Let’s Dive In….

This time around let us try to understand what really is the GST???

The Goods and Services Tax was introduced to subsume almost all the Indirect Taxes that existed in India. Indirect Taxes are the taxes which are levied on the manufacture and sale of a product or service. So, they are not directly charged to the customer but they are added to the final price of the product. So, whether we like it or not we end up paying them. Many of the State, as well as Central taxes, were subsumed in GST. Let us try to understand the GST without any legal jargons.

What is the need to bring Single Tax instead of multiple taxes?

The old India was economically fragmented, the new India will create one tax, one market and for one nation- Arun Jaitley

The first reason is to simplify the indirect tax structure in India. With so many different State as well as Central taxes to comply with; Indian businessmen especially the SME’s were finding it difficult to do the business with freedom.

In the Indian tax structure; as far as the Indirect Taxes were concerned; the right levy i.e. impose and right to collect the taxes on manufacturing was with the Central Government whereas the right to levy and collect taxes on trading of goods was with the States. In this scenario, the basic value of the product was considered as the base for imposing Central taxes. But for calculating the state taxes, the central taxes were also added to the basic value. So effectively amount of Central tax were also taxed by the State Governments. In legal terms, this is known as the cascading effect. The best way to avoid this was to impose one Central tax and do away with all other taxes. 

The GST will apply to the Sale of Goods as well as the provision of Services. Earlier the taxes on Services was levied and collected by the Central Government only. The idea is to make the input credit available across the industry. (We will learn more about Input Tax Credit soon)

There are many more reasons that can be listed but we can save them for later part.

In the next post, we will try to learn about the Procedural and Practical aspects of the Registrations under GST

GST Tip:- There is only one registration number per state in GST known as GSTIN (GST Identification Number)