IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 1

IMPLEMENTATION OF
GOODS AND SERVICES TAX
(GST) IN INDIA

AKANKSHA BHATT
(21BC568)

TUTE E23

PUBLIC FINANCE

DEPARTMENT OF COMMERCE
SHRI RAM COLLEGE OF COMMERCE

Submitted to: Dr. Ravi Kant

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 2

I. ABSTRACT

Since India's independence in 1947, the Goods and Services Tax (GST), which went into
effect on July 1, 2017 is regarded as the country's most significant tax reform to date. GST
was supposed to go into effect in April 2010, but it was delayed because of political concerns
and competing stakeholder interests. It is a comprehensive tax system that subsumes all
indirect taxes levied by the central government, state governments, and localities to facilitate
a unified national market. The main reason for the construction of GST was to replace all
indirect taxes in India, including Central Excise Tax, VAT/Sales Tax, Service Tax, and others
with a single taxation structure. The GST-based taxing system was aimed at increasing GDP
from around 1% to 2% and improving transparency of the taxation system along with
eradicating corruption and tax theft from the country.

The goal of this study is to provide an overview macroeconomic analysis of the extent to
which the implementation of GST has enhanced the efficiency of the current tax system and,
consequently, the overall economic health of an economic system in India.  The study also
looks at how various stakeholders and industries were affected from the change of such
a sweeping reform and the challenges faced by the government in implementation of the
taxation policy. The study also analyses the loopholes in the systema and the effect of the
GST provisions on various sectors of the economy. This paper is based on literature review
wherein secondary data is collected from various websites, newspaper, journals and different
publications. Through this paper we shall be in a better position to understand the concepts,
the objectives, the challenges and the implications of the Goods and Service Tax in India.

II. INTRODUCTION

The word "tax" comes from the Roman word "taxare", which means to estimate. A tax, also
known as a toll, tribute, impost, duty, custom, excise, subsidy, aid, supply, or any other name
imposed by the government, is not a voluntary payment or donation but an enforced
contribution that is exacted in accordance with legislative authority.

The Goods and Service Tax is levied on the manufacture, sale and consumption of the 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. Under the GST regime, the tax is levied at every point of sale.
In the case of intra-state sales, Central GST and State GST are charged. All the inter-state
sales are chargeable to the Integrated GST.

It is said to replace all the indirect tax systems such as sales tax and value added tax. The
main purpose of GST is to bring about a single uniform system of taxation in the
manufacture, sale and the consumption of goods and services in India. The GST is said to
reduce the level of Tax evasion and the corruption and it also reduces the tax burden of the
public. The fact that input tax credits would be accessible at every step of supply for the tax
paid at the earlier stage of supply is another extremely important aspect of GST. This feature
would significantly reduce
IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 3

cascading or duplicate taxes. This tax reform will be supported by extensive use of
information technology [through the Goods and Services Tax Network (GSTN)], which will
increase the transparency of the tax burden, increase the accountability of the federal and
state tax administrations, and improve compliance levels at a lower cost to taxpayers.

The historic Budget

Speech of February
28, 2006, in which
the then Finance
Minister announced
April 1, 2010, for the
implementation of
GST, laid the
groundwork for its
introduction to the
nation. Following
that, there was a
persistent push to
implement the GST,
which led to the 2014
presentation of the
122nd Amendment
to the Constitution
Bill. GST was
implemented in India
as The Constitution
(101 Amendment)
Act 2016 and went into effect on July 1st, 2017, following the approval of the 122nd
Amendment to the Constitution Bill. The adjoining diagram shows the
journey of GST in India.
Figure 1 Source: https://cleartax.in/s/gst-law-goods-and-services-tax

The government was driven to turn the ten-year talk into reality due to the complexity and
inefficiency of earlier tax systems in India. The federal structure's weaknesses, which made
the regime less comprehensive, were principally defined by cascading turnover taxes between
the centre and states. The central and state levy had some inherent limits, such as the fact that
the central taxes could not be used to pay for the value addition made to goods after they had
left the production stage, including some of the specified services [1].

