GST- CGST, SGST, IGST: Rates, Pros, Cons, Filing | Free Legal Advice

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Deciphering Goods and Services Tax

We all have heard about the ferment the Goods and Services Tax bill has been stirring but how many of us know what Goods and Services Tax (GST) is apart from what it stands for. Goods and Services Tax (GST) is said to come into motion to revolutionise the taxation system from July 1st 2017.

Goods and Services Tax (GST) is a tax that would be levied on every stage of production in which value is added to the good and/or service. Goods and Services Tax (GST) is a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. This definition of Goods and Services Tax (GST) might sound ambiguous and very similar and one might find it difficult to spot the difference between Goods and Services Tax (GST) and the old system of taxation. However, there is a difference for the person who purchases that product. The difference can be explained with the following example-

There are various stages of production such as buying of raw material, manufacturing, warehousing, selling etc. A product has to pass through all these phases where the value is added to it before it reaches the final consumer for consumption purposes. Before the introduction of Goods and Services Tax (GST), Value Added Tax (VAT) was levied on the product as it passed through each stage of production. In order to discharge their liability and to pass on the burden of the tax on to the buyer, the seller would charge a price which was a culmination of the price he paid for it + the value he added + the taxes to be levied. Hence, the consumers of the product ended up paying a really high price for the product. With the introduction of Goods and Services Tax (GST) the individual has a golden opportunity to claim credit for the tax while doing his taxes.

For a better understanding of how the bill affects the pockets of the consumers and buyers let us look at a numerical explanation of the working and effects of the Goods and Services Tax (GST). Let us take the example of a loaf of bread going through different stages of production before reaching the consumer. The manufacturer buys the raw materials such as wheat from the farmer at Rs. 110, he then adds value to wheat so the price increases to Rs. 150. 10% being the tax rate is levied and the manufacturer further sells it to wholesalers for Rs. 165. The wholesaler adds value to the product and it increases to Rs. 195. When tax is levied and is sold to the consumer, it is sold for a sum of Rs. 214.5. Hence, a commodity which started at 110 was purchased at Rs. 214.5.

Here is how Goods and Services Tax (GST) comes into the role of the saviour and minimises the cascading effect of taxes. When the wholesaler buys from the manufacturer, he pays a 10% tax because the liability has been passed on to him by the manufacturer. Then he adds the value of Rs. 40 on his cost price of Rs. 100 and this brings up his cost to Rs. 140. Now he has to pay 10% of this price to the government as tax. But he has already paid one tax to the manufacturer. So, instead of paying Rs. (10% of 140 = 14) to the government as tax, he subtracts the amount he has paid already. So, he deducts the Rs. 10 he paid on his purchase from his new liability of Rs. 14, and pays only Rs. 4 to the government. So, the Rs. 10 becomes his input credit. This process goes on and the bread becomes way cheaper for the customer.

Types of Taxes under GST

Goods and services tax aims at removing the various taxes that are currently levied by the central government and the state government such as Value added tax (VAT), excise duty, sales tax, service tax, special additional duty of customs etc. Since India has a federal structure, both the centre and the state would be given some power and authority to levy and collect taxes under goods and services tax. Three kinds of taxes would be levied and they are as follows: following are the advantages and disadvantages of CGST, SGST and disadvantages of IGST.

CGST

It stands for central goods and services tax. As the name suggests the tax would be levied and collected by the centre on the intra-state supply of goods and/or services.

For instance, X, a dealer in Uttar Pradesh sells goods worth Rs. 10,000 to Y in Rajasthan. Thus, CGST would be levied and collected by the centre. Suppose the CGST rate is 8%, thus the dealer would charge Rs. 800 as CGST and this would be collected by the centre. These are the advantages and disadvantages of CGST

SGST

It stands for state goods and services tax. As the name suggests the tax would be levied and collected by the state on intra-state supply of goods and/or services.

For instance, X, a dealer in Uttar Pradesh sells goods worth Rs. 10,000 to Y in Rajasthan. Thus, SGST would be levied and collected by the state. Suppose the SGST rate is 7%, thus the dealer would charge Rs. 700 as SGST and this would be collected by the state.

These are the advantages of CGST and SGST.

IGST

It stands for integrated goods and services tax. As the name suggests the tax would be obtained by integrating the CGST and SGST. It will be levied on inter-state movement of goods and services by the centre. It would also apply to imports.

For instance, X, a dealer in Uttar Pradesh sells goods worth Rs.10,000 to Y in Uttar Pradesh. Suppose the SGST rate is 7%, and the CGST rate is 8%.

Hence, SGST + CGST + IGST

7% + 8% = 15%

Thus, the dealer would charge Rs. 1500 as IGST. Out of this amount Rs. 700 would be collected by the state and Rs. 800 would be collected by the centre. These are the disadvantages of IGST.

GST Rates for Various Goods

The Goods and Services Tax (GST) Council meeting was held at Srinagar, Jammu & Kashmir on 18th May 2017. The Council has approved the Goods and Services Tax (GST) rates for goods at 5%, 12%, 18% and 28% to be levied on certain goods. Here is a table depicting some of the goods and the rate of tax levied on them. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services.