Goods and Services (GST):-
Good and Service Tax (GST) is a comprehensive indirect tax charged at the describe rate each time of supply is made of good or service or both by the taxpayer registered under GST. GST is an Indirect Tax.
Objectives of GST:-
- Developing Common National Market by Having One Indirect Tax – GST is a step towards development of Common National Market by levy of one Indirect Tax (GST) and thus, facilitating free flow of goods and/or services across India.
- Removing Cascading Effect of Indirect Taxes – GST Paid (Input GST) is set-off against GST Collected, i.e., Charged (Output GST). Thus, in effect, GST is charged on the value added to goods and/or services sold in the subsequent sales. As a result, cascading (tax on tax effect) effect is removed.
- Ease of Doing Business – GST is a comprehensive indirect tax meaning that almost all the indirect taxes (expect tax on petroleum, duties on alcohol for human consumption, customs duty and taxes Charged by local bodies) are merged into it. Also, with improved harmonised indirect tax administration, setting up and carrying on of business has become easier.
- Simplifying Compliance of Indirect Taxes – Compliance of indirect Tax has become much simplified under GST. A business has to comply with GST alone as against many indirect taxes under the earlier indirect tax system.
- Better and Effective Indirect Tax Management – Administration and control of GST has become better and more effective since one indirect tax, i.e., GST has to be administered and controlled by the authorities. As a result, tax evasion is reduced to a very large extent.
- Attracting Foreign Direct Investment (FDI) – GST will attract foreign investment, as a major barrier of more than one indirect taxes, for attracting FDI is removed.
- Uplifting GDP – India was a cash economy and as a result, the data for computing Gross Domestic Product (GDP) was not reliable. With the introduction of GST, businesses are more channelised resulting in more authentic data for GDP. Also, as a result, GDP will be higher.
- Eradicating Cash Economy – GST has brought in a system whereby businesses are more and more coming into the system resulting in eradicating Cash Economy.
Characteristics of GST:-
- It is a Comprehensive Indirect Tax – GST has replaced most of the Indirect Taxes Charged by the State Government and Central Government under the previous Indirect Tax regime.
- It can be Collected/Charged by a Registered Taxpayer – GST can be collected only if the supplier (Seller) of goods and/or services or both is registered under GST.
- It is a Value Added Tax – GST is a value Added Tax since GST Paid (Input GST) is set-off against GST Collected (Output GST). As a result, GST is charged on the incremental value.
- It is a Destination Based Tax – GST is charged every time a supply (sale) is made till the time goods and/or services reach the consumer, i.e., will not be sold further. Thus, it is a Destination Based Tax.
- It is a Supply Based Tax – GST is charged by the seller, if he is registered under GST, whether the purchaser of goods and/or services is exempt from GST or not.
- If Input Credit of GST Paid is Allowed, It is an Asset and not an Expense – In case, GST Paid (Input GST) can be set-off against GST Collected (Output GST), it is accounted as an asset. Otherwise, it is an expense for the business. For example, GST paid on Food and Beverages is not allowed to be set-off against GST Collected. In such case, GST paid is accounted as an expense by debiting it to Business Promotion Account. On the other hand, GST paid on goods purchased is allowed to be set-off against GST Collected. GST paid in this case, is debited to Input GST Account and not Purchases Account.
- GST Collected is not an Income but a Liability – GST Collected, i.e., charged (Output GST) is a liability because it is collected on behalf of the Government. After setting-off GST Paid (Input GST) against GST Collected, i.e., charged (Output GST), if Output GST has balance, it is payable in the Government Account.
- Unlike earlier Indirect Tax system, GST does not have Cascading Effect – Almost all the indirect taxes under the earlier indirect tax system are merged into GST and GST paid normally can be set-off against GST Collected, tax on tax is not charged. In effect, cascading effect of GST is removed.
Categories of GST:-
- CGST – Both CGST and SGST are charged on supply
- SGST – (Sale) of goods and service or both with in the state, i.e., Intra-state Supply
- IGST – It is charged on Sale of goods and services or both outside the state i.e., inter state supply.
ts grewal solution 2024-25