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Introduction to GST, SGST, CGST and IGST

introduction to gst

What is Goods and Services Tax (GST)?

It is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as a setoff. In a nutshell, only value addition will be taxed and the burden of a tax is to be borne by the final consumer.

What are GST rate slabs?

The Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 percent to 28 percent. GST council finalized a four-tier GST tax structure of 5%, 12%, 18%, and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

Service Tax will go up from 15% to 18%. The Services being taxed at lower rates, owing to the provision of abatement, such as train tickets, will fall in the lower slabs.

In order to control inflation, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rates.

The lowest rate of 5% would be for common use items. There would be two standard rates of 12 percent and 18 percent, which would fall on the bulk of the goods and services. This includes fast-moving consumer goods.

Highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty plus VAT).

Ultra luxuries, demerit and sin goods (like tobacco and aerated drinks), will attract a cess for a period of five years on top of the 28 percent GST.

The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.

Finance Minister said that the cess would be lapsable after 5 years.

The structure to agree is a compromise to accommodate the demand for highest tax rate at 40% by states like Kerala. While the centre proposed to levy a 4% GST on gold but the final decision on this was put off. During a press conference, finance minister Mr. Jaitely said, “GST rate on gold will be finalized after the fitting to the approved rates structure of all items is completed and there is some idea of revenue projections.”

The principle for determining the rate on each item will be to levy and collect the GST at the rate slab closest to the current tax incidence on it.

The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess, the Krishi Kalyan Cess, and the Education Cess. Only the clean Environment Cess is being retained, revenues from which will also fund the compensations.

Which of the existing taxes are proposed to be subsumed under GST?

GST is set to replace various taxes as mentioned below:

Taxes currently levied and collected by the Centre State taxes that would be subsumed under the GST
Central Excise duty State VAT
Duties of Excise (Medicinal and Toilet Preparations) Central Sales Tax
Additional Duties of Excise (Goods of Special Importance) Luxury Tax
Additional Duties of Excise (Textiles and Textile Products) Entertainment and Amusement Tax (except when levied by the local bodies)
Additional Duties of Customs (commonly known as CVD) Taxes on advertisements
Special Additional Duty of Customs (SAD) Purchase Tax
Central Surcharges and Cesses so far as they relate to supply of goods and services State Surcharges and Cesses so far as they relate to supply of goods and services

 

The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharge levied by the Centre, the State and the local bodies which may be subsumed in the GST.

What will be the status of Tobacco and Tobacco products under the GST regime?

Tobacco and tobacco products would be subject to GST. In addition, the center would have the power to levy Central Excise duty on these products.

Commodities Proposed to be kept outside GST Alcohol for human consumption, Petroleum Products viz. petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel & Electricity.
Taxation of such commodities in GST Regime The existing taxation system (VAT & Central Excise) will continue in respect of the above commodities.

Before moving to the next question on GST, you can read more about Tally.ERP 9 with GST and how you can maintain accounting.

What type of GST is proposed to be implemented?

It would be a dual GST with the Centre and States simultaneously levying it on a common tax base. The GST to be levied by the Centre on the intra-State supply of goods and /or services would be called the Central GST (CGST) and that to be levied by the States would be called the State GST (SGST). Similarly, Integrated GST (IGST) will be levied and administered by Centre on every inter-state supply of goods and services.

Which authority will levy and administer GST?

Centre will levy and administer CGST & IGST while respective states will levy and administer SGST.

How would a particular transaction of goods and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value, unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located with the State.

Illustration I: Suppose the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods.

He would be required to deposit the CGST component into a Central Government account while SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10) in cash as he would be entitled to set-off this liabilities against the CGST or SGST paid on his purchases (say inputs), But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone.

In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

Illustration II: Suppose, again the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the services.

He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10 + Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist, etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilize the credit of SGST alone.

In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

What is IGST?

Under the GST regime, an integrated GST (IGST) would be levied and collected by the center on the inter-state supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.

How will GST return be filed?

For properly updating the invoices, Indian taxpayers and businesses have to file certain returns with the Government. These returns have to be mandatorily filed as any non-compliance towards the same may lead to disallowance of input tax credit, apart from attracting penalties and interests, etc. Proper filing of information and passing the same in the returns is a mandatory process for smooth flow of credit to the last receipt.

The returns have been designed so that all the transactions are in sync with each other and that no transaction is left unattended between the buyer and the seller. All the data is stored in GSTN, which can be accessed by the users/ taxpayers anytime online.

Depending on the type of GST registration (Regular, Composite, etc) businesses will need to file up to 37 GST returns every year. These returns can be filed using any Tally Software.