III. RESEARCH METHODOLOGY

This study is based on the exploratory research technique, and the data used in it were
obtained from secondary sources, such as the Indian Government's websites for the Finance
Ministry, the GST Council, the GST Council Archives, and many others, as well as from
research reports, journal papers, annual reports, newspaper stories, web-published articles and
 a large collection of magazine articles about GST. The report is purely descriptive in nature,
the objectives of the study are established based on the examination of the data through
gathering information from sources previously described.

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 4

IV. SLAB RATES

There are about five GST collecting slabs: 0%, 5%, 12%, 18%, and 28%. However, some
goods, including as electricity, wine, and petroleum products, are exempt from GST.
According to the previous tax arrangement, the state government may separately tax them.

The tax rate is imposed on various goods and services according to a 4-level tax structure.
The tax structure is altered following the implementation of GST. The taxes are forced on
items, contrast as indicated by their need in everyday life.

The tax sections are as follows:

1) Zero tax: A number of goods, including barley, wheat, oats, kajal (other than the pencil-
style variety), sanitary napkins, children's music books, colouring books, and drawing
books, all types of salt, human hair, hotel and lodging bills under Rs. 1000, bank charges
for savings accounts, and Jan Dhan Yojana, are exempt from tax.

2) 5% tax rate: Cashew nuts, aggarbati, kites, postage stamps, biogas, insulin, matting,
walking sticks, Pawan chakki atta, braille typewriters, braille papers, braille watches, and
other hearing aids, takeaway food restaurants, hotels with room tariffs less than Rs. 7500,
and special flights for pilgrims are all taxed at 5%.

3) 12% tax rate: Plastic beads, ketchup, sauce, and mustard sauces, all types of diagnostic
kits and reagents, notebooks and copies, spoons and forks, fish knives, fixed-speed diesel
engines, cake knives, skimmers, playing cards, carrom board, and other board games,
two-way radios used by military and police forces, corrective spectacles, business class
air tickets, and movie tickets under Rs. 100 are some goods that are taxed under the 12%
slab.

4) 18% tax rate: Kajal pencil sticks, plastic tarpaulin, toilet cases, dental wax, school bags
other than leather bags or leather composition, aluminium foil, rear tractor tyres or tyre
tubes, printers other than multifunction printers, weighing machines other than electronic
weighing machines, electrical transformer, static converters, CCTV, baby carriages,
televisions and monitors (up to 32 inches), ball bearings and roller bearings, set up box
for TV, electrical filaments, power banks of lithium-and bamboo furniture, Movie tickets
above Rs. 100, branded garments, telecom and financial services and restaurants inside
hotels with bill of Rs. 7500 or above are to be taxed at 18%.

5) 28% tax rate: Pan masala, dishwashers, scales, paint, cement, hair clippers, motorcycles,
sunscreen, bets on horse races and casinos, hotel stays costing more than Rs. 7,500, and
autos are all subject to the 28% tax rate [2].
IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 5

V. COMPONENTS OF GST
There are three taxes applicable under this system: CGST, SGST & IGST.

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

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

3) IGST: It is a tax collected by the Central Government for an inter-state sale (e.g.,
Maharashtra to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

Transaction New Regime Old Regime Revenue Distribution

Sale within CGST + VAT + Central Revenue will be shared equally between
the State SGST Excise/Service tax the Centre and the State
Sale to Central Sales Tax There will only be one type of tax
another IGST + Excise/Service (central) in case of inter-state sales. The
State Tax Centre will then share the IGST revenue
based on the destination of goods.
Table 1 Source: https://cleartax.in/s/gst-law-goods-and-services-tax

VI. NEED FOR GST

According to the Task Force on Goods and Services Tax's (2009) reports, the Indian taxation
system resulted in resource misallocation and decreased productivity in terms of economic
growth, foreign commerce, and the general development of the Indian economy. Thus, a new
method of taxing products was required to replace the current tax system.

