Understanding India's Oblique Tax System, GST For Newbies

The story of the VAT (GST) dates back to 2000 when the idea was proposed and stretched through 2017 when it was implemented with four bills referring to it becoming the Central Goods and Services Act.

The GST Act was introduced with the aim of streamlining and unifying indirect taxes on goods and services across India by eliminating several indirect taxes levied by the central government and state / union area governments with a focus on "One Nation – One Tax Market". . "

In the system of indirect taxes before GST, each state levied value added tax (VAT) on sales of goods within the same state and the sale of goods between states, the CST (Central State Tax) was levied by the center. A service tax was levied on the sale of services, which was levied by the central government. GST has subsumed the following indirect taxes, including those mentioned above, that prevailed before the introduction of GST.

  • Central excise duties, excise duties, additional excise taxes, additional customs duties, special additional customs duties
  • Cess, state sales tax, central sales tax, purchase tax
  • Luxury tax, pleasure tax
  • Entry tax
  • Taxes on advertising, taxes on lotteries, betting and gambling

The GST structure has largely mitigated the cascading effect of indirect taxes before the GST, thus making Indian products and services competitive in the national and international market.


GSTIN is a tax registration number under GST that companies receive after successful registration, while GSTN, also known as the Goods and Services Network, is an organization that manages the entire information technology (IT) system of the GST portal.

Input tax credit (ITC) according to GST

The introduction of GST has helped reduce costs for end users. Under the old indirect tax regime, the tax liability was shifted to each next level and the final price effect reached the end user. This condition is known as the cascade effect.

According to the GST, companies are allowed to offset the taxes they pay when purchasing raw materials, goods or services using the Input Credit Tax (ITC) method.

The effect of the input tax credit reduces the final value of the goods according to GST. GST pre-tax credit means reducing taxes paid on purchases (input) from taxes paid on sales (output).

The components of GST

There are three taxes under this system:

  • CGST: This is the tax levied by central government on a domestic sale (e.g., an intra-state transaction).
  • SGST: This is the tax levied by the state government on a domestic sale (e.g., an intra-state transaction).
  • IGST: It is a tax levied by the central government on an interstate sale (e.g. between two states).

Multi-level tax structure

A product goes through several phases before it is consumed by the end consumer. These phases are similar to those of a supply chain.

A typical supply chain for a product consists of the following phases:

  • Purchase of raw materials
  • Manufacture of a product
  • Storage of a product
  • Selling the product to a wholesaler and then to a retailer
  • Sale to the end user

GST is levied at each tier above, making it a tiered tax.

Image source: Shutterstock

Destination-dependent tax

While the previous indirect taxes were levied at the place of origin, the GST is levied at the place of consumption of the goods or services. For example, if a product is made in West Bengal and sold to an end-user in Karnataka, the GST will be collected and collected by the government of Karnataka and not West Bengal. In the old system it was the other way around.

GST control panels

The GST consists of the following tax blocks – 0 percent, 5 percent, 12 percent, 18 percent, and 28 percent, with the majority of goods and services falling under the 18 percent class.

Certain products and services such as petroleum products, high speed diesel, motor gasoline, natural gas, aviation turbine fuel and alcoholic beverages for human consumption are not covered by the GST. These products and services are CST and VAT taxed by the state central government.

GST composition scheme

The GST assembly system allows taxpayers some flexibility in paying their taxes.

The program is ideal for SMEs and start-ups with a turnover of less than 1.5 billion rupees. In the case of the northeastern states and Himachal Pradesh, the threshold is Rs 75 lakh. Small taxpayers can only pay a fixed rate of sales tax.

The GST rates applicable to composition dealers are as follows:

The use of the composition scheme offers many advantages, especially for MSMEs and start-ups within the scope of this scheme, input credits cannot be used. Some of these include the following:

  1. With the composition scheme, the government has ensured that more startups can thrive in a market that has become friendlier to their plight.
  2. Companies can also enjoy much higher liquidity as their taxes are set lower.
  3. Companies can benefit from less compliance with all of these exemptions (keeping records, filing returns, issuing invoices, etc.), making it easier for them to conduct their business.

Reverse Charge Mechanism (RCM) under GST

The government has made clear some cases where the reverse charge procedure is used, whereby the recipient of the goods becomes taxable. Understanding the same thing can help both businesses and individuals.

The RCM is applicable in cases such as:

  • A registered dealer who purchases goods or services from unregistered dealers,
  • E-commerce provider selling services,
  • Delivery of certain goods and services specified by CBIC (Central Board of Indirect Taxes and Customs)

GST Council

The GST Council is the main decision-making body that makes all major decisions related to the GST. The GST Council determines the tax rate, tax exemption, due date of forms, tax laws and tax deadlines, taking into account the special rates and regulations for some states.

The Council is chaired by the Union Treasury Secretary, which includes the Treasury Ministers of all Indian states.

GST HSN and SAC codes

HSN code stands for the harmonized system of nomenclature code used for the classification of goods according to the GST, and the SAC code stands for Services Accounting Code according to which services falling under the GST are classified in India.

The Treasury Department has announced that companies with sales of Rs 5 billion and more will be required to include a six-digit HSN or tariff code on invoices issued from April 1st. Companies with a turnover of up to 5 billion rupees in the previous financial year must also indicate a four-digit HSN code on B2B invoices.

GST registration

Companies are required to register for the GST if they meet any of the following criteria according to the applicable rules.

Total sales: Any service provider who provides a total service value greater than Rs 20 lakh in a year must obtain GST registration. (In the states of the special category this limit is Rs 10 lakh). Any company involved in the exclusive supply of goods whose total sales exceed Rs 40 lakh must receive GST.

