GST Basics

What Is GST?


On July 1st, 2017, India moved to a new tax system – one that aims at converting the entire nation into a single market.


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GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.


In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. This law has replaced many indirect tax laws that previously existed in India.


GST is one indirect tax for the entire country.


So, before Goods and Service Tax, the pattern of tax levy was as follows:


Under the GST regime, the tax will be levied at every point of sale. In case of intra-state sales, Central GST and State GST will be charged. Inter-state sales will be chargeable to Integrated GST.


“GST is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.”


Multi-stage

There are multiple change-of-hands an item goes through along its supply chain: from manufacture to final sale to the consumer.
For Example:


Goods and Services Tax will be levied on each of these stages which make it a multi-stage tax.


Value Addition


GST will be levied on these value additions i.e. the monetary worth added at each stage to achieve the final sale to the end customer.


Destination-Based:

Goods manufactured in Maharashtra for example are sold to the final consumer in Karnataka. Since Goods & Service Tax is levied at the point of consumption, in this case, Karnataka, the entire tax revenue will go to Karnataka and not Maharashtra.


Evolution & Advent of GST in India


The GST journey began in the year 2000 when a committee was set up to draft law. It took 17 years from then for the Law to evolve. In 2017 the GST Bill was passed in the Lok Sabha and Rajya Sabha. On 1st July 2017 the GST Law came into force.


Advantages of GST

GST mainly removes the Cascading effect on the sale of goods and services. Removal of cascading effect will directly impact the cost of goods. Since tax on tax is eliminated in this regime, the cost of goods decreases.

GST is also mainly technologically driven. All activities like registration return filing, application for refund and response to notice needs to be done online on the GST Portal. This will speed up the processes.

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