Indirect tax is defined as the tax imposed by the government on a taxpayer for goods and services rendered. Unlike direct taxes, indirect tax is not levied on the income, revenue or profit of the taxpayer and can be passed on from one individual to another.

Who is eligible to pay?

Custom Duty is to be paid by an importer or exporter for the goods imported or exported out of India.

Excise Duty is levied on goods which are manufactured in India. Till 30 June 2017, most of the goods came under its net. Later, GST was introduced which subsumed Excise duty. But there are some goods that still fall under the excise laws such as tobacco products, aviation turbine fuel, natural gas, high-speed diesel and petroleum crude.

Goods and Services Tax (GST) refers to the tax on supply of goods or services that must be paid by individuals or businesses who have a turnover more than the prescribed limit.

What is GST in India?

GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.

In other words, Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. GST is a single domestic indirect tax law for the entire country.

The Journey of GST in India

The GST journey began in the year 2000 when a committee was set up to draft law. It took 17 years from then for the Law to evolve. In 2017, the GST Bill was passed in the Lok Sabha and Rajya Sabha. On 1st July 2017, the GST Law came into force.

Objectives Of GST

  1. To achieve the ideology of ‘One Nation, One Tax’

    GST has replaced multiple indirect taxes, which were existing under the previous tax regime. The advantage of having one single tax means every state follows the same rate for a particular product or service. Tax administration is easier with the Central Government deciding the rates and policies.

  2. To subsume a majority of the indirect taxes in India

    India had several erstwhile indirect taxes such as service tax, Value Added Tax (VAT), Central Excise, etc., which used to be levied at multiple supply chain stages. Some taxes were governed by the states and some by the Centre. There was no unified and centralised tax on both goods and services. Hence, GST was introduced. Under GST, all the major indirect taxes were subsumed into one. It has greatly reduced the compliance burden on taxpayers and eased tax administration for the government.

  3. To eliminate the cascading effect of taxes

    One of the primary objectives of GST was to remove the cascading effect of taxes. Previously, due to different indirect tax laws, taxpayers could not set off the tax credits of one tax against the other. For example, the excise duties paid during manufacture could not be set off against the VAT payable during the sale. This led to a cascading effect of taxes. Under GST, the tax levy is only on the net value added at each stage of the supply chain. This has helped eliminate the cascading effect of taxes and contributed to the seamless flow of input tax credits across both goods and services.

  4. To curb tax evasion

    GST laws in India are far more stringent compared to any of the erstwhile indirect tax laws. Under GST, taxpayers can claim an input tax credit only on invoices uploaded by their respective suppliers. This way, the chances of claiming input tax credits on fake invoices are minimal.

Advantages Of GST

  1. Lower cost of compliance

  2. Simplified online process for GST

  3. Removal of the cascading effect of tax (tax on tax effect)

  4. Improves efficiency in logistics

  5. Regulation of the unorganised sector

  6. Composition scheme for small businesses

What are the components of GST?

There are three taxes applicable under this system: CGST, SGST & IGST.

  • CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within West Bengal)

  • SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within West Bengal)

  • IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., West Bengal to Jharkhand)