Following are the objectives for which GST was introduced:

1) To actualize the "One Country, One Tax" philosophy

Many indirect levies that were in force under the former tax system have been
replaced by the GST. The benefit of a single tax is that each state applies the same
rate to a specific good or service. Since the central government sets the tax rates and
regulations, tax administration is made simpler. E-way bills for the transportation of
goods and e-invoicing for transaction reporting are examples of common laws that
 can be introduced. Taxpayers are not burdened with numerous return forms and
deadlines, which improves tax compliance. In general, it is a unified method for
complying with indirect taxes.

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 6

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

In the past, India imposed a number of indirect taxes at various points throughout the
supply chain, including service tax, value-added tax (VAT), central excise, and others.
Certain taxes were governed by the states, while others were governed by the
central government. There wasn't a single, centralised tax that applied to both goods
and services. GST was therefore implemented. All of the significant indirect taxes
were combined into one under GST. It has significantly lowered the tax payers'
compliance burden and made tax administration simpler for the government.

3) To eliminate the cascading effect of taxes   

Eliminating the cascading effect of taxes was one of the main goals of the GST. In the
past, taxpayers were unable to offset the tax credits from one tax against another due
to disparate indirect tax legislation. For instance, the VAT due during the sale cannot
be offset by the excise charges paid during manufacture. Taxes began to increase as a
result. Just the net value added at each stage of the supply chain is taxed under GST.
The cascading effect of taxes has been reduced as a result, and input tax credits for
both goods and services are now flowing smoothly.

4) To combat tax evasion

In India, the GST laws are stricter than any of the previous indirect tax legislation.
Only invoices uploaded by their individual suppliers are eligible for an input tax credit
under GST. This reduces the possibility of collecting input tax credits on fictitious
invoices. The introduction of e-invoicing has strengthened this goal even more.
Additionally, because GST is a federal tax with a centralised surveillance system, it is
far quicker and more effective to crack down on defaulters. As a result, the GST has
significantly reduced the likelihood of tax fraud and tax evasion.

5) To broaden the base of taxpayers

In India, the GST has contributed to a larger tax base. Traditionally, each tax statute
had a different registration level based on turnover. GST has expanded the number of
firms that are tax-registered because it is a combined tax levied on both goods and
services. Also, the tougher legislation governing input tax credits have assisted in
bringing some unorganised sectors under the tax net. The Indian construction sector,
for instance.

6) Online procedures for ease of doing business

 In the past, taxpayers had a difficult time dealing with several tax agencies under each
tax code. Also, even though return filing was done online, the majority of the
evaluation and refund processes were done offline. Today, practically all GST
procedures are completed online. From registration to return filing to refunds to e-way
bill production, everything is accomplished with the stroke of a mouse. It has greatly
facilitated taxpayer compliance and added to India's overall ease of doing business.
The government also

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 7

intends to launch a centralised platform soon for all indirect tax compliance, including
the filing of GST returns and electronic way bills and invoices.

7) A better distribution and logistics system

The number of documents required for the supply of products is decreased by a single
indirect tax system. Among other things, GST reduces the amount of time that a
shipment needs to travel between points, enhances the efficiency of the supply chain,
and encourages the consolidation of warehouses. The elimination of interstate checks
under the GST system, which increases the efficiency of transit and destination, is
particularly advantageous to the industry. The significant logistics and warehousing
costs are ultimately reduced.

8) To encourage competitive pricing and boost demand

Under the previous administration, the cascading impact of taxes led to greater costs
for goods in India than on international markets. Even between states, the lower VAT
rates in some states resulted in an imbalance in purchases in those states. The
uniformity of GST rates has assisted in keeping prices competitive both inside India
and internationally. As a result, consumption has increased and revenues have
climbed, achieving yet another significant goal [3].

