilitates ease of business by simplifying the tax structure.

This article will give you an overview of GST, its types and several benefits.

What is GST in India?

GST Definition: The Goods and Services Tax Act was passed in the Indian Parliament on March 29th, 2017, which subsequently came into effect on July 1st, 2017. 

Goods and Services Tax (GST) replaced multiple indirect taxes levied by the central and state governments. It aims to create a harmonised and streamlined tax structure across the nation. 

  • The tax is included in the final price of a product 
  • The customer buys the final product and pays its price inclusive of GST
  • Then business owner or seller then forwards its GST portion to the government

Note: In the case of intrastate transactions, this tax is distributed b/w the central and state government under CGST and SGST.

Types of GST

Goods and services tax (GST)  is categorised into four types based on the nature of the transaction and the geographical location:

  • SGST (State Goods and Services Tax)

SGST is the tax component levied by the state government on the intra-state supply of goods and services. 

  • CGST (Central Goods and Services Tax)

CGST is the tax component levied by the central government on the intra-state supply of goods and services. 

  • IGST (Integrated Goods and Services Tax)

IGST is the tax component levied on the inter-state supply of goods and services or imports.

  • UTGST (Union Territory Goods and Services Tax)

UTGST is the tax component levied by the union territories of India on the intra-state supply of goods and services within their respective territories.

Differentiating Table for Types of GST

Type of GST. Applicable Area Collecting Authority
SGST Within State State
CGST Within State Central
IGST Inter-State Central

Who is Liable to Pay GST?

Several entities are liable to pay Goods and Services Tax (GST) under different scenarios:

  1. Individuals/businesses registered under GST and making taxable supplies are required to pay GST under the regular scheme.
  2. Persons registered under GST and required to deduct tax at source (TDS) are responsible for paying GST.
  3. E-commerce operators registered under GST must collect tax at source (TCS) on the supplies made through their platforms.
  4. Individuals/businesses supplying goods or services on behalf of a supplier or manufacturer (agents) are liable to pay GST.

Advantages of GST

The implementation of GST brings several advantages to the Indian tax system:

  1. Single indirect tax for India: GST replaces multiple indirect taxes, creating a unified tax structure across the nation.
  2. Input tax credits: Businesses can claim input tax credits for the taxes paid on their purchases, which helps reduce the overall tax burden.
  3. Easy transfer of goods: GST eliminates state barriers and facilitates the seamless movement of goods from one state to another, promoting trade and commerce

Goods Exempted from GST Payment

Like all other taxes, the GST exempts certain goods and services from ensuing liability. Exemptions under GST contain an extensive list of goods, which include the following –

  • Food: Fruits and vegetables, cereals, meat, fish, etc.
  • Raw materials: Cotton for khadi yarn, handloom fabrics, unprocessed wool, raw silk, raw jute fiber, etc.
  • Instruments/Tools: Agricultural tools, tools for differently-abled individuals.
  • Miscellaneous: Vaccines, journals, newspapers, maps, books, non-judicial stamps, articles of paper pulp, etc.

In Conclusion

GST has revolutionised the Indian tax system by simplifying and unifying the indirect tax structure. It aims to streamline the tax collection process and create a more business-friendly environment. 

With its implementation, businesses can now benefit from a simplified tax regime, input tax credits, and seamless movement of goods across the country.

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