On the 29th of March 2017, the Parliament of India passed one of the most significant judgments in the history of indirect taxes. The Goods and Service Tax Act was passed on this very day and came into effect three months later on the 1st of July 2017. GST brought forth a certain level of uniformity by introducing the concept of one indirect tax for a nation of 1.3 billion people.
Goods and Service Tax (GST)
The concept of GST revolves around the fact that tax will be levied at every stage of value addition. For example, let us consider the manufacture of a cotton t-shirt.
Raw cotton reaches the industries from where cotton threads are spun. These are then used to produce t-shirts. Labels are then stuck, the product is packaged and then sent to a warehouse. From the warehouse, it is then transported to retailers.
Each of the stages discussed above is value additions, and GST is levied at each stage. Having understood the basic concept of how GST functions, let us now take a peek into all the must-know details of this.
Components of GST
GST has three main components – CGST, SGST, and IGST. In case of a transaction that is happening within the state, the total GSD will be the sum of CGST and SGST.
CGST is the tax that will be collected by the Central Government whereas SGST is the part collected by the State Government. If a transaction is happening at the interstate level, then IGST comes to the picture.
GST is destination based
Let us consider the scenario where a t-shirt is manufactured in Surat (Gujarat) and sold in Kochi (Kerala). As per the guidelines of the GST Act, the tax will be levied only at the point of consumption. That is, the entire revenue from this sale will go to Kerala and not Gujarat.
Much faster processing
Unlike the indirect taxes of the past, GST is driven by any technology. Here, everything from necessary registration to the filing of returns and application for refund happens in the GST portal. This simplifies the process and claims are processed much faster.
GST removes the cascading effect
One of the most significant benefits of gst is the fact that it has completely done away with the cascading effect of taxes on the sales of goods or the purchase of commodities.
Not only does this increase the logistic efficiency, but it also affects the cost of items. GST removes tax on tax, and as a result, services and products become more affordable.
While the GST has played a significant role in the economic upliftment of the country, changes were made to the fundamental laws. On the 29th of August 2018, certain amendments were made. Here is all that you need to know about them.
The CGST Amendment Act 2018
Under the ideal circumstances, every person selling or buying a commodity or service has to register themsleves under GST. However, in the event of a person taking the service of (or buying a commodity from) someone who is not GST registered, will incur reverse charge under this latest amendment.
However, the taxation under reverse charge will only happen over a list of government notified goods or services.
One of the most significant changes brought forth by the cgst amendment act 2018 is the fact that a business owner can hold multiple registrations for a particular business in the same state.
Also, if a unit of business operates in a Special Economic Zone (SEZ) area, under the new amendment business owners must register separately for that particular unit.
One essential purpose of the amendment was to simplify the process of filing returns and usher in transparency. Under the new system, there is a provision of filing your returns quarterly. Also, one can validate and edit the details of supplies (that are updated by registered suppliers) in their returns.
The IGST Amendment Act
Distribution of revenue
This amendment to the original GST Act ascertains that the revenue collected under IGST will be apportioned between the state and the central government. If there is any balance amount after the apportionment between the two parties, the same will be equally distributed among them.
The amendment sets the bar for the maximum payable amount to INR 50 crores in the case of appeals that are filed to the Appellate Authority. In the case of filings made before the Appellate Tribunal, the bar doubles up to INR 100 crore.
Place of supply
If a commodity is transported and supplied to a person who is registered under GST, then the place where it receives the item is considered to be the play of supply.
However, if the person is not registered, the place where the item is sent for transportation will be the place of supply. In the third case, where an item is transported to a foreign location, the place where it is received will be taken as the place of supply.
The UTGST Amendment Act
Money from the input tax credit
The input tax credit on UTGST is expected to bring in a decent amount of money to the union territory. Under the amendment, the union territory must use this amount to pay off its UTGST. Post that, if the Union Territory is left with any surplus amount, the same can be utilized to pay IGST.
The GST (Compensation to States) Amendment Act 2018
This amendment introduces the concept of compensation cess on the purchase of certain products or services. The government lays down the list of goods and services that come under the purview of compensation cess.
Payment collected from this cess goes to the national GST Compensation Fund. This is then used to compensate the states in case they incur any losses while implementing the GST Act.
The GST Compensation Fund is initiated for a transition period of five years. If at the end of the tenure, there is surplus money in the fund, the same will be distributed between the states and the centre.
The state will get its share depending on the total revenue generated by them. In the coming years, you can expect the GST Act to be the driving factor in the nation’s growth story.
Thus, you can see that the GST Act and the subsequent amendments made to it were designed to remove inefficiencies in the nation’s taxation system. By making it compulsory for business with annual sales of more than 20 lakh to register for GST, the Act has brought hundreds of crores worth of revenue to the country.