What is GST?
Full form of GST – It stand for Goods and Services Tax
Goods and Services Tax (GST) is an extensive form of indirect taxation levied on the supply of good and service in India. It replaced multiple issue taxes levied by the central and state governments, aiming to create a joint taxation system across the country.
The GST (Goods and Services Tax) system encompasses starting from production by manufacturers, passing through various stages like distribution, wholesale, retail, and finally reaching the ultimate user or consumer, ensuring that taxes are applied at each stage but credited back to the previous stage. This mechanism eliminates the “tax on tax” scenario, promoting a more transparent and efficient tax structure.
One of the primary objectives of GST is to simplify the taxation process by amalgamating various indirect taxes, i.e. central excise duty, service tax, VAT (Value Added Tax), etc., into a single tax control. It operates on a dual model involving both the central and state governments.
Businesses involved in providing either products or services to customers beyond a certain threshold turnover are required to register for GST. Upon registration, they are issued a unique GST identification number known as the GSTIN. This GSTIN serves as an identifier for taxpayers throughout the country.
GST has multiple slabs – 5%, 12%, 18%, and 28%, with specific goods and services categorized under each slab. Essential items are generally taxed at lower rates, while luxury and non-essential items may attract higher rates.
The implementation of GST aimed to streamline the tax structure, reduce tax evasion, enhance compliance, and encourage economic growth by creating a common national market. Understanding and adhering to GST (Goods and Services Tax) regulations is essential for business operating in India to ensure compliance and avoid penalties.
Threshold limit of GST registration
- 40,00,000 limit, if fulfill 3 conditions:
- Can’t provide services
- Can’t do inter-state supply
- Should not supply ice cream, pan masala, and many more.
- 20,00,000 limit for others
- 10,00,000 limit for this state (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripur and Uttarakhand)
Type of GST (Goods and Services Tax)
There are four types of GST. They are explained below:
1. IGST (Integrated Goods and Services Tax)
IGST is levied on the movement of goods and services between different states within a country, like transactions involving the movement of goods or services from one state to another state. The Central Government collects this tax and later distributes it between states.
2. UTGST (Union Territory Goods and Services Tax)
UTGST is applicable to the supply of goods and services within the Union Territories of India. It is similar to SGST, and this tax is administered by the respective Union Territory.
3. CGST (Central Goods and Services Tax)
CGST is imposed on the trade of goods and services that occur within the same state or union territory in a country, like the movement of goods and services from one state/union territory to another. The Central Government collects it, and it is applicable to transactions that occur within a state.
4. SGST (State Goods and Services Tax)
SGST is imposed on intra-state supplies of goods and services. The State Government collects this tax, and it is applicable alongside CGST on transactions within a state.
Type of GST Registration
There are following types of GST registration like normal GST Registration, Composition registration and many more. They are explained below:
1. Normal GST Registration: when businesses cross the threshold limit of selling goods/services with earnings remarkable set limits, mandatory GST registration is required.
2. Composition Scheme Registration: Small businesses with acceptable turnovers can choose a simpler tax scheme, paying a fixed percentage without complex invoicing, but cannot charge taxes to customers.
3. Casual Taxable Person Registration: If anyone occasionally conducts business without a fixed establishment, temporary registration for specific periods is available.
4. Non-Resident Taxable Person Registration: Foreign entities selling goods/services in India. They need temporarily registration, similar to casual taxable persons.
5. GST Registration for E-commerce Operators: Platforms facilitating goods/services sales online must get GST registration, regardless of turnover.
Features of GST Registration
There are various features of GST registration like unified tax system, tax benefits for businesses, central and state taxes, and many more. They are explained below:
1. Unified Tax System
GST (Goods and Services Tax) simplifies India’s tax structure by integrating various taxes into one. It reduces confusion by replacing multiple taxes with a single system, making it easier for businesses and individuals to understand and comply with tax requirements.
2. Tax Benefits for Businesses
Through Input Tax Credit (ITC), businesses can claim tax benefits on goods or services purchased for their operations, reducing their overall tax burden and promoting cost-efficiency in business operations.
3. Central and State Taxes
GST (Goods and Services Tax) operates with a dual taxation model, dividing taxes between the central government (CGST) and state governments (SGST). This division ensures fair tax collection and distribution between different levels of government.
