GST India

GST - Goods & Services Tax

Understanding Concept:

GST (Goods & Services Tax) is an indirect tax that will be levied on supply of goods and services all over India. The introduction of GST in India is considered as one of the most significant step taken as it replaced multiple forms of taxes and collaborated them under one umbrella. The biggest advantages of GST for consumer is that it will reduce overall tax burden of goods and services. Therefore, Indian products will be regarded as competitive products in domestic and international markets by the introduction of GST as it will reduce the product price. GST is transparent and without impurities, it has self-policing characteristics so maintanence of GST is easier.

Taxes replaced by GST

1. GST will replace following taxes levied by Centre

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.

2. GST will replace following taxes levied by State

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 would apply to all goods and services except Alcohol for human consumption.

What is CGST, SGST & IGST?

There are two types of suply of goods and services

Intra-State Supply,
Inter-State Supply.

For intra-state supply of goods and services, GST levied by the Centre is called Central GST(CGST) and GST levied by State is called State GST(SGST).

For inter-state supply of goods and services an Integrated GST(IGST) will be applied and will be collected by Centre. IGST will also be collected by Centre for the import of goods.

GST is a consumption based tax, so the manufacturing State of goods and services will not receive the GST on the other hand the State where goods and services are consumed will receive the GST.

Example: Suppose Suresh from Sikkim sales some goods to Ramesh in Sikkim. Suppose the goods worth Rs. 100,000. The GST rate is 18% comprising 9% of CGST and 9% of SGST. As it is an intra-state sale so Suresh will collect GST of Rs. 18,000 and Rs. 9,000 will go to Centre as CGST and Rs. 9,000 will go to State as SGST. Now if Suresh sales the goods to Mahesh from Punjab and GST rate is 18% comprising 9% of CGST and 9% of SGST. In this case IGST of 18% will be applied. So Suresh will collect GST of Rs. 18,000 from Mahesh as IGST and it will go to Centre.

Why three taxes(CGST, SGST, IGST)?

India is a federal country where both the State and the Centre has the power to levy and collect taxes to obtain their resources. As a result different States can impose different types of taxes on goods and services and sometimes the end users of the goods needs to pay multiple taxes on the same goods with different names. And the tax rate also varies between State to State. To remove these complexity and ensure the Central and State resources CGST, SGST and IGST is designed. Now the taxpayers could only pay GST and take advantage of all the three taxes.

Input Tax Credit Under GST

In your business you need to purchase something to produce the goods you sale. At the time of purchase you pay tax to your vendor. On the other hand when you are selling something you have to pay tax on sale to Government. At the time of paying sale taxes you can reduce the tax by the purchase taxes. Suppose you have paid Rs. 300 as tax at the time of purchase. Now after sale you have to pay Rs. 400 as sale tax. At this point you can claim input tax credit of Rs. 300 and the final tax you will pay is Rs. 100.

Calculation of Input Tax Credit

To claim ITC (Input Tax Credit) there is a prerequisite of having GST compliant invoice. Without having GST compliant invoice no one can claim for ITC. Therefore, if you issue a GST compliant invoice to your customer, they can claim their ITC and also get a GST compliant invoice to claim your ITC. Here are the mandatory fields of GST compliant invoice.

Invoice number and date
Customer name
Shipping and billing address
Customer and taxpayer's GSTIN
Place of supply
HSN code
Taxable value and discounts
Rate and amount of taxes i.e. CGST + SGST/UTGST (intra-state) OR IGST (inter-state)
Item details i.e. description, unit price, quantity

The invoices that need to be GST compliant are

sales invoices
purchase invoices
receipt vouchers
bill of supply
credit notes and debit notes
advance receipts
refund vouchers
delivery challan
export invoice

Adjustment of the Credit

Input tax credit of CGST paid on purchase can be used only for paying the CGST of sale. Similarly input tax credit of SGST paid on purchase can be used only for paying of SGST of sale. But the two cannot be cross utilized except in case of IGST. The following manner would be permitted for such adjustment.

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 IGST allowed for payment of IGST, CGST & SGST in that order.

Table view of permitted adjustment order.

Credit of	to be adjusted with
CGST
	CGST
	IGST
SGST
	SGST
	IGST
IGST
	IGST
	CGST
	SGST

GST Invoice

Invoice number and date
Customer name
Shipping and billing address
Customer and taxpayer's GSTIN
Place of supply
HSN code
Taxable value and discounts
Rate and amount of taxes i.e. CGST + SGST/UTGST (intra-state) OR IGST (inter-state)
Item details i.e. description, unit price, quantity