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What is GST in India? Is it important for a business to apply for GST?


2023-03-31 23:09 · 5 min read

GST or Goods and Services Tax is a comprehensive indirect tax imposed on the supply of goods and services in India. It was implemented on 1st July 2017, replacing several indirect taxes levied by the central and state governments, including value-added tax (VAT), excise duty, service tax, and others. The GST is a consumption-based tax that is levied on the value-added at each stage of the supply chain, from the manufacturer to the end consumer. In this article, we will discuss the GST in detail, including its history, structure, benefits, and challenges.

History of GST in India: The idea of introducing GST in India was first proposed in 2000 by the then Prime Minister Atal Bihari Vajpayee. A task force was constituted to study the feasibility of implementing GST, and in 2004, the task force recommended the introduction of GST in India. However, it took another 13 years for GST to become a reality in India. The GST bill was first introduced in Parliament in 2011, but it was not passed due to opposition from some states. In 2014, the new government led by Prime Minister Narendra Modi revived the GST bill and formed a committee to draft the legislation. The GST bill was finally passed by both houses of Parliament in 2017, and it was implemented from 1st July 2017.

Structure of GST in India: The GST system in India is divided into four slabs, which are 5%, 12%, 18%, and 28%. The GST rate for different goods and services is determined by the GST Council, which is a constitutional body comprising the Union Finance Minister and representatives from all states and union territories in India. Some items, such as essential commodities like food grains, are exempt from GST, while others are subject to a higher rate.

The GST structure in India is designed to eliminate the cascading effect of taxes, which is also known as "tax on tax." In the pre-GST regime, taxes were levied at each stage of the supply chain, and the final liability was borne by the end consumer. However, under the GST system, taxes are levied only on the value-added at each stage of the supply chain, and the final liability is borne by the end consumer.

Benefits of GST in India: The implementation of GST in India has several benefits, including:

Simplification of Tax Structure: The GST has replaced several indirect taxes, which has simplified the tax structure in India. It has eliminated the need for businesses to comply with multiple taxes, which has reduced the compliance burden.

Boost to GDP: The implementation of GST is expected to boost the GDP of India by 1-2%. This is because the GST system has reduced the cost of production, which has made Indian goods and services more competitive in the global market.

Reduction in Prices: The GST system has led to a reduction in prices of goods and services in India. This is because the GST rates are lower than the cumulative rates of the previous taxes.

Transparency: The GST system has made the tax system in India more transparent. It has introduced a uniform tax system across the country, which has made it easier for businesses to comply with tax regulations.

Reduced Tax Evasion: The GST system has reduced tax evasion in India. This is because the GST is a self-policing system, which means that businesses can claim input tax credit only if their suppliers have paid GST.

It is important for businesses in India to apply for GST registration if their annual turnover exceeds the prescribed threshold limit. Currently, the threshold limit for GST registration is Rs. 20 lakhs for businesses operating within a state, and Rs. 40 lakhs for businesses operating across multiple states.

Here are some reasons why businesses should apply for GST registration:

Legal Compliance: As per the GST Act, it is mandatory for businesses with an annual turnover of more than the prescribed threshold limit to register for GST. Non-compliance can attract penalties and legal action.

Input Tax Credit: GST registration enables businesses to claim input tax credit, which means that they can claim credit for the GST paid on purchases against the GST collected on sales. This reduces the overall tax liability and increases profitability.

Access to Wider Market: GST registration enables businesses to sell their goods and services across India without any barriers. This opens up a wider market for businesses and increases their customer base.

Competitive Advantage: GST registration provides businesses with a competitive advantage as customers prefer to deal with registered businesses, as it ensures compliance with tax regulations.

Business Expansion: GST registration is a prerequisite for businesses looking to expand their operations, either by opening new branches or entering into new markets.

GST registration is crucial for businesses in India as it ensures legal compliance, enables access to input tax credit, provides a competitive advantage, and opens up opportunities for business expansion.

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