What is GST (Goods and Services Tax): Definition, Calculation, Types, History & Advantages

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Imagine a world where taxes are like puzzle pieces, fitting perfectly to balance things well. Similarly, Goods and Services Tax (‘GST’) is a modern taxation system that aims to create a more seamless and efficient tax structure by treating taxation as interconnected puzzle pieces. Although perceived to be complicated, it is actually very easy to decode. Let’s take a look!

What is GST (Goods and Services Tax) ?

Goods and Services Tax (GST) is an attempt by central government to ease the indirect taxes. The implementation of GST is expected to bring in numerous benefits for all the stakeholders. The consumers would benefit from lower prices; trade and industry will benefit from a uniform single indirect tax throughout the country. The manufacturers will find sourcing of raw materials and locating facilities easier, and the central and the state governments will experience tax buoyancy along with shrinkage in tax collection costs.

GST in India has become an integral part of the economy, but first, let us understand exactly what GST is. As the name suggests, GST is a unified tax system combining goods and services into one, making life easier for businesses and bolstering the economy. The meaning of GST is given under Article 366 (12A) of the Indian Constitution, which states that it is a tax on the supply of goods and services.

The previous tax regime saw businesses struggle with several overlapping indirect tax structures levied by the Centre and the State governments. With the implementation of GST, we have done away with multiple indirect taxes in India such as the central excise duty, VAT, services tax, CESS, etc.

In its place, GST replaces multiple indirect taxes with a unified tax, streamlining taxation and reducing complexities. One must note that GST rates are different for different goods and services but are uniformly applied across the country and, therefore, popularly referred to as ‘One Nation One Tax’.

History of GST

GST was first implemented in India on the 1st of July, 2017, through the 101st Amendment to the Indian Constitution. However, as a concept though, GST was coined back in 2000, when a committee was formed to draft a new and all-encompassing indirect tax law, setting up the requisite background technology and logistics for this new regime. This suggestion was further backed by the Kelkar Committee.

Working in this direction, in August 2016, the Constitution Amendment Bill in May 2016 was passed by the Select Committee of Rajya Sabha. Further, a committee of 21 members known as the GST Council, was formed. This Council looked into potential GST laws, which were then passed by the Lok Sabha and the Rajya Sabha. In April 2017, all these laws were finally enacted as “Acts.”

By April 2017, several states in India also passed corresponding State Goods and Services Tax Bills hence, on July 1, 2017, the Goods and Services Tax was finally implemented nationwide.

To make the tax system more structured, this single framework has led to convenience for businesses, SMEs, MSMEs and consumers. Implementing GST has led to boosting of tax compliance levels, transparency, accessibility and foreign investments. GST.

Types of GST

Presently India has 2 types of GST Component

Intra-state GST
- Central Goods and Services Tax (CGST) - Central Goods and Services Tax (CGST) is a 50% component of GST which is levied on Intra-State Supply of Goods and Services within state/UTs i.e. where the Supplier (Seller) and Recipient (Buyer) are both located in the same state/UTs. CGST is levied by the Central Government
- State /Union Territory Goods and Services Tax (SGST /UTGST) - State Goods and Services Tax (SGST) / Union Territory GST is a balance 50% component of GST, which is levied on Intra-State Supply of Goods and Services within state/UTs, i.e. where the Supplier (Seller) and Recipient (Buyer) are both located in the same state/UTs. SGST/UTGST is levied by the respective State / Union Territory Government
Example: Mr. A of Mumbai is Selling Goods to Mr. B of Pune. GST is applicable on such goods @ 18%. Since Mr. A, the seller, and Mr. B, the buyer, are located in the same state, CGST @9% and SGST @9% will be levied on this transaction.
Inter-state GST
- Integrated Goods and Services Tax (IGST) - Integrated Goods and Services Tax (IGST) is levied on the Inter-State Supply of Goods and Services between two different states, i.e. where the Supplier (seller) and Recipient (Buyer) are both located in the different states /UTs. SGST/UTGST is levied by the respective State / Union Territory Government. It is levied at the applicable GST rate.
Example: Mr. A of Mumbai is Selling Goods to Mr. B of Delhi. GST is applicable on such goods @ 18%. Since Mr. A, the seller, and Mr. B, the buyer, are located in the different states, IGST @ 18% will be levied on this transaction.

