GST stands for Goods and Service Tax, which is aimed at simplifying the tax structure in India. It is the overall amount of indirect tax that is levied on manufacturers, for sale of goods and services offered by them and charged equally from the customers consuming them. This tax will charge equally from the citizens of the country and replace the indirect taxes that are imposed on customers by the Centre and State Government individually.
In simple terms, GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
The GST tax system will benefit for both businesses as well as individuals. As far as businesses are concerned, GST will quite beneficial as it lessens the burden of several return filings and also eliminates the geographical barriers for trading companies.
Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to the transparency of taxes paid to the final consumer.
Being a dual concept tax system, it’s vital to comprehend GST’s essentials. This system lets both the State as well as Centre governments to manage, collect as well as share the tax based on how the transaction is done. Undoubtedly, new GST is way different from the old tax regime and made the life of people and small and medium-sized businesses easy.
There will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. The tax will be levied on every supply of goods and services.
The Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.
In the case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services of the Constitution. The IGST would roughly be equal to CGST plus SGST.
The GST law brings all the goods and services under four tax slabs- 5%, 12%, 18% and 28%. Essentials and daily usage commodities like food grains, milk, fresh vegetables, meat, hair oil, soap and few other products which are commonly used on a daily basis will fall under the no tax slab.
If you are a manufacturer, trader or business owner needing help in making your business processes GST compliant, get in touch with us today. Isys Techworks India Pvt Ltd., is a leading SAP Business One partner, offering GST-ready ERP solutions through its flagship product SAP Business One 9.2.