A Comprehensive Guide to Understanding GST in India

Posted In | Finance | Accounting Software | India Accounting Tax

The Goods and Services Tax (GST) in India is a comprehensive, multi-stage, destination-based tax system that has replaced numerous taxes previously levied by the central and state governments. Introduced in July 2017, GST has been hailed as a significant tax reform in India's history, aiming to streamline the indirect tax system and provide a unified tax structure. This guide will provide an overview of the GST system, its components, the registration process, and its impact on businesses and consumers in India.

 

Components of GST in India

The GST system in India comprises three components, namely the Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST). These components are designed to address the taxation requirements of both the central and state governments:
 

• CGST: This component is levied on intra-state supplies of goods and services and collected by the central government. It replaces taxes such as the central excise duty, service tax, and additional customs duties.
   

• SGST: This component is levied on intra-state supplies of goods and services and collected by the state government. It replaces state taxes such as the state Value Added Tax (VAT), central sales tax, luxury tax, and entertainment tax.
   

• IGST: This component is levied on inter-state supplies of goods and services and collected by the central government. It ensures that the destination state receives its share of taxes on the goods and services consumed within its territory.
   

Threshold for GST Registration

Businesses and individuals providing goods and services in India are required to obtain GST registration if their aggregate turnover exceeds specific thresholds. The current threshold limits are as follows:
 

• For businesses operating in the states of Manipur, Mizoram, Nagaland, and Tripura, the threshold is ₹10 lakhs.
   

• For businesses operating in the rest of India, the threshold is ₹20 lakhs.
   

• For businesses engaged in the supply of goods only, the threshold is ₹40 lakhs.
   

GST Registration Process

The GST registration process is undertaken online through the GST portal. The steps involved in the registration process include:
 

1. Visit the GST portal and click on 'Register Now' under the 'Taxpayers (Normal)' category.
    

2. Fill in the required details, including your Permanent Account Number (PAN), email address, mobile number, and state.
    

3. Upon submission, you will receive a One Time Password (OTP) on your registered email and mobile number. Enter the OTP to verify your details.
    

4. After verification, you will receive a Temporary Reference Number (TRN) on your registered email and mobile number. Use the TRN to log in and fill out the GST registration application.
    

5. Upload the required documents, such as photographs, proof of business address, and bank account details.
    

6. Submit the application and receive an Application Reference Number (ARN) on your registered email and mobile number.
    

7. Track the status of your application using the ARN. Upon approval, you will receive your GSTIN (GST Identification Number).
    

Impact of GST on Businesses and Consumers

The implementation of GST in India has significantly impacted businesses and consumers in various ways, including:
 

• Reduced Tax Burden: By subsuming multiple taxes into a single tax system, GST has reduced the overall tax burden on businesses and consumers.
   

• Input Tax Credit: GST allows businesses to claim input tax credit, thereby reducing the cost of production and increasing their competitiveness in the market.
   

• Increased Compliance: With the online GST portal and a simplified tax structure, compliance has become easier for businesses, leading to an increase in the number of registered taxpayers.
   

• Price Fluctuations: The initial implementation of GST led to fluctuations in the prices of goods and services. However, over time, the prices have stabilized as businesses and consumers adjusted to the new tax system.
   

The GST system in India has brought about a significant change in the indirect tax landscape. With its simplified structure and online compliance mechanism, it has eased the tax burden on businesses and consumers while increasing transparency and efficiency in the taxation system.