VII. CURRENT SCENERIO

As on October 2022, the total GST collection in India crossed Rs. 1.5 lakh crores only once
in the month of April 2022 when the GST collection of India recorded Rs.1.67 lakh crores.
Though in August 2022, collection of ₹1.43 lakh crore was up 28% year over year.

Of the total GST collection in the month of August 2022, Central Goods and Service Tax
(CGST) was Rs. 24,710 crores, State Goods and Services Tax (SGST) was Rs. 30,951 crores,
Integrated Goods and Services Tax (IGST) was Rs. 77,782 crores (inclusive of Rs. 42,067
crores which were collected on import of goods) and cess was Rs. 10,168 crores (inclusive of
Rs. 1,018 crores that were collected on import of goods).

A. Year-Wise GST Collection

GST Collection in previous years

(2017 onwards till 2022)
 Year GST Collection (Rs. In Crores)
FY 2017-18 7,19,078
FY 2018-19 11,77,370
FY 2019-20 12,22,117
FY 2020-21 11,36,803
FY 2021-22 14,76,000
Table 2 Source: https://cleartax.in/s/gst-collection

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 8

From Table 2, it can be easily concluded that GST collections have grown continuously over
years from FY 2017-18 to FY 2021-22. From FY 2017-18 (₹7,19,078 Cr) to FY 2021-22
(₹14,76,000 Cr), tax collections have grown by a swooping 105%. The highest percentage
growth could be witnessed in the fiscal year 2018-19 ie. 64% from ₹7,19,078 Cr to
₹11,77,370 Cr.

B. Sector-wise GST Collection

Figure 2 Source: https://www.financialexpress.com/economy/govts-80-gst-collection-comes-from-these-

businesses-listed-firms-top-gst-contributor/2019387/

According to a recent examination of the contribution of different business forms to the

overall GST collection, public and private limited firms account for 62.8% of the GST
revenue, which is a pitiful 5.89% of all taxpayers. 37.2% of the total GST revenue is
contributed by the remaining taxpayers, or 94.11%. The proprietorship business employs a
sizable population and contributes 13.35% of the GST. Public sector undertakings (PSUs)
and partnership enterprises make up the other important contributors. For decision-makers in
government, the data reveal a number of fascinating insights.

To prevent tax inefficiencies and evasion, the GST implementation, which is still in its early
stages, needs various policy-level adjustments. Prioritizing the large contributors' issue would
 ensure that the revenue flow is not disrupted. Then, while keeping macroeconomic indicators
in mind, the government should focus on expanding the tax base. The system of indirect
taxation will eventually become more effective and efficient as a result.

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 9

C. State-wise GST Collection

Almost two-fifths of the states' own

tax revenue in India is derived from
the state-level GST. Petroleum and
alcohol product taxes are two
additional major sources of state-
specific tax revenue.

The following observations may be

drawn from Figure 3's official data
on the states' GST collection from
April 2022 to December 2022.

The State of Maharashtra, which

accounts for slightly more than one-
fifth of the total, collected a total of
INR 9,73,522 crores in GST during
the year. Maharashtra is a state with
a diverse economy, and Mumbai, Figure 3 Source: https://www.impriindia.com/insights/good-
which is its commercial hub, serves and-service-tax-gst-one-sales-tax/

as the nation's commercial hub.

Several businesses register in Mumbai even if they conduct business throughout the nation
and worldwide, which is one of the causes that contributes to its large share. Companies'
preference for registering in Delhi and Hyderabad, respectively, may also help to explain
Telangana's (3.9%) and Delhi's (4.2%) relatively high GST revenue.

Second, Karnataka (9.3%), and Gujarat (8.7%) are a distant second in GST collection after
Maharashtra. As these two states begin to attract company registrations, the difference
between them and Maharashtra may moderately narrow.

Third, the GST collection of Tamil Nadu was at 8.0 percent of the total, the fourth highest in
the country. The contribution of Uttar Pradesh at 6.7 percent is too low relative to its large
population of around 240 million persons as shown in Figure 2. However, with a thrust
towards infrastructure spending to make the state more business-friendly, and towards good
 governance practices, including vastly improved law and order conditions, the performance
of Uttar Pradesh is expected to improve significantly in the next few years.