Advantages of GST

So, how exactly does GST help businesses and consumers? There are several advantages of GST such as:

Elimination of the cascading effect: GST eliminates cascading tax, simplifying business complexities that were present in the previous tax regime's tax-on-tax structure
Higher threshold for eligibility: GST sets a uniform Rs. 20 lakh threshold, replacing varied thresholds across states and taxes for eligibility under indirect tax
Feasibility: GST digitizes processes like registration and returns, eliminating the need for multiple tax registrations and manual running around.
Ease for small businesses and start-ups: GST brings in a composition scheme which decreases the burden of compliance for small businesses and start-ups.
One Return: GST replaces varied tax conditions with a single return, simplifying the process for taxpayers. This is a huge change from the previous regime, which had different conditions for different taxes.
Attention to the e-commerce sector: In order to incorporate and keep track of online transactions/ supplies, GST law has mandated e-commerce operators to collect and deposit 1% on each transaction as tax collected at source (GST TCS).
Attention to the unorganized sector: GST brings in rules and regulations for the unorganized sector through online provisions stating compliance and payment structure.

GST Registration Procedure

Any person or business making taxable supplies (above the threshold limit as prescribed in GST Law) or was liable to pay service tax or VAT or Central Excise tax in an earlier tax regime or is mandatorily required by law to take GST registration has to register under the online GST registration platform. The taxpayer can initiate the GST registration by providing the required details and documents on the GST portal and submitting their application for GST registration along with Aadhar Authentication, after which the portal will generate the Application Reference Number (‘ARN’). The list of a few important documents for the GST registration are as follows:

PAN of the Applicant
Aadhaar Card
Proof of business (e.g. Incorporation Certificate)
Address proof
Address proof of the business
Bank account statements or canceled cheques
Digital Signature
Letter of authorization (Board Resolution if it is a company)

The ARN will help the taxpayer to check their application status. Applicants can also post their queries and doubts if required. After successfully verifying and validating of the details uploaded on the GST portal the taxpayers will get their GST Registration Certificate and GSTIN (a unique 15-digit alphanumeric code comprising of the state of registration and PAN of the applicant.)

GST Registration Fees

There are no particular fees prescribed under the GST law for getting registered. This means that the government does not levy any kind of fees if taxpayers register themselves on the online portal. However, if the taxpayer seeks professional help for GST services, they may have to pay professional fees for services procured.

GST Calculation

The GST charged and collected from the consumers’ needs to be deposited with the Government by filing monthly GST returns within the specified time. GST to be deposited is calculated after taking GST ITC credit, i.e. after adjusting the eligible input tax credit (‘ITC’) amount, which is nothing but the GST amount paid by the supplier on his business expenses

Further, the taxpayers will have to consider all aspects and charges, such as the reverse charge, inter-state / intra-state, exempted or zero-rated supplies. We will also have to take note of inward transactions (purchases) to identify the eligible and non-eligible ITCs.

To further simplify the process of calculations and filing of GST returns, the online GST portal self-computes the tax liability (GST payable) at the time of return filing based on the details provided on the GST portal. However, it is to be noted that the computation done by the system is only for reference purposes and any changes or additional information, as required in GST law, should be provided correctly and reported in GST returns.

GST Calculation Formula:

The formula for calculating the total GST payable is as follows:

GST Amount = Original Price ✖ GST Rate

100

Net Price = Original Price + GST Amount

To simplify this let’s consider that, A is selling a commodity from Delhi to Chennai for Rs. 10,000. The rate of GST for this relevant supply is 18%. The GST amount payable shall be, 10,000 ✖ 18 /100, which is Rs. 1,800. The net price being Rs. 10,000 will be then summed up with the GST Amount, and we get what is Rs. 11,800.

Which taxes will be included into GST?

The GST rate slabs finalized by the council will be applicable across 1,200 goods and 500 services in the tax brackets of 0, 5, 12, 18 and 28%. To know more about the rate slabs click here The taxes that will be subsumed under GST are:

Central Taxes:
- Central Excise duty
- Duties of Excise (Medicinal and Toilet Preparations)
- Additional Duties of Excise (Goods of Special Importance)
- Additional Duties of Excise (Textiles and Textile Products)
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Central Surcharges and Cess
State Taxes:
- State VAT
- Central Sales Tax
- Luxury Tax
- Entry Tax
- Entertainment and Amusement Tax
- Taxes on advertisements
- Purchase Tax
- Taxes on lotteries, betting and gambling
- State Surcharges and Cess

How will GST be Administered?