4. Easy Online Tax Filing
GSTN provides an online platform for taxpayers to file their taxes conveniently. This digital system streamlines the tax filing process, making it user-friendly and accessible to taxpayers across the country.
5. Buying Across States
For transactions between different states, Integrated GST (IGST) ensures a seamless process by applying a uniform tax rate. It simplifies buying and selling goods or services across state borders, eliminating complexities in taxation.
6. Making Business Easier
GST (Goods and Services Tax) streamlined procedures and transparent tax structure simplify business operations. It minimizes paperwork, fosters clarity in tax payments, and enhances overall efficiency, benefitting both businesses and consumers in the marketplace.
Advantage of GST Registration
There are various advantage of GST registration like simplified tax structure, tax savings for businesses, same tax everywhere, and many more. They are explained below:
1. Simplified Tax Structure
GST (Goods and Services Tax) simplifies taxes by replacing multiple indirect taxes with a singlular tax. Imagine merging various puzzles into one big picture; GST simplifies tax rules, making it easier for business and individual to understand and comply with tax requirements, reducing confusion and hassle.
2. Tax Savings for Businesses
Through Input Tax Credit (ITC), businesses save money by getting credits for taxes paid on their purchases. It’s like getting cash back for taxes already paid on things they bought for their business, reducing the overall tax burden and promoting cost-efficiency.
3. Same Tax Everywhere
GST (Goods and Services Tax) ensures uniform tax rates across India. It’s similar to everyone paying the same price for a product, no matter where they buy it from. This consistency eliminates price variations due to different tax rates in different states, creating a fair and level playing field for businesses.
4. Boosts the Economy
By streamlining logistics and production, GST (Goods and Services Tax) helps businesses save on costs, fostering economic growth. It’s like a well-oiled machine running smoothly, reducing expenses, encouraging manufacturing efficiency, and contributing to the overall economic development of the country.
5. Easy and Clear Tax System
The online GST portal simplifies tax filing, making it quick and user-friendly. It’s like using a user-friendly app to pay bills convenient, straightforward, and accessible for both individuals and businesses, promoting transparency and reducing administrative burdens.
Disadvantage of GST Registration
There are various disadvantage of GST registration like complexity, initial implementation challenges, increased compliance burden, and many more. They are explained below:
1. Complexity
GST (Goods and Services Tax) multi-tiered structure with varying tax rates for goods and services creates complexity in compliance. Businesses, especially smaller ones, need help navigating diverse rates and filing requirements, impacting operational efficiency and increasing administrative burdens.
2. Initial Implementation Challenges
The introduction of the GST (Goods and Services Tax) brought technological hurdles for businesses in adapting to new filing systems, invoicing methods, and compliance norms. During this transition period, she posed operational difficulties, particularly for smaller entities with limited resources, impacting smooth operations.
3. Increased Compliance Burden
GST (Goods and Services Tax) amplifies the compliance workload with multiple return filings. This complication in meeting various requirements poses a significant challenge, particularly for small businesses, straining resources and hindering business growth.
4. Impact on Small Businesses
GST (Goods and Services Tax) complexities unequal affect smaller enterprises. Compliance costs, technological demands, and additional resources needed for adaptation can strain their financial viability and competitiveness in the market.
5. Impact on Prices
Fluctuations in pricing during the GST (Goods and Services Tax) transition due to varied tax rates and input tax credit claims can confuse consumers. Long-term stability is expected, and short-term price adjustments might impact consumer behavior and market dynamics.
6. Classification and Interpretation Issues
GST (Goods and Services Tax) categorizing goods and services into different tax slabs can create confusion and disputes over the correct classification, leading to compliance challenges and legal conflicts affecting business operations.
7. Dependency on Technology
GST (Goods and Services Tax) heavy credit on technology for compliance and filing returns exposes businesses to risks associated with technological glitches. System failures or online issues can hinder compliance and impact operational timelines.
8. Potential for Increased Tax Evasion
Despite efforts to limit tax evasion, the complex GST (Goods and Services Tax) structure may create loopholes leading to fraudulent practices or non-compliance. This potential for evasion undermines the intended benefits and fairness of the tax system.
Documents required for GST Registration
There are various documents required for GST registration. They are given below:
- Sole Proprietor / Individual
- The PAN card of the owner
- The Aadhar card of the owner
- Photograph of the owner (JPEG format, max size – 100 KB)
- Bank account details*
- Address proof**
- LLP and Partnership Firms
- PAN card of all partners, including managing partner and authorized signatory
- Copy of partnership deed
- Photograph of all partners and authorized signatories (JPEG format, max size – 100 KB)
- Address proof of partners.
