Tax is a mandatory financial charge or levy imposed by a government on individuals, businesses, or other entities to fund public expenditures and services. Taxes are collected to support the functioning of the government and provide public goods and services such as infrastructure, education, healthcare, defence, and social welfare programs. Goods and Services Tax is indirect tax. In this article, we shall discuss salient features of GST

According to Article 366 (12A) of Constitution of India, goods and services tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption.

Salient Features of GST

The salient features of GST are as under:

• GST is applicable on “supply” of goods or services as against the earlier concept of tax on the manufacture of goods or on sale of goods or on provision of services.
• GST is based on the principle of destination based consumption taxation as against the earlier principle of origin based taxation.
• It is a dual GST with the Centre and the States simultaneously levying it on a common base. The GST to be levied by the Centre is called Central GST (CGST) and that is levied by the States [including Union territories with legislature] is called State GST (SGST). Union territories without legislature levy Union Territory GST (UTGST).
• An Integrated GST (IGST) is levied on inter-State supply (including stock transfers) of goods or services. This is collected by the Centre so that the credit chain is not disrupted.
• Import of goods is treated as inter-State supplies and is subject to IGST in addition to the applicable customs duties.
• Import of services is treated as inter-State supplies and is subject to IGST.
• CGST, SGST /UTGST & IGST is levied at rates to be mutually agreed upon by the Centre and the States under the aegis of the GSTC.
• GST replaced the following taxes levied and collected by the Centre earlier:
  • Central Excise Duty;
  • Duties of Excise (Medicinal and Toilet Preparations);
  • Additional Duties of Excise (Goods of Special Importance);
  • Additional Duties of Excise (Textiles and Textile Products);
  • Additional Duties of Customs (commonly known as CVD);
  • Special Additional Duty of Customs (SAD);
  • Service Tax;
  • Cesses and surcharges insofar as they relate to supply of goods or services.
• State taxes that subsumed within the GST are:
  • State VAT;
  • Central Sales Tax;
  • Purchase Tax;
  • Luxury Tax;
  • Entry Tax (All forms);
  • Entertainment Tax (except those levied by the local bodies);
  • Taxes on advertisements;
  • Taxes on lotteries, betting and gambling;
  • State cesses and surcharges insofar as they relate to supply of goods or services.
• GST will apply to all goods and services except Alcohol for human consumption.
• GST on five specified petroleum products (Crude, Petrol, Diesel, Aviation Turbine Fuel & Natural gas) would be applicable from a date to be recommended by the GSTC.
• Tobacco and tobacco products would be subject to GST. In addition, the Centre would continue to levy Central Excise duty.
• A common threshold exemption would apply to both CGST and SGST. Taxpayers with an annual turnover of ` 20 lakh (` 10 lakh for special category States as specified in article 279A of the Constitution) are exempt from GST. A compounding option (i.e. to pay tax at a flat rate without credits) is available to small taxpayers (including to specified category of manufacturers and service providers) having an annual turnover of up to ` 75 lakh. The threshold exemption and compounding scheme would be optional.
• The list of exempted goods and services would be kept to a minimum and it would be harmonized for the Centre and the States as well as across States as far as possible. (xv) Exports would be zero-rated.
• Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST/UTGST paid on inputs may be used only for paying SGST/UTGST. In other words, the two streams of input tax credit (ITC) cannot be cross utilized, except in specified circumstances of interState supplies for payment of IGST. The credit would be permitted to be utilized in the following manner:
  • ITC of CGST allowed for payment of CGST & IGST in that order;
  • ITC of SGST allowed for payment of SGST & IGST in that order;
  • ITC of UTGST allowed for payment of UTGST & IGST in that order;
  • ITC of IGST allowed for payment of IGST, CGST & SGST/UTGST in that order. ITC of CGST cannot be used for payment of SGST/UTGST and vice versa
• Accounts would be settled periodically between the Centre and the State to ensure that the credit of SGST used for payment of IGST is transferred by the originating State to the Centre. Similarly the IGST used for payment of SGST would be transferred by Centre to the destination State. Further the SGST portion of IGST collected on B2C supplies would also be transferred by Centre to the destination State. The transfer of funds would be carried out on the basis of information contained in the returns filed by the taxpayers.
• Input Tax Credit (ITC) to be broad based by making it available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business.
• Electronic filing of returns by different class of persons at different cut-off dates.
• Various modes of payment of tax available to the taxpayer including internet banking, debit/ credit card and National Electronic Funds Transfer (NEFT) / Real Time Gross Settlement (RTGS).
• Obligation on certain persons including government departments, local authorities and government agencies, who are recipients of supply, to deduct tax at the rate of 1% from the payment made or credited to the supplier where total value of supply, under a contract, exceeds two lakh and fifty thousand rupees.
• Refund of tax to be sought by taxpayer or by any other person who has borne the incidence of tax within two years from the relevant date.
• Obligation on electronic commerce operators to collect ‘tax at source’, at such rate not exceeding two per cent (2%) of net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals.
• System of self-assessment of the taxes payable by the registered person.
• Audit of registered persons to be conducted in order to verify compliance with the provisions of Act.
• Limitation period for raising demand is three (3) years from the due date of filing of annual return or from the date of erroneous refund for raising demand for short-payment or non-payment of tax or erroneous refund and its adjudication in normal cases.
• Limitation period for raising demand is five (5) years from the due date of filing of annual return or from the date of erroneous refund for raising demand for short-payment or non-payment of tax or erroneous refund and its adjudication in case of fraud, suppression or willful mis-statement.
• Arrears of tax to be recovered using various modes including detaining and sale of goods, movable and immovable property of defaulting taxable person.
• Officers would have restrictive powers of inspection, search, seizure and arrest. (xxx)Goods and Services Tax Appellate Tribunal would be constituted by the Central Government for hearing appeals against the orders passed by the Appellate Authority or the Revisional Authority. States would adopt the provisions relating to Tribunal in respective SGST Act.
• Provision for penalties for contravention of the provision of the proposed legislation has been made.
• Advance Ruling Authority would be constituted by States in order to enable the taxpayer to seek a binding clarity on taxation matters from the department. Centre would adopt such authority under CGST Act.
• An anti-profiteering clause has been provided in order to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers.
• Elaborate transitional provisions have been provided for smooth transition of existing taxpayers to GST regime.

