2019-09-30 16:07:26GST CenterEnglishThis article gives a brief overview of the GST Basics. It describes the basic terms, concepts and procedures that are used to meet...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2019/09/GST-Basics-Final.jpghttps://quickbooks.intuit.com/in/resources/gst-center/gst-basics/GST Basics: A Complete Guide

GST Basics: A Complete Guide

14 min read

Goods and Services Tax (GST) is one of the greatest tax reforms brought about in the indirect tax structure of India.

The previous indirect tax system comprised of separate Centre and State laws. Such a tax structure not only increased the cost of goods but also made the taxation system more complex. Therefore, to bring in simplicity and reduce ‘tax on tax’, a single, unified tax in the form of GST was introduced. Such a tax system involves levy on the supply of goods or services or both with concurrent jurisdiction of Centre and States.

What is GST?

GST is a single, destination based indirect tax levied on the value added to goods as well as services at each stage of the supply chain. The main objective behind levying such a tax is to consolidate multiple indirect tax levies into a single tax. Thus, GST subsumes a host of taxes. It overcomes limitations of the previous indirect tax structure and brings efficiency in the administration of tax.

‘Destination Principle’ states that the supply of goods and services would be taxed at the point of consumption. This means that GST replaces source based tax system with destination based tax regime.

‘Value Added Principle’ on the other hand underlines that the tax shall be collected on value-added to goods or services at each stage of the supply chain. Right from the original producer or service provider to the ultimate consumer, GST will be collected on value added at every stage of the supply chain.

GST paid on the purchase of goods and services can be set off against the output tax payable on the supply of goods and services. Thus, GST provides for comprehensive and continuous tax throughout the supply chain. It does away with the cascading effect of taxes.

What are the Components of GST?

To administer GST in a country like India, a model was designed involving both Centre and States in its implementation. This is because India is a federal country. Here, both the Centre and States have powers to levy and collect taxes through their respective legislations.

Accordingly, a Dual GST Model was implemented that distributed powers to both Centre and the States to levy the tax concurrently. And, depending upon the nature of supply, components of GST are as follows:

  • Central GST (CGST)
  • State GST (SGST)
  • Union Territory GST (UTGST) and
  • Integrated GST (IGST)

What is Central Goods and Services Tax (CGST) ?

Central Goods and Services Tax (CGST) is an indirect tax levied and collected by the Central Government on the intra-state supplies. Such supplies do not include alcoholic liquor for human consumption. This tax levy is governed by the Central Goods and Services Act, 2017. And such a tax is levied on the transaction value of the goods or services supplied as per section 15 of the CGST Act. The transaction value is the price actually paid or payable for the said supply of goods or services.

What is State Goods and Services Tax (CGST) ?

SGST is an indirect tax levied and collected by the State Government on the intra-state supplies. Such supplies do not include alcoholic liquor for human consumption. This tax levy is governed by the State Goods and Services Act (SGST), 2017. And such a tax is levied on the transaction value of the goods or services supplied as per section 15 of the SGST Act. The transaction value is the price actually paid or payable for the said supply of goods or services.

What is Integrated State Goods and Services Tax (CGST) ?

IGST is an indirect tax levied and collected by the Central Government on the inter-state supply of goods or services. Such supplies do not include alcoholic liquor for human consumption. This tax levy is governed by the Integrated Goods and Services Tax Act, 2017. And the same is apportioned between Centre and State governments.

What Is Union Territory Goods and Services Tax (UTGST)?

UTGST is an indirect tax levied and collected by the Union Territory on the intra-state supply of goods or services. Such supplies do not include alcoholic liquor for human consumption. This tax levy is governed by the Union Territory Goods and Services Act (UTGST), 2017. And such a tax is levied on the transaction value of the goods or services supplied as per section 15 of the CGST Act, 2017. The transaction value is the price actually paid or payable for the said supply of goods or services.

