The Goods and Services Tax (GST) is a successor to VAT used in India on the supply of goods and services. Both VAT and GST have the same taxation slabs. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.

Goods and services are divided into five different tax slabs for collection of tax: 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system.^[1] There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.^[2] In addition a cess of 22% or other rates on top of 28% GST applies on several items like aerated drinks, luxury cars and tobacco products.^[3] Pre-GST, the statutory tax rate for most goods was about 26.5%; post-GST, most goods are expected to be in the 18% tax range.

The tax came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government. 1 July is celebrated as GST Day.^[4] The GST replaced existing multiple taxes levied by the central and state governments.

Also, to boost GST billing in India, the Government of India, in association with state governments, has launched an “Invoice Incentive Scheme” (Mera Bill Mera Adhikaar). This will encourage the culture of customers asking for invoices and bills for all purchases. The objective of the scheme is to bring a cultural and behavioural change in the general public to ‘Ask for a Bill’ as their right and entitlement.

The tax rates, rules and regulations are governed by the GST Council which consists of the finance ministers of the central government and all the states. The GST is meant to replace a slew of indirect taxes with a federated tax and is therefore expected to reshape the country’s $3.5 trillion economy, but its implementation has received criticism. Positive outcomes of the GST includes the travel time in interstate movement, which dropped by 20%, because of disbanding of interstate check posts.

Implementation

The GST was launched at midnight on 1 July 2017 by the President of India, and the Government of India. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central Hall of the Parliament. Though the session was attended by high-profile guests from the business and the entertainment industry including Ratan Tata, it was boycotted by the opposition due to the predicted problems that it was bound to lead for the middle and lower class Indians. The tax was strongly opposed by the largest opposition party, the Indian National Congress.^[20][21] It is one of the few midnight sessions that have been held by the parliament – the others being the declaration of India’s independence on 15 August 1947, and the silver and golden jubilees of that occasion.^[21] After its launch, the GST rates have been modified multiple times, the latest being on 10 May 2023 where taxpayer with over ₹5 crore turnover in any financial year from 2017 to 2018 shall issue e-invoices w.e.f. 1 August 2023.

Taxes subsumed

The single GST subsumed several taxes and levies, which included central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi. Other levies which were applicable on inter-state transportation of goods have also been done away with in GST regime GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services.

India adopted a dual GST model, meaning that taxation is administered by both the Union and state governments. Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax/destination-based tax, therefore, taxes are paid by the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central Government. Under the previous system, a state would only have to deal with a single government in order to collect tax revenue.

HSN code

India is a member of World Customs Organization (WCO) since 1971. It was originally using 6-digit HSN codes to classify commodities for Customs and Central Excise. Later Customs and Central Excise added two more digits to make the codes more precise, resulting in an 8 digit classification. The purpose of HSN codes is to make GST systematic and globally accepted.

The Harmonized System of Nomenclature (HSN) code is used for classifying goods under the Goods and Services Tax (GST) in India. The HSN code is a six-digit code that uniquely identifies a product. The first two digits of the code identify the chapter, the next two digits identify the heading, and the last two digits identify the subheading.

HSN codes will remove the need to upload the detailed description of the goods. This will save time and make filing easier since GST returns are automated.

If a company has turnover up to ₹15 million (US$190,000) in the preceding financial year then it need not mention the HSN code while supplying goods on invoices. If a company has turnover more than ₹15 million (US$190,000) but up to ₹50 million (US$630,000), then it needs to mention the first two digits of HSN code while supplying goods on invoices. If turnover crosses ₹50 million (US$630,000) then it needs to mention the first 4 digits of HSN code on invoices.

Rate

The GST is imposed at variable rates on variable items. The rate of GST is 18% for soaps and 28% on washing detergents. GST on movie tickets is based on slabs, with 18% GST for tickets that cost less than ₹100 and 28% GST on tickets costing more than ₹100 and 28% on commercial vehicle and private and 5% on readymade clothes  The rate on under-construction property booking is 12%.^[33] Some industries and products were exempted by the government and remain untaxed under GST, such as dairy products, products of milling industries, fresh vegetables & fruits, meat products, and other groceries and necessities.

