What is GST?

GST (Goods and Services Tax) is a single indirect tax aimed at making the country a unified common market. It is imposed on the supply of goods and/or services within India. Multiple indirect taxes that the Central Government or State Governments impose on suppliers and consumers are subsumed by GST.

The taxes levied and collected by the Centre until 1 July, 2017, that are subsumed by GST include Central Excise duty, Duties of Excise (medicinal and toilet preparations), Additional Duties of Excise (goods of special importance), Additional Duties of Excise (textile and textile products), Additional Duties of Customs, Special Additional Duties of Customs, Service Tax, and Central surcharges and cesses. The State taxes subsumed under GST include State VAT, Entry Tax, Central Sales Tax, Entertainment and Amusement Tax, Luxury Tax, Purchase Tax, Taxes on advertisements, Taxes on gambling, betting and lotteries, and State surcharges and cesses relating to the supply of commodities and services.

The implementation of GST by Prime Minister Narendra Modi is considered a historical move, considering the fact that it significantly reformed indirect tax in India. The consolidation of several different taxes into one is forecast to help the country move forward by eliminating the cascading of taxes. The reform is also set to pave the way for a common national market, thereby making Indian commodities and services increasingly competitive in both local as well as global markets.

GST History

A number of countries around the globe have already implemented GST. For instance, Australia saw the introduction of the tax in 2000, replacing the Federal Wholesale Tax. Canada witnessed the replacement of the Manufacturer’s Sales Tax with GST in 1991. New Zealand saw the implementation of the reform in 1986, while Singapore did so in 1994. GST in Malaysia was introduced in 2015, and India has jumped on the bandwagon to provide benefits to the consumers, the industry, and the government.

History of GST in India

Atal Bihari Vajpayee, the 10th Prime Minister of India, was the first to recommend the idea of adopting GST during his time in office, in the year 2000. An Empowered Committee was formed by the state finance ministers at the time, and their aim was to formulate a structure for GST as they already had experience in creating State VAT. The Centre as well as the State had representatives who were urged to examine several different aspects of the proposal so as to come up with reports on the taxation of services, taxation of inter-state supplies, thresholds, and exemptions. The Finance Minister of West Bengal at the time, Asim Dasgupta, headed the committee and chaired it till 2011.

The advisory to the Finance Ministry between 2002 and 2004, Vijay Kelkar, led a task force and sent a report to the Ministry in 2004, highlighting the issues with the then tax structure, adding that these issues could be mitigated by adopting GST.

During his third term as the Finance Minister of India, P. Chidambaram said in 2005 that the government’s medium-to-long term objective was to introduce a uniform taxation structure across India and cover the entire production-distribution chain. As a result, a discussion regarding the same took place in the Budget Session in FY 2005-06, and 1 April, 2010, was set as the date on which GST would be implemented in India.

The advisor to Chidambaram, Parthasarathy Shome, said that preparations by the state to make reforms may take time, but the deadline to implement the regime was retained at 1 April, 2010, in the Union Budget 2007-08. Chidambaram confirmed that significant progress was being made by the states to prepare for the implementation of GST in the Union Budget 2008-09, and the deadline remained intact.

In 2009, following the appointment of Pranab Mukherjee as the new Finance Minister of India, an announcement was made regarding the basic framework of GST, and there was still no change in the deadline. In late 2009, the Empowered Committee, led by Asim Dasgupta, presented the First Discussion Paper (FDP), explaining in detail the proposed GST reform. The foundation for GST, however, was laid by the Mission-Mode Project introduced by the government. The budgetary outlay of the project was Rs.1,133 crore, and it led to the computerisation of commercial taxes in the various states of India. Following this move, GST implementation was delayed by a year.

The 115th Amendment to the Constitution saw the Government, headed by Congress, put forth the bill for the implementation of GST. The bill drew protests from the opposition party and was then sent for detailed scrutiny to a standing committee. The bill was discussed by the committee in June 2012, and concerns were raised by the opposition party over clause 279B as it provided extra powers to the Centre. As a result, Finance Ministers of various states along with the Finance Minister of India held meetings before setting a deadline to resolve the issues by 31 December, 2012.

