What is GST? – All You Need to Know About GST

what is GST

What is GST: When the discussions of GST pop up in a group or our minds, the first question that arises in our mind is “what is GST”? It has been many days since the talks about implementing GST is being gone around, and there are still people, who are unaware of what is GST and today, we are going to share all the details regarding GST, along with the related information so that you can clear out your doubts and confusions and have an exact understanding of what is GST.

GST is the abbreviation term for “Goods and Services Tax.” In India’s indirect tax structure, Goods and Services Tax are considered to be the biggest reform since 25 years, finally, lays platform to come and set in into the Indian economy. The Amendment Bill of the Constitution was passed which was on the back of the consensus of broad political and was also given a boost when Congress laid its “good wishes.”

what is GST?

what is GST
what is GST

By now, by what is GST you should have a gist on the full form of GST. Now, we shall head into how the Goods and Services Tax regime will work, what effects will be brought about when the bill is cleared by the Parliament and all the other related information in regards to the question of what is GST.

How will the working of a full GST regime be?

The working of the full Goods and Services Tax regime is mainly divided into three parts, likely, “Stage 1: Manufacturing”, “Stage 2: Wholesale” and “Stage 3: Retail”.

You may be now confused is to what does manufacturing, wholesale and retail have to do with what is GST, but these are just relative terms, and we shall now discuss below the different stages involved with what is GST.

Stage 1: In this stage, we will discuss how Goods and Services Tax will be affecting a manufacturer. Let us take into account; a manufacturer is manufacturing a product. Let him spend Rs 100 in buying the raw materials he requires for his product, which will include a tax of about Rs.10. On the process of manufacturing, he adds about Rs.30 on his own for his profit, thereby, making the gross amount Rs.130. When a tax of 10% is implemented, the outstanding tax comes out be Rs.13. But, the working of Goods and Services Tax says he can clear his tax based on the tax paid for raw materials. Thus, the outstanding tax stands Rs. (13-10) =Rs.3.

Stage 2: This next stage is to concern the Wholesaler. The wholesaler buys the product from the manufacturer at the cost of Rs.130, thereby being liable to a pay a tax of Rs.13. He then adds Rs.20 and thus, increases the gross amount of Rs.150, which is liable to hold a tax of Rs.15. Thus, in the same way as to how Goods and Services Tax works, the net tax that stands is Rs.(15-13) =Rs.2.

Stage 3: The last stage is held by the retailer. The retailer will now buy the product from the wholesaler for Rs.150, which is liable for tax on the sum of Rs.15. He then adds up a sum of Rs.10 for his profit, and the total amount stands at Rs.160, which is liable for tax on the sum of Rs.16. Again, same as in Stage 1 and Stage 2, the net outstanding tax according to the functioning or working of Goods and Services Tax stands to be a sum of Rs.(16-15) =Rs.1.

Now, add the end of these three stages, we will now calculate the entire sum of tax in accordance to Goods and Services Tax. Thus, the total sum of payable tax stands Rs. (10+3+2+1) =Rs.16.

Hopefully, now you have a clear gist about the calculation part of taxes which is in accordance with “What is GST.”

The list of all the taxes being replaced by Goods and Services Tax

Following are the list of the Central Taxes which will be replaced by the Goods and Services Tax

  1. Service Tax
  2. Additional Duties of Excise (Goods of special importance)
  3. Additional Duties of Customs (generally termed as CVD)
  4. Additional Duties of Excise (Textiles and textile products)
  5. Central Excise Duty
  6. Special Additional Duties of Customs (SAD)
  7. Cesses and Surcharges so fat till date in regards to the services or the supply of goods
  8. Duties of Excise (medicinal and toilet preparations)

Following are the list of the State Taxes which will be replaced by the Goods and Services Tax

  1. Central Sales Tax
  2. Value Added Tax (VAT) at the State level
  3. Luxury Tax
  4. Purchase Tax
  5. Taxes on lotteries, betting, and gambling
  6. Entertainment Tax (not levied by local bodies)
  7. Entry Tax (all forms)
  8. Taxes on advertisements
  9. State cesses and surcharges

Hopefully, this part of the article has cleared out which taxes will be replaced by the Goods and Services Tax in accordance to the question of “What is GST.”

After having a partial gist about what is GST, let us now dive into what lies ahead of us in accordance with Goods and Services Tax.

What lies ahead of us?

The first thing which pops up into the consideration is obviously about the council of Goods and Services Tax. This council for Goods and Services Tax will be set up by the President, and there will be certain areas or hot spots of considerations that the Council of Goods and Services Tax will look into after the formation and establishment.

Following are the list of the areas or hot spots, on which the Council of Goods and Services Tax shall make recommendations.

  1. Threshold for exemption
  2. Rates including floor and bands
  3. Model Goods and Services Tax Laws, Principles of Levy and much more in the field.
  4. Taxes to be subsumed
  5. Special rate or rates for a specific span of time period
  6. Exemptions
  7. Special provisions laid for the people of North East, Jammu, and Kashmir, etc.
  8. Date from the Goods and Services Tax is to be levied on crude, natural gas, petrol, and high-speed diesel and aviation turbine fuel.

But certainly, there are rules and policies which should be followed. Starting with the legislation, which must be passed on Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) by the Parliament? Followed by the State Goods and Services Tax (SGST) which is must be passed by the 29 different states and 9 union territories of India. After the successful completion of these two steps or processes, finally, the announcement of the dates of implementation of CGST, IGST, and SGST must be negotiated with as well as be synchronized.

Concepts of tax gains in accordance to the Goods and Services Tax

  1. The biggest benefit of Goods and Services Tax lies in the part of tax evasion as it will complete discouraging to remove incentives on evasion of tax. What does this actually imply? The main implication of this is the upbringing of the different activities that happen under the table. In other or simpler words, the transactions which take place under the ground will now become and take place over the ground. But how will this happen? Well, quite simple! If you skip on the tax for what you are selling, you will not receive the credit for tax on your inputs. Also, the major positive story lies in the fact that you will be purchasing products from those who have already cleared taxes for what they are selling.
  1. The rate of taxes are becoming lower following the curriculum of Goods and Services Tax. In the current on-going situation of the country, we possess more taxes on the fewer items. With the implementation of the Goods and Services Tax, there will be fewer taxes on more items. Sitting in an ideal situation, there shouldn’t really be any good or service, which will be exempted from tax, as this will result in the breakage of the chain of tax.

What is out of the curriculum of Goods and Services Tax?

Yes, there are products which are out of the Goods and Services Tax. Alcoholic liquor for the consumption by humans will be out whereas, motor spirit or petrol, petroleum crude, natural gas, high-speed diesel, and aviation turbine fuel will be the subjects of concern for discussion by the council of Goods and Services Tax.

What is in the curriculum of Goods and Services Tax?

Tobacco and products related to or made of tobacco. It has also come to news that there are chances of imposing duties of excises on tobacco and related products or products made of tobacco by the center.

The Goods and Services Tax Council

The Goods and Services Tax Council will consist of the Finance Minister as chairman, MOS in charge of revenue, Minister in charge of Finance or Taxation and other Minister nominated by each state.

Hopefully, we were successful in making you understand that concept of “Goods and Services Tax” and all the related information about the “Goods and Services Tax.” These are the entry level knowledge you should have about “What is GST” and hopefully we made could make it easy for you to understand.

About the Author: Zack Walker

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