The tax structure that was being followed in India since Independence was a bit complex with different types of taxes being levied by both Central and State governments on goods and services.
Knowingly or unknowingly we have been paying a lot of taxes in the name of excise duties, import duties, luxury tax, central sales tax, entertainment tax, value added tax and a lot more for every single good or service that we are either buying or availing. While some of these direct and indirect taxes are levied by the Central Government, some come directly from the state governments.
But, what will happen when there is only one unified tax instead of too many for the same good or service?
This is where the GST comes; in this article, we will help you understand the basics of GST bill that has been the hottest talk of the nation for a quite some time now.
What is GST?
For a very long time, government, be it NDA or UPA, was trying to streamline the indirect taxes system in India by implementing a ‘Single Taxation’ system. The system was named GST ( Goods & Services Tax), with the expectation that once it will roll out all the indirect taxes will be abolished from the system and only GST will be levied on all sorts of goods and services.
GST Bill was first introduced in the budget session of 2007-08 and was approved by the current Union Cabinet Ministry on 17th December 2014. On 19th December 2014, the bill was presented in the Lok Sabha and was finally passed in the budget session of 2017-18. The current central government was pretty clear about its intentions to implement the GST Constitutional Amendment Bill, which they even did successfully.
The bill was then passed and came in to force from 1st July 2017, which also became the major tax reform ever made in India since independence. As per the GST bill, anyone who is providing any goods and services is liable to charge GST from the consumers.
How is GST applied?
GST is consumption based tax system and is applied where there the actual consumption of Goods and Services happens. GST is collected on all sorts of value added good s and services at different stages of sale that fall under the supply chain. GST paid at the time of procurement of goods gets set off against the tax paid at the time supply of the goods and services. The supplier, manufacturer or retailer has to pay that applicable GST, but they claim it back through a systemic tax credit mechanism.
The end consumer, who also happens to be the last person of the supply chain has to bear all the tax, which made the previous GST more of the last point of retail tax.
The GST is an indirect tax which is passed on to the last stage of the retail cycle to the
However, under the current and newly introduced system of GST, the indirect tax will get more streamlined, and the final tax that the end user pays will come out to be lower. This will happen because the double charging will be eliminated from the system through a standardized GST rate slab introduced by the government.
The Indian Government has opted for the Dual System GST, which will be known as:
- Central Goods and Service Tax (CGST)
- State Goods and Service Tax (SGST)
Under this scheme, the current taxes like excise taxes, custom duty, and service tax, etc. will be merged in CGST, whereas, taxes like entertainment tax, VAT, sales tax and other state levied taxes will be merged in SGST.