Do you ever think about tax implications for products you are buying? Or perhaps you are wondering if your business needs GST registration? Well, if so, you are not alone! In 2017 the Goods and Services Tax was introduced to remedy the evil of the multiple indirect taxes like excise duty, VAT, service tax, and customs duties in the very complicated taxation system of India. Thus, the GST ensures common tax contrived across cities to do away with suspicion of tax evasion.
This article lays out everything you need to know about GST: what with it, how it works, and who needs to register.
What is GST?
Goods and Services Taxes (GST) are comprehensive indirect taxes imposed on the supply of goods and services in India. Prior to GST, multiple indirect taxes would be imposed at different stages, leading to confusion and inefficiency. In GST, India now follows a single unified tax system, minimizing the compliance burden on businesses and maximizing transparency for the consumer.
GST is multi-staged; that means it is levied at every stage of Production, from point of manufacturing to point of sale. The input tax credit system allows businesses to claim credit for GST charged on their purchases, which will then go towards discharging their tax liability.
Taxes levied under a GST system differ from previously used tax systems in that GST is said to be application duty-destination-based; it taxes the consumption place of goods and services rather than the production place. GST is charged at the final consumer pricing stage, and the seller pays GST to the government. Therefore, the tax burden is indirectly passed on by the seller to the consumer.
GST Rate Slabs
To categorize the goods and services into different levies, GST is divided into several tax slabs. Essential goods- fresh fruits, vegetables, and milk-have made the 0% category, that is, exempt from GST. Basic household items- sugar, tea, or edible oil- are taxed at 5%. Products in the 12% slab include processed foods, mobile phones, and certain medicines. Consumer goods, at an 18% tax, include electronics, restaurants, and clothing. Above these, luxury goods- cars, tobacco, and home appliances- are in the GST’s highest bracket of 28%.
Essential commodities are either exempt or lower taxed, while luxury goods and non-essential services are at higher tax brackets.
Types of GST
There are four types of GST based on their point of incidence, namely central goods and service tax (CGST) levied by the central government for transactions accrued within a state; state goods and service tax (SGST) for intra-state sales levied by the respective state government; union territory goods and service tax (UTGST), like SGST but levied on Union Territories instead of states; and integrated goods and service tax (IGST) for inter-state transactions, revenue from which is shared between the central and state governments.
Who needs to register for GST?
Must you register under GST if you operate a business? A prerequisite for registration is an annual turnover higher than ₹40 lakh (₹20 lakh in some selected states). In the case of service providers, GST registration becomes mandatory only when their turnover exceeds ₹20 lakh (₹10 lakh for select states).
Any businesses already covered by VAT, excise duty, or service tax must also be transitioned to GST. Registering for GST is also mandatory for those selling goods or services via e-commerce platforms like Amazon and Flipkart. If such businesses are operating under a reverse charge mechanism, whereby the liability to pay GST falls on the buyer rather than the seller, registration becomes compulsory.
GST registration is also obligatory for businesses engaged in the inter-state trade of goods and services. Foreign entities providing digital services to Indian consumers are also mandated under GST for registration. If your business happens to fall under any of these categories, it becomes crucial to register for GST to evade penalties.
Conclusion
GST has ensured that the taxation system of the country is a well-organized process and makes way for transparency in functioning. Understanding GST, whether you are an entrepreneur or a consumer, will help you make wiser choices. GST is a true economic booster for the Indian economy-from cooperation to claiming input tax credit.