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A Guide To GST & Its Types

GST: A term that is befuddling everyone, an idea that is going to touch every taxpayer’s life. We have previously espoused upon the history of GST India, now we will talk about Goods and Service Tax (GST) and its different types.

Taking the story a little further, here’s an extra dose of information to enhance your GST knowledge!

GST is a tax on goods and service having a comprehensive and continuous chain of set off benefits starting from the producer’s and service provider’s  up till the retailer’s level. It is essentially a tax charged only on value addition at each stage. The supplier at each stage is permitted to set off, through a tax credit mechanism, the GST, paid on the purchase of goods and services as available to set-off the GST to be paid on the supply of goods and services. The final consumer will only bear the GST charged by the last supplier in the supply chain, with set off benefits at all previous stages.

Illustration

Stage of Supply Chain  Purchase Value Value Addition Value at which supply of goods and services output made to next stage Rate of GST Input tax credit Input tax credit Net GST = GST on output – Input tax credit
Manufacturer 100 30 130 10% 13 10 13-10=3
Wholesaler 130 20 150 10% 15 13 15-13=2
Retailer 150 10 160 10% 16 15 16-15=1

“GST” has also been defined under Article 366 (Clause 2A) of Constitution Amendment Bill, 2011 to mean any tax on the supply of goods or services or both excluding supply of petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and alcoholic liquor for human consumption.

GST Rate Slabs

Exempted categories – 0

Commonly used Goods and Services – 5%

Standard Goods and Services fall under 1st slab – 12%

Standard Goods and Services fall under 2nd Slab – 18%

Special category of Goods and Services including luxury – 28%

Types of GSTs in India

First, Central Goods and Service Tax (CGST) that has come with a subsuming effect on the following taxes:

  • Central Sales Tax (CST)
  • Central Excise Duty
  • Service Tax
  • Excise levied under medical and toiletries preparation Act
  • CVD (Additional Customs Duty- Countervailing Duty)
  • SAD (Special Additional Duty of Customs
  • Surcharges
  • Educational Cess and Secondary & Higher Educational Cess (EC and SHEC)

The tax collected under CGST would go to the Central Government.

Second, State Goods and Service Tax (SGST) falls under State Goods and Service Tax Act 2016 and would subsume the following State taxes:

  • Taxes on lottery, betting, gambling
  • State Sales Tax
  • VAT
  • Luxury Tax
  • Purchase Tax
  • Entertainment tax (unless levied by the local bodies)
  • Entry tax (all forms)
  • State Cess
  • Surcharge

The revenue collected under SGST goes to the State Government.

Third, Integrated Goods and Service Tax (IGST) shall be charged during movement of goods from one state to another. In other words, it is the tax on inter-state supply of goods and services. The revenue generated from IGST shall be apportioned between the central and the state government as per the recommendations of Goods and Service Tax Council.

Fourth, Union Territory Goods and Service Tax (UTGST) that shall be charged when the supply of goods and service takes place in Union Territories of India. India has seven Union Territories namely, Chandigarh, Dadra and Nagar Haveli, Delhi, Lakshadweep, Puducherry, Andaman and Nicobar Islands, and Daman and Diu.

Since, both Delhi and Puducherry have their own legislature along with an executive council of Ministers headed by a Chief Minister, their functioning resembles a state more than a union territory. Hence, SGST would be applied on Delhi and Puducherry. However, UTGST will be levied in the remaining union territories viz. Daman and Diu, Lakshadweep, Dadra & Nagar Haveli, Chandigarh and Andaman & Nicobar Islands.

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