During the Budget Session in 2013, the Finance Minister made an announcement that states will receive Rs.9,000 as compensation from the government, appealing to state finance ministers to cooperate with the government so that an indirect tax regime could be implemented. In the same year, the standing committee that was created to examine the bill, submitted its report to the parliament, and the regulation was approved by the panel with a few amendments.

Arun Jaitley, the new Finance Minister of India, revealed in his budget speech in February 2015 that GST would be implemented by 1 April, 2016. However, due to disagreements between states and parties in addition to legal issues, the implementation of the regime was delayed by over a year, and on 1 July, 2017, the four GST-related bills, viz. Central GST Bill, Union Territory GST Bill, Integrated GST Bill, and GST (Compensation to States) Bill became Acts. The GST council, over time, finalised GST rules and rates, and the Government announced that GST will come into effect on 1 July, 2017.

GST Bill

The GST Bill has become one of the main points of discussion around the country thanks to its ability to completely reform the whole taxation system in India. The objective of the bill is to simplify the system for taxpayers by unifying the taxes applicable to consumers and suppliers alike. GST was implemented after the approval of four bills passed by the government, viz., Goods and Services Tax Bill, Integrated GST Bill, Compensation GST Bill, and Union Territory GST Bill.

One of the reasons for the implementation of the GST Bill, as revealed by the Finance Minister of India, Mr. Arun Jaitley, is the impact it will have in keeping inflation in check. Moreover, the different kinds of taxes applicable to different commodities and services in different states will be uniform across the country depending on the category under which they fall, therefore removing ambiguity. Even individuals who are heavily taxed can find some respite under GST.

Prior to 1 July, 2017, the Centre and the State calculated and charged taxes depending upon the tax layers that were already being charged on a commodity or service, and not the original price of the commodity or service. A move like this could adversely affect the country’s GDP. Through the GST Bill, not only will business operations become smoother, but it will also keep a check on tax evasion.

Through the GST Bill, the introduction of a multi-tier tax slab will see four tax slabs applicable to commodities and services in India – 5%, 12%, 18% and 28%. Although GST aimed at levying a uniform tax rate on all products and services, four different tax slabs were introduced because daily necessities could not be subject to the same rate as luxury items. As a result, the GST Bill is expected to have a good impact on the general public as products of mass consumption, such as food grains, will not be taxed. Other commodities and services that are commonly used, like soaps and toothpaste will attract 12%-18% tax, which is lower than the current rate of more than 20%. Even household products such as refrigerators and washing machines will be cheaper as the rate of tax now applicable to them is 28% as opposed to the previous rate of 30%-31%.

GST Calculator

A GST Calculator is an effective tool that can be used to calculate the cost of products and services. A GST Calculator is available on bankbazaar.com to help you determine the amount of tax applicable to a certain commodity or service. The formula for the addition of GST is as follows:

GST Amount = (Original Price x GST Rate) / 100

Net Price = Original Price + GST Amount

For instance, if a commodity is sold from Mumbai to Bengaluru for Rs.5000, and the rate of GST is 12%, the GST amount applicable to the product will be (5000 x 15) / 100 = Rs.750; and the net price will be Rs.5000 + Rs.750 = Rs.5750.

The formula for the removal of GST is as follows:

GST Amount = Original Price – (Original Price x (100 / (100 + GST Rate)))

Net Price = Original Price – GST Amount

Calculation of Tax under GST

Here is a table that shows a contrast between the amount of tax applicable under the previous taxation system and the amount charged under GST (Tax rates have been assumed for the purpose of this example):

Details	Tax under Previous Regime	Tax under GST
Value to Manufacturer
Production cost	Rs.2 lakh	Rs.2 lakh
+ Profit Margin (10%)	Rs.20,000	Rs.20,000
+ Excise Duty (12%)	Rs.26400
Total Production Cost	Rs.2,46,400	Rs.2,20,000
+ Value Added Tax (12.5%)	Rs.30,800
+ State GST (6%)		Rs.13,200
+ Central GST (6%)		Rs.13,200
Manufacturer’s Invoice Value	Rs.2,77,200	Rs.2,46,400
Value to Wholesaler
Cost of Products	Rs.2,77,200	Rs.2,46,400
+ Profit Margin (10%)	Rs.27,720	Rs.24,640
Total Value	Rs.3,04,920	Rs.2,71,040
+ Value Added Tax (12.5%)	Rs,38,115
+ State GST (6%)		Rs.16,262
+ Central GST (6%)		Rs.16,262
Wholesaler’s Invoice Value	Rs.3,43,035	Rs.3,03,564
Value to Retailer
Cost of Products	Rs.3,43,035	Rs.3,03,564
+ Profit Margin (10%)	Rs.34,304	Rs.30,356
Total Value	Rs.3,77,339	Rs.3,33,920
+ Value Added Tax (12.5%)	Rs.47,167
+ State GST (6%)		Rs.20,035
+ Central GST (6%)		Rs.20,035
Retailer’s Invoice Value	Rs.4,24,506	Rs.3,73,990