Checkposts across the country were abolished ensuring free and fast movement of goods. Such efficient transportation of goods was further ensured by subsuming octroi within the ambit of GST.

The Central Government had proposed to insulate the revenues of the States from the effects of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products. The central government had assured states of compensation for any revenue loss incurred by them from the date of GST for a period of five years. However, no concrete laws have yet been made to support such action.GST council adopted concept paper discouraging tinkering with rates.

e-Way Bill An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It is an electronic bill; there is no requirement for a paper bill. It was made compulsory for inter-state transport of goods from 1 June 2018. It is required to be generated for every inter-state movement of goods beyond 10 kilometres (6.2 mi) and the threshold limit of ₹50,000 (US$630).

It is a paperless, technology solution and critical anti-evasion tool to check tax leakages and clamp down on trade that currently happens on a cash basis. The pilot started on 1 February 2018 but was withdrawn after glitches in the GST Network. The states are divided into four zones for rolling out in phases by end of April 2018.

A unique e-Way Bill Number (EBN) is generated either by the supplier, recipient or the transporter. The EBN can be a printout, SMS or written on invoice is valid. The GST/Tax Officers tally the e-Way Bill listed goods with goods carried with it. The mechanism is aimed at plugging loopholes like overloading, understating etc. Each e-way bill has to be matched with a GST invoice.

Transporter ID and PIN Code now compulsory from 01-Oct-2018.

It is a critical compliance-related GSTN project under the GST, with a capacity to process 7.5 million e-way bills per day.

Intra-State e-Way Bill The five states piloting this project are Andhra Pradesh, Gujarat, Kerala, Telangana and Uttar Pradesh, which account for 61.8% of the inter-state e-way bills, started mandatory intrastate e-way bill from 15 April 2018 to further reduce tax evasion   It was successfully introduced in Karnataka from 1 April 2018. The intrastate e-way bill will pave the way for a seamless, nationwide single e-way bill system. Six more states Jharkhand, Bihar, Tripura, Madhya Pradesh, Uttarakhand and Haryana will roll it out from 20 April 18. All states are mandated to introduce it by 30 May 2018.

Reverse Charge Mechanism

Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on behalf of unregistered, smaller material and service suppliers. The receiver of the goods is eligible for Input Tax Credit, while the unregistered dealer is not.

The central government released ₹352.98 billion (US$4.4 billion) to states as GST compensation. For the implementation, this amount was given to states to compensate for the revenue. Central government has had to face many criticisms for delays in compensation.

Goods excluded from the GST

Tobacco Products: Products like cigarettes and other tobacco-based items attract separate taxes.

·         Alcohol for human consumption (i.e., not for commercial use).

·         Petrol and petroleum products (GST will apply at a later date), i.e., petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel.

QRMP Scheme

This is a recent amendment in GST Taxation System. If a taxpayer opts for this scheme he will have to file GST Returns on Quarterly basis instead of regular monthly basis, but Tax payment will have to be done monthly. QRMP means quarterly return monthly payment.

The Quarterly Return Filing and Monthly Payment (QRMP) Scheme is a simplified compliance regime under the Goods and Services Tax (GST) in India. It is available to registered taxpayers whose aggregate annual turnover (PAN based) is up to ₹ 5 Crore in the current financial year and the preceding financial year (if applicable) and have already filed their last due Form GSTR-3B return.

Revenue earned from GST (intra state transaction – seller and buyer both are located in same state) is shared equally on 50-50 basis between central and respective state governments.^[43][44] Example: if Goa has collected a total GST revenue (intra state transaction – seller and buyer both are located in same state) of ₹100 million (US$1.3 million) in January, then the share of central government (CGST) will be ₹50 million (US$630,000) and the remaining ₹50 million (US$630,000) will be a share of Goa‘s state government GST (SGST) for the month of January.