What would be the role of GST council?

A GST Council would be constituted comprising the Union Finance Minister (who will be the Chairman of the Council), the Minister of State (Revenue) and the State Finance/ Taxation Ministers to make recommendations to the Union and the States on

The taxes, cresses, and surcharges levied by the Centre, the States and the local bodies which may be subsumed under GST;

The goods and services that may be subjected to or exempted from the GST;

The date on which the GST shall be levied on petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel;

Model GST laws, principles of the levy, apportionment of IGST and the principles that govern the place of supply;

The threshold limit of turnover below which the goods and services may be exempted from GST;

The rates including floor rates with bands of GST;

Any special rate of rates for a specified period to raise additional resources during any natural calamity or disaster;

Special provision with respect to the North-East States, J& K Himachal Pradesh, and Uttarakhand; and

Any other matter relating to the GST, as the Council may decide.

Who is liable to pay GST under the proposed GST regime?

Under the GST regime, the tax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the threshold exemption, i.e. Rs. 10 lakhs (Rs. 5 lakhs for the NE States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST/ SGST is payable on all intra-state supply of goods and/or services and IGST is payable on all inter-state supply of goods and/ or services. The CGST / SGST and IGST are payable at the rates specified in the schedules to the respective acts.

What are the benefits available to small taxpayers under the GST regime?

Taxpayers with an aggregate turnover in a financial year up to [Rs. 10 lakhs] would be exempt from tax.

[Aggregate turnover shall include the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST]

Aggregate turnover shall be computed on all India bases. For the NE States and Sikkim, the exemption threshold shall be [Rs. 5 lakhs]. All taxpayers eligible for threshold exemption will have the option of paying tax will input tax credit (ITC) benefits. Taxpayers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.

How will the goods and services be classified under GST regime? What is HSN under GST?

HSN (Harmonized System of Nomenclature) code shall be used for classifying the goods under the GST regime. Taxpayers whose turnover is above Rs. 1.5 crores but below Rs. 5 crores shall use 2 digit code and the taxpayers whose turnover is Rs. 5 crores and above shall use 4 digit codes. Taxpayers whose turnover is below Rs. 1.5 crores are not required to mention the HSN Code in their invoices. Services will be classified as per the Services Accounting Code (SAC)

How will imports be taxed under GST?

Imports of Goods and Services will be treated as inter-state supplies and IGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off 14 will be available on the GST paid on import on goods and services.

How will Exports be treated under GST?

Exports will be treated as zero-rated supplies. No tax will be payable on exports of goods and services, however, the credit of input tax credit will be available and same will be available as a a refund to the exporters.

GST is a very important aspect you should understand before you move to Maintain Accounts in Tally ERP9

What is the score of composition scheme under GST?

Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC.

The floor rate of tax for CGST and SGST shall not be less than [1%]. A taxpayer opting for composition levy shall not collect any tax from his customers. Taxpayers making inter-state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.

Please note that the composition scheme is optional.

What is GSTN and its role in the GST regime?

GSTN stands for Goods and Services Tax Network (GSTN). A special purpose vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall provide a shared IT infrastructure and services to Central and the State Governments, taxpayers and other stakeholders for the implementation of GST. The functions of the GSTN would, inter alia, include:

Facilitating registration;

Forwarding the returns to Central and State authorities;

Computation and settlement of IGST;

Matching of tax payment details with banking network;

Providing various MIS reports to the Central and the State Governments based on the tax

Payer return information

Providing analysis of taxpayers profile and

Running the matching engine for matching, reversal and reclaim of input tax credit.

The GSTN is developing a common GST portal and application for registration, payment, return and MIS/ reports. The GSTN would also be integrating the common GST portal with the existing tax administration IT systems and would be building interfaces for taxpayers. Further, the GSTN is developing back-end modules like assessment, audit, refund, appeal, etc. for 19 states and UTs (Model II States). The CBEC and Model I States (15 States) are themselves developing their GST backend systems. Integration of GST front-end system with back-end systems will have to be completed and tested well in advance for making the transition smooth.

Is your business ready for GST?

Every business in India will need to comply with GST after 1st July 2017. GST rules will apply to invoice, receipts, delivery Challan and various other transactions. Tally is a GST-complaint accounting software which will help you create GST invoices, file GST returns online and reconciliation of sales and purchases.

It’s very simple to use and trusted by thousands of business owners and CAs.

One thought on “Introduction to GST, SGST, CGST and IGST

  1. Hai,
    The Articles which ur publishing is really Good.
    If u can Do in a commercial way, Let me know.
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