Interstate business: A company must register for the GST when it supplies goods between states – from one state to another, regardless of their total sales. This applies to companies whose annual sales exceed Rs 20 lakh. (In special category states this limit is Rs 10 lakh).

E-commerce platform: Every natural or legal person such as Flipkart, Amazon, who offers goods or services via an e-commerce platform, must apply for GST registration regardless of sales.

Occasional taxpayers: Any person who supplies goods or services seasonally or intermittently via a temporary stand or shop must apply for GST regardless of total annual sales.

Voluntary registration: Any company can voluntarily obtain GST registration. However, after revisions, the voluntary GST registration can be withdrawn by the applicant at any time.

Special category says: The northeastern states of J&K (formerly), Himachal Pradesh and Uttarakhand.

Submitting GST Returns

This is arguably the most important and tedious part of the GST from a business / taxpayer perspective. The submission of GST returns is becoming more and more automated. GST declarations can be submitted online (www.gst.gov.in) using the Goods and Service Tax Network (GSTN) software or apps which will automatically fill in the details on each GSTR form.

Below are the GST forms that must be submitted from now on according to the rules:

1. GSTR-1 is a detailed report of sales transactions (output) during a tax period. This also includes reporting of debit and credit notes issued as well as changes to sales invoices. While a normal taxpayer registered under the GST system should submit this monthly, taxpayers with sales of up to Rs. 1.5 crore in the previous fiscal year can submit this quarterly.

2. GSTR-2A is a statement detailing all purchases made from registered suppliers during a tax period. This is a read-only return. This data is directly reflected in your report based on the data entered by the registered suppliers in their GSTR-1 feedback.

3. GSTR-2 is the reporting of all purchases made from registered suppliers during a tax period. The submission of GSTR-2 has been temporarily suspended as GSTR 2A is automatically updated with data from GSTR-1 submitted by suppliers

4. GSTR-3 is a monthly summary report with summarized information on all deliveries (sales), purchases, claimed input tax credits as well as any tax debts and taxes paid. This has been temporarily suspended.

5. GSTR-3B This must be submitted by all ordinary taxpayers registered under GST. It is a monthly self-declaration with summarized information on deliveries, input tax credit claimed, tax liability and taxes paid.

6. GSTR-4 / CMP-08 is the declaration that the taxpayer must file every quarter when they have decided on the composition scheme. CMP-08 is the return that replaced the former GSTR-4.

7. GSTR-5 is a declaration to be filed by non-resident overseas taxpayers doing business in India. It is a monthly declaration with information on all deliveries, purchases, claimed input tax credits as well as any tax debts and taxes paid.

8. GSTR-6 is a monthly declaration submitted by an Input Service Distributor (ISD) – An ISD is a taxpayer who receives invoices for services used by its branches. It contains information about the input tax credit received and distributed by ISD.

9. GSTR-7 is a monthly return to be submitted by those who are required to deduct TDS (tax at source) under GST. This contains details of TDS deducted, TDS liabilities to be paid / paid and TDS reimbursements claimed.

According to the GST Act, the following people / companies must deduct TDS:

  • A department or body of the central or state government
  • local community
  • Government authorities
  • An agency, body, or other body established by parliament, a state legislature or a government with 51% equity (control) owned by the government
  • A society incorporated by central or state government or local authority and incorporated under the Societies Registration Act of 1860
  • Public Sector Enterprises

The above deductions are required by TDS when the total value of the delivery under the contract exceeds Rs 2.5 lakh. The rate for TDS is 2 percent (CGST 1 percent + SGST 1 percent) for domestic deliveries and 2 percent (IGST) for international deliveries.

10. GSTR-8 e-commerce operators who are required to collect withholding taxes (TCS) must submit this monthly. It contains the details of all deliveries made on the e-commerce platform and the TCS collected.

11. GSTR-9 taxpayers who are registered under GST must submit this declaration annually.

12. GSTR-9A taxpayers registered under the composition scheme must submit this declaration annually.

13. GSTR-9C is a reconciliation statement that taxpayers with a turnover of more than Rs 2 billion per fiscal year must submit.

14. GSTR-10 Any taxpayer whose registered status has been revoked or relinquished must file it.

15. GSTR-11 must be submitted by those who have been issued a Unique Identity Number (UIN) in order to be eligible for a refund under GST for purchases of goods and services in India.

The types of returns to be submitted vary from company to company.

e-waybills and e-invoices

In addition to filing GST declarations online, the GST regime has introduced several new systems.

electronic waybills: As part of the e-waybill system, manufacturers, dealers and freight forwarders can conveniently create e-waybills for goods transported from their place of origin to their destination on a shared portal. The tax authorities also benefit as this system has reduced the time at the checkpoints and has helped reduce tax evasion.

A GST registered person cannot transport goods in a vehicle whose value exceeds Rs. 50,000 (individual invoice / invoice / delivery challan) without e-way bill, which is created on ewaybillgst.gov.in.

E-bill: The electronic invoicing system according to GST is mandatory from April 1, 2021 for all registered taxpayers with a turnover of more than 50 billion rupees in a fiscal year from fiscal year 2017-18.

These companies must receive a unique invoice reference number for each business-to-business invoice by uploading it to the GSTN's Invoice Registration Portal (IRP). The portal checks the correctness and authenticity of the invoice. It then authorizes the use of the digital signature along with a QR code.

Electronic invoicing enables invoices to be interoperable and helps reduce data entry errors. It is designed to pass the billing information directly from the IRP to the GST portal and the e-waybill portal. It will therefore eliminate the need for manual data entry when submitting GSTR-1 and also help with the creation of e-waybills.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)