Goods and Services Tax (GST) – An Introduction in India

In July, 2017, a huge change was introduced in the Indian Economy i.e., the introduction of GST with effect from 1^st July, 2017. It was introduced with an idea of, “One Nation One Tax” by subsuming various taxes within GST. Earlier there used to be several taxes for different purposes. For example, on sale of goods, Value Added Tax (VAT) was collected, on supply of services, Service Tax was collected, manufacturers had to pay Excise etc.

Now, all these taxes were subsumed in GST with certain exceptions which I’ll be discussing in another blog, which prevented a lot of hassle as different taxes had their different provisions which created a lot of confusion among traders, service suppliers, manufacturers etc.

Two major acts govern GST i.e., Central Goods and Services Tax (CGST) Act and Integrated Goods and Services Tax (IGST) Act. Union Territories and States have their own Union Territory Goods and Services Tax (UTGST) and State Goods and Services Tax (SGST) Acts respectively.

Whenever there is a sale of goods/ services where the supplier and buyer are within the same state/ union territory, known as an Intrastate sale, CGST and SGST/ UTGST are charged as a 50% split of the total tax rate. I will explain this with the help of an example:

Mr. A, a wholesaler of Mumbai sold goods worth ₹30,000 to Mr. B of Pune, and the GST rate on such goods was 18%. Since, both the cities fall within the state of Maharashtra, it will be an intrastate sale. So, Mr. A will now make a tax invoice and show the tax as follows: –

Value of goods 30,000

Add: CGST@9% 2,700

Add: SGST@9% 2,700

Total Value ₹35,400

Now, I will discuss the other scenario, wherein the buyer and the supplier are in different states/ union territories. Such a sale is known as an Interstate sale and a single tax, known as IGST is charged using the tax rate without any splitting. For example:

Mr. A, a trader from Aligarh sold goods worth ₹50,000 to Mr. B of Gwalior, and the GST rate on the above goods was 5%. Since, one city is in Uttar Pradesh and the other is in Madhya Pradesh, it will be an interstate sale. So, Mr. A will now make a tax invoice and show the tax as follows: –

Value of goods 50,000

Add: IGST@5% 2,500

Total Value ₹52,500

All the taxes are collected by the seller and deposited by him/ her to the government, and in some cases deposited directly by the buyer only, which I will be discussing later.

CGST and IGST are the revenue of Central Government and SGST is the revenue of the state government. This pretty much sums up the basics about GST and its introduction in India.