Conclusion:

The Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax that has transformed the indirect taxation structure in India. GST replaced various central and state indirect taxes like VAT, service tax, excise duty, etc., with a single tax system, making the taxation process simpler and more transparent. GST in India follows a dual model, consisting of Central GST (CGST), collected by the central government on intra-state transactions, State GST (SGST), collected by state governments on intra-state transactions and Integrated GST (IGST) levied on inter-state transactions by the central government, and subsequently shared between the central and state governments.

GST is a value-added tax, meaning tax is levied only on the value added at each stage of production or distribution. This ensures that tax is paid on the final value of the product rather than on its entire value chain. Unlike the previous system, where taxes were levied based on the place of origin, GST follows a destination-based approach. This means that the tax is collected by the state where the goods or services are consumed rather than where they are produced. GST allows businesses to claim input tax credit on the tax paid for inputs, helping avoid the cascading effect of taxes. This ensures that businesses only pay tax on the value they add to a product or service.GST has a broader tax base by including goods and services that were previously exempt or not taxed under the old regime. This includes services like banking, insurance, and leasing.

Small businesses with a turnover below a certain threshold limit are exempt from GST registration, thus easing the tax burden on smaller businesses and promoting ease of doing business. GST has effectively created a unified national market by removing barriers to trade between states, leading to improved interstate trade and commerce.The GST structure includes multiple tax rates, typically classified into categories such as 0%, 5%, 12%, 18%, and 28%, with certain goods and services being exempt. This ensures that the tax burden is aligned with the nature and necessity of the goods and services.

GST is largely technology-driven, with the use of the Goods and Services Tax Network (GSTN) for filing returns, processing payments, and maintaining records. This has enhanced transparency, reduced paperwork, and improved compliance. GST mandates regular filing of returns and adherence to compliance timelines. Businesses must keep track of sales, purchases, and input tax credits to stay in compliance. To ensure that the benefits of reduced tax rates under GST are passed on to consumers, an anti-profiteering measure has been introduced, requiring businesses to lower prices when GST rates are reduced.

GST has significantly streamlined India’s indirect taxation system, promoting transparency, ease of doing business, and the creation of a unified market. While challenges remain, especially for small businesses, the overall impact has been positive, making the tax system more efficient, less prone to evasion, and more conducive to economic growth.