Taxes Subsumed Under GST

The main objective of GST is to consolidate multiple indirect taxes levied under the previous indirect tax structure. The essence of such a tax regime is to remove cascading effect of multiple taxes. Thus, GST is a well designed VAT that aims to eliminate distortions existing in the previous indirect tax structure.

Accordingly, the following indirect taxes have been subsumed under GST:

Central Taxes

  • Central Excise Duty
  • Countervailing Duty (CVD) of Customs
  • Special Additional Duty of Customs
  • Service Tax
  • Duties of Excise Under Medicinal and Toilet Preparations Act
  • Additional Duties of Excise
  • Cesses and Surcharges

State Taxes

  • State VAT
  • Central Sales Tax
  • Purchase Tax
  • Luxury Tax
  • Entry Tax
  • Entertainment Tax
  • Taxes on Advertisements
  • Taxes on Lotteries, Betting and Gambling
  • State Cesses and Surcharges

What is Input Tax Credit?

In order to avoid the challenge of ‘tax on tax’, Input Tax Credit (ITC) mechanism was incorporated into the GST system.

The term ‘Input’ means any goods other than capital goods used or intended to be used by you in the course or furtherance of your business. And the taxes paid on the inward supply of inputs, capital and services are called input taxes. These may include Integrated GST, Central GST, State GST or Union GST.

Therefore, Input Tax Credit means deducting the tax paid on inputs from the tax payable on the final output by you as a registered taxable person. This means as a recipient of inputs or input services (e.g. a manufacturer), you can deduct the amount of tax paid on inputs or input services against the tax on your output.

Utilization of ITC

ITC is credited to your electronic ledger. Such ITC can be used by you as a registered taxable person to pay your output tax liability. Therefore, ITC can be utilized in the following manner:

This image explains the utilization of Input Tax Credit standing against different tax components of GST

Your CGST liability can be extinguished by first utilizing ITC standing under CGST and then under IGST. Similarly, your SGST liability can be terminated by first using ITC standing under SGST and then under IGST. Finally, your IGST liability can be exhausted by first using ITC standing under IGST. Then, you can utilize ITC existing under CGST and lastly the ITC standing under SGST.

Registration Under GST

Under the GST law, registration of an entity means obtaining a unique number from the concerned tax authorities. This number is referred to as GST Identification Number (GSTIN). Such a number is obtained for the following purposes:

(a) to collect tax on behalf of the government and
(b) to avail input tax credit for the taxes paid on inward supplies

But to avail GST Identification Number, there are some basic conditions that your business must meet.

Minimum Requirements For Registration

According to section 22 of the CGST Act, 2017, the minimum threshold turnover for GST Registration is Rs 40 Lakhs for goods and Rs 20 Lakhs for services . This means that if your annual aggregate turnover is more than the threshold limit, you are liable for registration under the Act. But for persons having business units in Jammu and Kashmir and North-Eastern states, the minimum turnover threshold is Rs 20 Lakhs.

Following table showcases the north-eastern states of India:

S.No.North-Eastern States
Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Himachal Pradesh
Uttarakhand

Additionally, there are persons who have a place of business in various states. They might have one of the branches in Jammu and Kashmir or any of the North Eastern states mentioned above. In such a case, the threshold limit for GST would be reduced to Rs 20 Lakhs.

Single and Multiple Registrations under GST

Under GST, single registration is required for different taxes. This means you are not required to register separately for CGST, SGST/UTGST, IGST and Cesses. Also, if your business has multiple branches in different states, you are required to register separately for each state.

However, if your business entity has multiple branches within the same state, single registration is required. In such a case, your entity shall declare:

  • one place as principal place of business and
  • other branches as additional place of business

Furthermore, there are business entities having separate business verticals within the same state. In such a case, the entity has to obtain separate registration for each of its business verticals.

GST Return: What is GST Return and How to File GST Return?

Every registered person paying GST is required to furnish an electronic return every calendar month. A “Tax Return” is a document that showcases the income of a registered taxpayer. Such a document needs to be filed with the tax authorities in order to pay tax to the government. The tax to be paid by a registered dealer depends upon the income declared by such a person in the tax return filed with the tax authorities.