Here is a table showing the calculation of tax for inter-state sales:

Details	Tax under Previous Regime	Tax under GST
Value to Retailer
Cost of Commodities	Rs.2 lakh	Rs.2 lakh
+ Value Added Tax (12.5%)	Rs.25,000
+ Integrated GST (12%)		Rs.24,000
+ Central State Tax (2%)	Rs.4,000
Total Value to Retailer	Rs.2,29,000	Rs.2,24,000

As seen from the above example, the cost of commodities sold within a certain state or even between states will reduce the cost for manufacturers, wholesalers as well as retailers.

GST Registration

GST registration is mandatory for any entity that engages in the supply of goods and services within India. The bill for the implementation of GST was approved by the Prime Minister of India, Narendra Modi, so that indirect taxes imposed by the central or state governments could be subsumed under one single tax. Here is a simple procedure to complete GST registration from the comfort of your home:

• Log on to www.gst.gov.in.
• The menu atop the page has a tab called ‘Services’, click on it and you will get three options – ‘Registration’, ‘Payments’, and ‘User Services’.
• Click on ‘Registration’ and choose ‘New Registration’ to start with Part A of the registration process.
• A new page will open and here you will be required to select your status as a GST practitioner or a taxpayer.
• A few details will then have to be entered in the form, such as the legal name of the business, the district and state in which the business is locate, email address, mobile number, Permanent Account Number, etc.
• The portal will then verify your details and you will receive a One Time Password for confirmation.
• Enter the OTP in the OTP Verification window and click on ‘Proceed’.
• The system will generate a Temporary Reference Number which will be displayed on the screen.
• The Temporary Reference Number will have to be used to login to Part B of the registration process.
• Enter the Temporary Reference Number along with the Captcha Code to start with Part B of the registration process.
• ‘My Saved Application’ will appear on a new page, and you will have to click on the ‘Edit’ icon (white pen in a blue square) under the ‘Action’ option.
• You will be redirected to the registration application form with different tabs, such as Business Details, Authorised Signatory, Promoter/Partners, Authorised Representative, Principal Place of Business, Additional Places of Business, Bank Accounts, Goods and Services, State Specific Information and Verification. You will have to click on each of the aforementioned tabs to enter the required information.
• Next, enter the information related to the commodity before you select ‘Save & Continue’.
• You will then have to fill in information regarding your bank account and then upload the relevant documents.
• You will then be redirected to the verification tab where the details you have sent for verification are displayed. You will be required to put your digital signature on the application after you have filled it up. Digital signatures can be put using EVC, E-Signature, or Digital Signature Certificate. Companies and LLPs can use only Digital Signature Certificates.
• Hit the ‘Submit’ option and the updated details and documents will be saved.
• Hit ‘Proceed’ and you will be redirected to a pop-up window where you will have to click on ‘Sign’.
• Once you have signed the form, you can submit it so that an acknowledgment can be sent to your registered mobile number and email in the form of the Application Reference Number.
• A GST officer will then verify your application number to determine whether it can be approved or rejected. If your application is rejected, you will have to provide some more information or documents until the authorities are convinced to approve your application.

People who do not pay GST or do not make the full payment shall be liable to a penalty of 10% of the tax amount, subject to a minimum of Rs.10,000. Offenders who deliberately evade paying taxes will be levied with a penalty of 100% of the tax amount. However, genuine errors will attract a penalty of 10% of the tax due.