For distribution of IGST (inter state transaction – seller and buyer both are located in different states) collection, revenue is collected by central government and shared with state where good is imported.Example: ‘A’ is a seller located in state of Goa selling a product to ‘B’ a buyer of that product located in state of Punjab, then IGST collected from this transaction will be shared equally on 50-50 basis between central and Punjab state governments only.

The GSTN’s authorized capital is ₹100 million (US$1.3 million) in which initially the Central Government held 24.5 per cent of shares while the state government held 24.5 per cent. The remaining 51 per cent were held by non-Government financial institutions, HDFC and HDFC Bank hold 20%, ICICI Bank holds 10%, NSE Strategic Investment holds 10% and LIC Housing Finance holds 11% .

However, later it was made a wholly owned government company having equal shares of state and central government.

GST, or Goods and Services Tax, offers several benefits that significantly impact businesses and the overall taxation system.

1.   Easy Taxes: GST makes taxes simpler. Instead of dealing with many different taxes, now there is just one tax to understand and follow.

2.   No More Double Taxes: Before GST, businesses had to pay taxes on top of taxes, which made things more expensive. With GST, this extra tax burden has been reduced, making things more straightforward.

3.   Simple Rules: GST has easy rules. Businesses can quickly understand and follow them. It means less paperwork and more time for running the business.

4.   Get Credit for Taxes Paid: Businesses can now get credit for the taxes they pay on their inputs. This helps in being fair and transparent, as they can subtract what they paid for inputs from what they collected in taxes.

5.   Same Rules Everywhere: In the past, different states had different tax rules, making trade between states confusing. Now, with GST, rules are the same everywhere, making it easier for goods and services to move across the country.

6.   Helps the Economy: Because GST makes things simpler for businesses, it also helps the country’s economy to grow. It makes our goods and services more competitive around the world.

Technicalities of GST implementation in India have been criticized by global financial institutions/industries, sections of Indian media, and opposition political parties in India. World Bank’s 2018 version of India Development Update described India’s version of GST as too complex, noticing various flaws compared to GST systems prevalent in other countries; most significantly, the second-highest tax rate among a sample of 115 countries at 28%.

GST’s implementation in India has been further criticized by Indian businessmen for problems including tax refund delays and too much documentation and administrative effort needed. According to a partner at PwC India, when the first GST returns were filed in August 2017, the system crashed under the weight of filings.  

According to an estimate, 230,000 small businesses shut down due to complications of compliance with the GST

The introduction of the Goods and Services Tax (GST) was a landmark reform in India’s taxation system, aimed at streamlining and simplifying multiple taxes into a singular, unified system. However, like any significant overhaul, its implementation came with a set of challenges:

1. Technological Hurdles: The GST regime brought in the need for businesses to file taxes online through the GSTN portal. However, frequent technical glitches, server downtimes, and difficulties in navigating the portal posed significant challenges, especially for small businesses unfamiliar with digital tax filing.

2. Complex Return Filing Process: With multiple return forms to be filled and regular filings required, many businesses found the process intricate and time-consuming. Adopting automated billing software that assist in accurate form selection, auto-population of details, and timely submission can be instrumental.

3. Compliance Costs: The transition to the GST system necessitated changes in business processes, IT systems, and skill up-gradation, leading to increased compliance costs for businesses.

4. Input Tax Credit (ITC) Challenges: While the ITC mechanism aimed to prevent the cascading effect of taxes, businesses faced issues in availing and reconciling ITC due to mismatches in invoices between suppliers and recipients.

5. Multiple Tax Slabs: The GST system introduced different tax rates for various goods and services. This multi-tiered structure led to confusion about the correct tax rate applicable to specific products or services.

6. Transition Issues: The shift from the old tax regime to GST led to challenges related to the carry-forward of tax credits, stock transition provisions, and more.

7. Training and Education: There was a significant knowledge gap among businesses, especially SMEs, regarding GST’s nuances. Proper training and education became essential to ensure compliance and make the most of the new system.

In conclusion, while the GST regime aimed at simplifying the tax landscape in India, its initial phase presented several challenges. However, with the right tools and continuous learning, businesses can navigate this landscape efficiently and ensure compliance.