Full Form of GST – Goods and Service Tax
The full form of GST is Goods and Service Tax and is levied on the consumption of goods and services. It is a destination-based tax, i.e., the tax paid where the goods or services are consumed. It is levied at all stages of production, and taxes paid in the previous stage of the manufacturing cycle is available as credit which can be utilized to pay net GST liability. Thus, the final consumer bears the whole burden of a tax.
In India, both Central and State governments have the power to levy taxes. Under the GST regime too, both Centre and State have the power to levy and collect GST. Therefore, GST in India is divided into 3 broad categories:
- Central GST (CGST): GST levied by Central Government in the course of Intra State.
- State GST (SGST) / Union Territory GST (UGST): GST levied by State and Union Territory with the legislature, on Intra State.
- Inter GST (IGST): GST levied by Central Government on Inter-State supplies of goods and services so that credit of taxes paid in one state can be taken for GST liability in another state. (Remember GST is a destination-based tax). Further, it is applicable for goods imported into India along with Applicable Custom Duty.
History of GST
When all the foreign countries were generally moving into GST’s regime, i.e., One Nation-One tax, India first thought about it almost 16 years back when Mr. Atal Bihari Vajpayee was Prime Minister of India. On 28th February 2006, the proposed Budget for 2006-07 had hinted at GST’s introduction from 1st April 2010. The task to prepare the draft Act was given to the Empowered Committee of State Finance Ministers (EC). This is the same committee which had formulated the design of State VAT. Thereafter, many discussions were held between the committee, the Central Government, and various State Governments, and the first draft of the Act was released in November 2009.
Implementing GST required two major things: amending Constitution (to make an entry for GST in it) and then introducing the GST Act(s). The Constitutional amendment (which was the 122nd amendment) was introduced in the 16th Lok Sabha in December 2014. Lok Sabha passed it in May 2015, and thereafter, it was sent to Rajya Sabha. Rajya Sabha passed it with certain amendments which required re-approval of Lok Sabha. On 8th September 2016, the President signed the Constitutional Amendment after the required number of states ratified it. On 16th September 2016, it was enacted as Constitution 101st Amendment Act 2016.
Reason for Implementation of GST
GST was implemented with the main aim of reducing the cascading effect. Earlier credit of taxes paid on goods was allowed only against the supply of goods and that too, with too many limitations. Further, credit of one tax paid cannot be utilized to pay other taxes. Thus a need to have only one tax on goods and services so that the credit and payment all can be made easier and simpler arose. This was the primary reason to implement GST. Thus, it has combined Service tax, Central excise duty, additional excise duty, State VATVATValue-added tax (VAT) refers to the charges imposed whenever there is an accretion to a product's usefulness or value throughout its supply chain, i.e., from its manufacturing to its final selling point. It is an indirect tax levied on the product consumption. entertainment tax, etc.
- Subsumed various Central and State taxes, thus making it “ONE NATION, ONE TAX.”
- The principle of origin-based taxes changed to consumption-based taxes. This benefited the States which use resources to consume goods and services. For this, the GST Act 2017 introduced POS (Place of Supply)
- GST law also provides a clear picture of the certain transaction to be treated as Either Supply of Goods or Services by clearly specifying the transaction list in Schedule II of the GST Act 2017. Most importantly, “Work Contract Services,” which is debatable from the beginning, is now totally clear that it is to be treated as Supply of Services only.
- GST came up with schemes for Small taxpayersTaxpayersA taxpayer is a person or a corporation who has to pay tax to the government based on their income, and in the technical sense, they are liable for, or subject to or obligated to pay tax to the government based on the country’s tax laws., such as exemption from registration for those taxpayers whose total turnover during previous FY is less than Rupees 40 Lakh (For Supplier of Goods only) / Rupees 20 lakh for other categories of Suppliers (As amended, However for special category states it is 10 Lakh). Composition scheme for both Supplier of Goods (Turnover up to Rupees 1.5 Cr) and Supplier of Services (Turnover up to Rupees 50 Lakh).
- GST clarified the procedure for the E-Commerce operator, which was a pain point in VAT/ Service tax Law.
- Higher threshold limit as compared to erstwhile VAT/Service tax.
- All the GST processes beginning from the registration to filing returns and paying taxes are made online, which has given benefits to start-up and reduced infrastructure costs.
- Earlier, there was VAT and service tax, each of which had their own compliances and returns. Under GST, there is just one return to be filed, which has reduced the number of returns.
- Simpler process for Export Refund (RFD-01).
- Being a new tax requires a lot of brainstorming for a businessman. They have to identify its effect on their business. Further, the GSTIN council changes the law through Notifications very frequently, which is difficult to monitor and follow.
- It leads to an increase in the business’s operational cost Operational Cost Operating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.since the business has to hire a GST professional.
- With the recent notification, the GSTIN council came up with E-Invoicing, which is actually a critical aspect for most Indian taxpayers (Small Businessman) due to a lack of Digital Literacy.
- The restriction of CAP of (2A ITC +20% EXTRA) on ITC to be taken in GSTR-3B as eligible ITC creates a hectic situation for the small taxpayer (less than Rupees 1.5 Cr turnover- Return Filling Quarterly) who get supplies majorly from small taxpayer only. So that means for 2 months in a quarter, they have to pay Output taxes without ITC.
Changes are always good, but nobody wants to change due to expertise in the process(es) they are already following. However, with an increase in global competition, it is an opportunity for India to become Global Power. The government created a way for India to be a Superpower by implementing unified single taxation, i.e., GST from earlier Spider web of Tax Law. This will fuel the “Make in India” initiative of the Indian Government and ultimately help increase the livelihood of Indian Citizens.
This has been a guide to the Full Form of GST, i.e. (Goods and Service Tax) and its definition. Here we discuss types, reasons for the implementation of GST along with its history, advantages, and disadvantages. You may refer to the following articles to learn more about finance –