- Aadhar card of authorized signatory
- Proof of appointment of authorized signatory
- Registration certificate / Board resolution of LLP (in the case of LLP)
- Bank account details*
- Address proof of principal place of business.
- HUF (Hindu Undivided Family)
- PAN card of HUF
- PAN card and Aadhar card of Karta
- Photograph of the owner (JPEG format, max size – 100 KB)
- Bank account details
- Address proof of principal place of business.
- Company (Indian and Foreign)
- PAN card of the Company
- Certificate of incorporation from MCA
- Memorandum of Association(MOA) / Articles of Association(AOA)
- PAN card and Aadhar card of authorize signatory (Indian, even for a foreign company/branch registrations)
- PAN card and address proof of all director of the Company
- Photograph of all directors and authorized signatory (JPEG format, max size – 100 KB)
- Board resolution appointing authorized signatory / Any other proof of appointment of authorized signatory (JPEG / PDF format, max size – 100 KB)
- Bank account details
- Address proof of principal place of business.
Note:
*Bank account details typically include the account number, IFSC code, and account holder’s name.
**Address proof can be documents like a Passport, Driver’s License, Voter ID Card, Aadhar Card, etc., verifying the business’s location.
Steps for GST Registration
Following are the steps for GST registration. They are given below:
Step 1: Initial Registration
- Visit the Government website “GST portal” and click ‘Register Now’ under the ‘Services’ tab.
- Choose ‘Taxpayer’ in the ‘I am a’ section.
- Select your state and district.
- Fill in business details: business name, PAN, active email, and mobile number for OTP verification.
- Enter the displayed image and proceed.
- Verify the OTP received by email and mobile to get a Temporary Reference Number (TRN).
Step 2: Application Submission
- Revisit the GST portal, click ‘Register’ under ‘Services,’ and select ‘Temporary Reference Number (TRN).’
- Enter TRN and captcha, and proceed.
- Enter the OTP received on the email ID and registered mobile number, and proceed.
- Check the application status by clicking the Edit icon on the right.
- Fill out ten sections and upload the required documents (photos, business address proof, bank details, authorization form, constitution).
- Move to the verification page and review the declaration.
- Submit the application using:
- Electronic Verification Code (EVC) is sent to the registered mobile number.
- Digital Signature Certificate (DSC) for companies.
- E-Sign method using Aadhaar-linked mobile for OTP.
8. A success message appears upon completion, and the Application Reference Number (ARN) is sent to the registered mobile number and email.
9. Check ARN status on the GST portal.
Note: ARN status can be tracked on the GST portal after successful submission.
Difference between Goods and Services Tax(GST) & Value added tax(VAT)
Phase | Goods and Services Tax (GST) | Value Added Tax (VAT) |
Scope | Covers both goods and services under a single taxation system. | Generally applies to the taxation of goods. |
Tax Structure | Multi-stage taxation: tax is levied at each stage of the supply chain and is creditable. | Usually applied at the point of sale, not reclaimable at each stage of production. |
Applicability | Applied nationwide, replacing various indirect taxes. | Implemented by individual countries or states as per their tax regulations. |
Number of Taxes | Replaced multiple taxes with a single GST, reducing complexity. | Can have separate taxes for different goods or categories. |
Input Tax Credit | Allowed businesses to claim credit for taxes paid on inputs, across the supply chain. | Limited ability to claim input tax credit, depending on the jurisdiction’s rules. |
Administration | Centralized system with a unified tax authority. | Often administered by individual state or country authorities. |
Tax Rates | Multiple tax slabs: 0%, 5%, 12%, 18%, 28%, etc., varying for different goods and services. | May have different rates for different goods, typically at a single or few rates. |
Compliance | Requires detailed compliance due to multi-tiered tax structure and frequent filings. | Generally simpler compliance as it often involves a single tax rate. |
Global Application | Adopted by several countries as part of their tax system reforms. | Implemented by various countries under different rules and names. |
Digital Transformation | Encourages digitalization and automation for compliance and filing processes. | Digitalization might vary depending on the administration and jurisdiction. |
Ease of Trade | Aims to facilitate easier movement of goods and services within a country. | Affects intra-country trade; might not harmonize easily across borders. |