India’s new Goods and Services Tax came into effect July 2017. Ultimately, the GST is designed to simplify taxation and unify the country into a common market instead of a collection of states with different rules and requirements. Whether you’re a business owner or a consumer, you may be wondering about the new system.
The GST is a direct sales tax that applies to all goods and services. The tax subsumes a number of indirect taxes that were previously levied by the central government, including excise duties, custom duties, and services taxes. It also replaces several state taxes such as state value added tax, entry taxes, entertainment and amusement taxes, and purchase taxes.
What’s a Location-Based Tax?
The GST is also a location-based tax. This means that location affects the type of tax in play. For transactions that occur in a single state, the Central GST and the State GST apply. The seller collects both taxes. Then, they remit the CGST to the central government and the SGST to the state.
In contrast, if the sale happens across state lines, the Integrated GST takes effect. The seller collects the IGST and sends it to the centre. Then, the centre distributes the applicable tax to the state where the goods or services were supplied. For instance, if a business owner in Orissa sells something to someone located in Tamil Nadu, the goods are supplied in Tamil Nadu, so the centre sends a portion of the IGST to Tamil Nadu.
What’s the History of the GST?
The New GST system took approximately 17 years to complete. After announcing the idea in 2000, the government planned to roll out the system in 2010. But numerous hurdles and debates delayed the process. Finally, in 2017, the Central GST Bill, the Integrated GST Bill, the Union Territory GST Bill, and the GST Compensation to States Bill all became law.
Throughout that process, the GST Council met dozens of time, and as of May 2018, the group is preparing for its 27th meeting. Although the GST has been in effect for almost a year, the council is still working on simplifying the return and ironing out a few other details.
What Are Tax Slabs?
The GST has five major tax slabs: exempt, 5%, 12%, 18%, and 28%. As a general rule of thumb, the more essential a product or service, the lower its tax slab. For instance, fruits and cereal are tax exempt. In contrast, luxuries such as aerated water and personal aircraft are grouped into the 28% tax slab. The council also attempted to tax items in ways that didn’t place an undue burden on people with low or moderate incomes. For example, while brooms are tax exempt, vacuums are in the highest tax slab.
What Are the GST Rules for Businesses?
If your business has a turnover of ₹2.5 million or more annually, you have to register for the GST, but you can opt to register even if your turnover is under that threshold. Once you’re registered, you have to collect GST on your sales. You also have to submit three main GST returns every month. If your earnings are beneath a certain threshold, you may be able to file quarterly.
What’s on a GST Return?
Monthly GST returns contain information related to the previous month. If you file monthly, your GST returns are due as follows:
- 10th – details of your sales and the GST you collected
- 15th – details of your business purchases and the GST you paid
- 20th – monthly GST summary
To illustrate how this works, imagine you sold ₹10,000 worth of goods or services last month and collected ₹1,500 in GST from your customers. You report that on your first return. During that month, you also spent ₹2,000 on goods for your business and paid your suppliers ₹300 in GST. When your suppliers submit their GST returns, they send that information to the government. The government creates your second return based on the information supplied by your vendors. If everything is correct, you sign the second return and remit it to the government.
Finally, the government crunches the numbers to assess your final liability. In this situation, you collected ₹1,500 in GST and paid ₹300 in GST to your clients. As ₹1,500 – ₹300 = ₹1,200, you owe ₹1,200. Note you may have to file additional returns if you’re a nonresident, input service distributor, or e-commerce operator, as well as in other special situations.
What Are Input Credits?
Input credits are credits you receive for paying GST on business expenses. You can’t claim input credits for personal expenses. The type of GST can also affect how the input credits work. For instance, you can only claim SGST and IGST input credits against SGST. You can’t apply CGST credits.
How Does GST Affect Transport?
As part of the effort to turn India into a single market, the GST bills also eliminated border checkpoints and replaced them with e-way bills. In the past, transporters had to undergo checks at the border. Now, they may be subject to random checks to ensure they have the right e-bill on board, but they don’t have to stop and wait.
E-bills are required for all shipments worth over ₹50,000, and if you’re shipping supplies to a customer, you need to generate an e-way bill using the government’s online portal. The bill contains information about your business, the recipient, and the transporter, as well as details about the shipment itself.
The GST bill encompasses a lot of information, and it’s also subject to change. To help your business stay on top of everything, you may want to invest in a cloud-based accounting software such as QuickBooks Online. Thanks to its GST-ready design and automatic updates, it can handle the numbers while you focus on your business.