GST Rates in India

Most of the commodities and services that are subject to GST have been categorised under four tax slabs, viz. 5%, 12%, 18%, and 28%. However, GST Rates is not applicable to some goods and services, such as jute, fish, eggs, fresh meat, milk, chicken, curd, fresh fruits, butter milk, vegetables, natural honey, bread, salt, besan, prasad, sindoor, printed books, bindi, judicial papers, newspapers, handloom, bangles, horn cores, bone meal, bone grist, horn meal, hoof meal, palmyra jaggery, cereal grains hulled, colouring and drawing books, etc.

Here is a list of goods and services under the different tax slabs:

Commodities subject to 5% GST:

• Agarbatti
• Apparels up to Rs.1,000
• Braille paper
• Braille typewriters
• Braille watches
• Cashew nuts
• Coir mats
• Domestic LPG
• Edible oils
• Fertilizers
• First day covers
• Fish fillet
• Floor covering
• Footwear up to Rs.500
• Frozen vegetables
• Hearing aids
• Insulin
• Matting
• Medicines
• Milk food for babies
• Packaged food items
• Packed paneer
• Pizza bread
• Postage stamps
• Revenue stamps
• Roasted coffee beans
• Rusk
• Sabudana
• Skimmed milk
• Spices
• Stamp-post marks
• Stent
• Sugar
• Tea

Services Subject to 5% GST:

• Transport services such as airways and railways
• Air travel in economy class
• Sale of advertisement space for print media
• Supply of tour operators’ services
• Road transport by radio taxis and motor cabs
• Small restaurants earning turnover up to Rs.50 lakhs

Commodities Subject to 12% GST:

• Almonds
• Animal fat sausage
• Apparel above Rs.1000
• Ayurvedic medicines
• Bhujia
• Butter
• Cake servers
• Carom board
• Chess board
• Chutney
• Diagnostic kits and reagents
• Exercise books
• Fish knives
• Forks
• Frozen meat products
• Fruit juice
• Fruits
• Ghee
• Glasses for corrective spectacles and flint buttons
• Jelly
• Jam
• Ladles
• Ludo
• Mobile
• Murabba
• Namkeen
• Non-AC restaurants
• Notebooks
• Nuts
• Packaged dry fruits
• Packed coconut water
• Pickle
• Playing cards
• Preparations of vegetables
• Sewing machine
• Skimmers
• Spoons
• State-run lotteries
• Tongs
• Tooth powder
• Umbrella
• Work contracts

Services Subject to 12% GST:

• Air tickets by business class
• Guest houses, inns, and hotels with room tariff ranging between Rs.1000 and Rs.2500 per night

Commodities Subject to 18% GST:

• Aluminium foil Furniture
• Bamboo
• Bidi Patta
• Biscuits
• Branded garments
• Cakes
• Camera
• CCTV
• Circuits
• computers
• Corn flakes
• Curry paste
• Electrical transformer
• Envelopes
• Flavoured refined sugar
• Footwear priced above Rs.500
• Hair oil
• Headgear
• Ice cream
• Instant food mixes
• Kajal pencil sticks
• Mayonnaise
• Mineral water
• Mixed condiments
• Mixed seasonings
• Monitors
• Optical Fiber
• Padding pools
• Swimming pools
• Pasta
• Pastries
• Preserved vegetables
• printed
• Printers
• Salad dressings
• Soap
• Soups
• Speakers
• Steel products
• Tampons
• Tissues
• Toiletries
• Toothpaste
• Weighing machinery (non-electrical or electronic)

Services Subject to 18% GST:

• AC hotels serving alcohol to customers
• Guest houses, inns and hotels with room tariff ranging from Rs.2500 and Rs.5000 per night
• IT services
• Telecom services

Commodities Subject to 28% GST:

• Aerated water
• After shave
• Aircraft for personal use
• Automobiles Motorcycles
• Bidis
• Ceramic tiles
• Chewing gum Molasses
• Chocolates devoid of cocoa
• Deodorants
• Dishwasher
• Dye
• Hair clippers
• Hair shampoo Sunscreen
• Paint
• Pan masala
• Shavers
• Shaving creams
• Vacuum cleaner
• Vending machines
• Waffles and wafers coated with chocolate
• Wallpaper
• Washing machine
• Water heater
• Weighing machine ATM

Services Subject to 28% GST:

• Gambling and race club betting
• Cinema and entertainment
• 5-star hotels
• Guest houses, inns and hotels with room tariff of Rs.5000 and upwards