Taxes will be levied on supply of goods and services. Keeping in mind India's federal structure, India will assume a dual GST model, wherein GST will be administered and collected by both, Central and the State Governments across the value chain. There will be three components to this GST model –

Central GST (CGST): Revenue will be collected by the central government

State GST (SGST): Revenue will be collected by the state governments for intra-state sales

Integrated GST (IGST): Revenue will be collected by the central government for inter-state sales

Technological optimization of GST

Goods and Services Tax Network (GSTN) has been set up jointly by the central and state governments to help in the implementation of GST by providing three front end services, namely registration, payment and return to taxpayers. In addition to this, GSTN will develop back-end IT modules for all the participating States.

What are the main components of registration?

Businesses carrying out supply of goods or services with turnover exceeding specified threshold limits of Rs. 20 Lac and 10 Lac respectively will be required to do GST registration, which will enable them to avail various benefits including seamless input tax credit.

Existing VAT / Central Excise / Service Tax payers will not be required to apply afresh for registration under GST.
New dealers will have to file a single application online for registration under GST.
Unified application to both central and state tax authorities will be required.
Each dealer will be given a unique ID called GSTIN.
The approval will be received within three days.

The registration process will be performed online through a portal maintained by Central Government of India. GSPs (GST Suvidha Providers) will also be appointed by the government to help in the registration process.

What are the documents required for registration?

PAN card of the Company
Proof of constitution like Partnership Deed, Memorandum of Association (MOA) /Articles of Association (AOA), Certificate of Incorporation
Details and proof of place of business (for e.g.: rent agreement or electricity bill)
Cancelled cheque of your bank account showing name of account holder, MICR code, IFSC code and bank branch details
Authorized signatories (for e.g.: List of partners or List of directors with their identity and address proof)

Migration to GST

To migrate to GST, all existing Central Excise and Service Tax assessees and VAT dealers will be provided a Provisional ID and Password, which they can use to login to the GST Common Portal (https://www.gst.gov.in) and submit duly filled Form 20 along with supporting documents.

An assesses may not be provided a Provisional ID if: 1. The PAN associated with the registration is not valid 2. The PAN is registered with a State Tax authority and Provisional ID has been supplied by the said State Tax authority.

What are the main components of returns filing?

The main components of the proposed returns filing procedures are as follows:

There will be common returns for CGST, SGST and IGST, eliminating the need to file separate tax returns with different authorities.
Common GST Portal created and managed by GSTN will do the matching of Business to Business (B2B) invoices submitted by taxpayers to check the claim of Input Tax Credit (ITC).
A similar exercise will also be done for inter-state supplies for goods or services moving from the state of origin to the state of consumption.
Most used forms by average tax payers for filing returns include (out of total 8)
- Return for Supplies
- Return for Purchases
- Monthly Returns
- Annual Returns
Filing of returns shall be completely online. All taxes will also have the option of being paid online.

How can you make payments under GST?

Under GST, all challans will have to be prepared by taxpayers on the GST portal. This is to ensure that bank tellers do not enter wrong information from hand written challans. Once a challan is created, the taxes can be paid using either of the options given below:

Pay Online using the GST portal through any agency banks (banks authorized by RBI to collect GST on their behalf) using online banking, or Credit Card/Debit Card. The paid challan can then be downloaded from the GST portal.
Pay ‘Over the Counter Payment’ (OTC) by printing the challan and presenting it in the relevant bank (as cash/cheque). After payment realization, the bank will transfer the money to RBI and send confirmation of payment to GST Portal for accounting.

Every business will need to become GST compliant. Hence updating your accounting software too becomes an imperative step, as it will help you generate GST compliant invoices, record expenses, and automate preparation of GST-ready tax returns.

Conclusion

In the world of digitalization, GST’s comprehensive information technology system has made GST a better, smarter and fairer way of collecting tax that also enables a lot more transparency. The key features of GST are real-time tax payments and credit utilization, tracking of the paid taxes and ledger balances, etc. As a result, tax compliance has increased, and opportunities for tax evasion have decreased.

Calculating GST may seem tricky at first, but its like adding up small bits of tax at each step of making and selling things. It’s like puzzle pieces, fitting together to ensure everyone pays correctly and things work well. Just as each puzzle piece matters, every bit of tax contributes to the country’s needs and progress.

Kotak Mahindra Bank is an authorized bank to collect Goods & Services Tax (GST) through its digital integration with the GST portal. Individual and corporate customers can make end-to-end tax payments on this portal simply by selecting Kotak Net Banking as a payment option or pay using Credit Card/Debit Card or UPI of any bank via the Kotak Payment Gateway. Customers can also make GST payments through cash, cheque or DD by selecting “Over-the-Counter” mode of payment while creating a challan on the GSTN portal.

“This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.”