GST Basic
What is TAX?
Tax is nothing but money that people have to pay to the government, which is used to provide public services.
Type of tax
1. Direct Tax:
Taxes which are directly borne by a person. For eg. Income Tax.
2. Indirect Tax:
Taxes which are not directly borne by a person, but at the end burden of tax is borne by consumer. For Eg. Goods & Services Tax.
What is GST?
Let us first understand the basic concept of GST
GST is a value added tax levied on manufacture, sale and consumption of goods and services.
GST offers comprehensive and continuous chain of tax credits from the producer’s point/service provider’s point up to the retailer’s level/consumer’s level thereby taxing only the value added at each stage of supply chain.
GST is a comprehensive, multi-stage, destination-based consumption tax levied at every stage of value addition in the lifecycle of a product.
Comprehensive:
GST will subsume all of the current indirect taxes. it will ensure that there is no more arbitrariness in tax rates.
Multi-stage:
GST is levied each stage in the supply chain, where a transaction takes place.
Destination-based consumption:
GST will be collected at the point of consumption. The taxing authority with appropriate jurisdiction in the place where the goods/ services are finally consumed will collect the tax.
What determines if CGST, SGST or IGST is applicable?
It is important to first know if the transaction is an Intra State or an Inter-State supply.
Intra-State supply of goods or services is when the location of the supplier and the place of supply i.e., location of the buyer are in the same state. In Intra-State transactions, a seller has to collect both CGST and SGST from the buyer.
Inter-State supply of goods or services is when the location of the supplier and the place of supply are in different states. Also, in cases of export or import of goods or services is assumed to be Inter-State. Thus a seller has to collect IGST from the buyer.
An example for IGST:
Consider that a businessman Nitin from Delhi had sold goods to Mayank from Faridabad worth Rs. 100,000. The GST rate is 18% comprised of IGST. In such case, the dealer has to charge Rs. 18,000 as IGST. This IGST will go to the Centre.
An example for CGST and SGST:
Suppose Anil is a dealer in Maharashtra who sold goods to Nitin in Maharashtra worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and Maharashtra SGST rate of 9%. In such case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government and Rs. 900 will go to the Delhi Government.