Under the initial GST Return filing procedure, the tax return document demanded the taxpayer to disclose the following details:

  • Outward Supplies (Sales)
  • Inward Supplies (Purchases)
  • GST On Output
  • GST on Input (Input Tax Credit)
  • Other Particulars (As May be Prescribed in the Document)

However, the current system of GST Return filing requires a taxpayer to update outward supplies information in GSTR 1. And then file a summary return in GSTR 3B. All the other forms like GSTR 2 and GSTR 3 have been suspended for the time being.

Further, the incumbent government is planning to implement the new GST Return design. This simplified version of return would require the taxpayers having an annual turnover of over Rs. 5 Crores to file one monthly return only. Small business owners, having an annual turnover of upto Rs. 5 Crores would have the option to file quarterly returns.

Other Important Concepts in GST

Reverse charge means the liability to pay GST is on the recipient instead of the supplier of goods and services. This is unlike the usual regulation under GST where the supplier of goods and services is obligated to pay GST for the supplies made.

Your company’s aggregate turnover is the main qualifying factor for the GST composition scheme. GST law says that as long as you’re registered for GST and your aggregate turnover is not greater than Rs 1.5 crore in case of goods and Rs 50 Lakhs in case of services during the financial year, you are eligible for the composition scheme.

According to section 16 of the IGST Act, the term “zero rated supplies” means export of goods or services or both and supply of goods or services or both to a Special Economic Zone (SEZ) developer or unit.

The input tax credit of a registered person remains unutilized in the following two scenarios: (1) where rate of tax on inputs is more than rate of tax on output supplies and (2) where there is accumulation of ITC on account of export of goods or services without payment of tax

As per section 147 of the CGST Act 2017, supplies are considered Deemed Exports under GST if they meet the following two conditions. First, the supplies include goods and not services manufactured in India. Further, the goods produced do not leave India. Second, the Payment with regards to such supplies is received in Indian rupees or in convertible foreign exchange.

Under Goods and Services Tax, supply means the point of taxation or taxable event.

Place of Supply is nothing but the place of delivery of goods or consumption of service. In other words, it is the registered location of recipient of a good or service. Under GST, place of supply is divided into following categories:  Place of Supply of Goods , Place of supply of Services (within India) and Place of Supply of Services (Outside India).

The input tax credit of a registered person remains unutilized in the following two scenarios: (1) where rate of tax on inputs is more than rate of tax on output supplies and (2) where there is accumulation of ITC on account of export of goods or services without payment of tax

Every registered person paying GST is required to furnish an electronic return every calendar month. A “Tax Return” is a document that showcases the income of a registered taxpayer. Under the GST Return filing procedure, the different types of GST returns were demanded like GSTR 1, GSTR 2, GSTR 3B, GSTR 4, GSTR 5, GSTR 6, GSTR 7, GSTR 8GSTR 9A, GSTR 9B, GSTR 9 and GSTR 10 .

The online payment of GST through GST Payment Challan has made tax payment easy as well as brought about increased transparency. Therefore, there is a proper process for the online payment of GST via the common portal. Accordingly, you have access to three electronic ledgers for the payment of GST as a registered taxpayer. These include electronic cash ledger, electronic liability ledger and electronic credit ledger.

For small business owners, one of the biggest benefits of the Goods and Services Tax regime is the convenient GST payment process. The GST system is almost entirely online, which means you can file and pay your taxes without leaving the office.

IGST is charged on imports since such supplies are deemed as interstate supplies. This is in addition to the applicable custom duties.

There are various types of invoices that can be issued in GST. The type of invoice to be issued depends upon the type of registered person who is making a supply. For instance, if a registered person supplies or purchases goods from an unregistered person, tax invoice needs to be issued by such a registered person. But, if the registered person under GST is supplying exempted goods or is registered under composition scheme, he is required to issue bill of supply in such a case.

Registration Under GST

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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