Fourth, the contrast in GST collection between Haryana and Punjab is stark. Haryana’s GST
collection is four times that of Punjab. While Gurugram’s key position in the National Capital
Region, which many companies registered there, has contributed to Haryana’s performance,
arguably public policies and quality of governance in the two states are also likely to have
played a role. Punjab’s evident reluctance to reimagine its economy away from taxpayer-
subsidized agriculture is a major constraint in its GST collection.
IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 10

Last but not least, decreased disparity across Indian states and the establishment of numerous
additional growth nodes will be required to support GST income growth. The current
administration's efforts to develop the nation's Northeast are laudable in this regard.

D. GST collection per person in 2022

In general, the ranking of GST collections per individual is comparable to that of GST
collections as a whole. Yet, some of the insights are worth taking into account.

First, there is a startling contrast in the amount of GST collected per person between the
neighbouring states of Karnataka (INR 13,428), Tamil Nadu (INR 10120), and Telangana
(INR 9988) on the one hand, and Andhra Pradesh (INR 5609) and Kerala (INR 5647) on the
other. Once more, the quality of
governance and the public policy
decisions made are probably
important explanatory elements. If
the two lagging states' officials
want to increase household
welfare in those states, they must
reinvent themselves.

Second, at INR 4365, West

Bengal's GST per person is
significantly lower than that of
West Bengal's neighbour, Odisha,
which was a leading industrial
state at the time of independence
(INR 8133). West Bengal's
relative position will continue to
deteriorate until it changes its
government to be more business-
friendly, inspires confidence to retain people, and makes significant investments.
 Third, Bihar's dismal GST income
Figure 4 Source: https://www.impriindia.com/insights/good- and-
service-tax-gst-one-sales-tax/ collection (just INR 949 per
person) is an example of the
state's decades-long weak
governance. Contrarily, Jharkhand (INR 5913) and Chhattisgarh (INR 7767), both of which
were a part of Bihar until the year 2000, have GST revenues that are several times higher per
person than Bihar's. If Bihar's misrule continues, it will hinder India's rise and that of the
Gangetic plain, where India's population density is highest.

Fourth, while having by far the greatest overall GST revenue (10,073 crore INR, as shown in
Figure 3), Assam's per-person GST revenue is still only INR 2847, which is quite low. The
largest economy in the Northeast, Assam, is in need of further development, which is
expected to benefit GST collection.
IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 11

The Union government, and especially the states, should focus on policies that help achieve
higher broad-based growth, with many more growth nodes created in all states and regions of
the country and furthering a business-friendly environment in order to improve GST
collection while possibly lowering the tax rates.

E. Tax-GDP Ratio

Figure 5 Source: https://www.indianeconomy.net/splclassroom/what-is-tax-gdp-ratio/

The tax-to-GDP ratio is the leading indicator for estimating a country's tax revenue. The tax-
GDP ratio indicates the amount of tax income generated by the government as a share of
GDP.
The government is thrilled when the tax-to-GDP ratio rises. The budget's greater ability to
finance its expenditures is plainly indicated by this. A greater tax-to-GDP ratio will aid the
government in reducing its reliance on borrowing.
 India has a lower tax-to-GDP ratio than other countries. In addition, India's government
spends less on its citizens than the global average. Even so, increased tax revenues will
enable the government to expand the scope of its welfare programmes and offer more
services to the population.

Due to the limited tax base, the tax to GDP ratio is smaller. Just 4% of people in the nation
pay income taxes. Tax avoidance is prevalent on a large scale. Corporate entities also tend to
avoid paying taxes. Another factor is flaws in tax administration. [4]

VIII. IMPACT OF GST ON THE INDIAN ECONOMY

The GST will have an impact on the Indian economy's overall taxation system. It will
improve the nation's GDP ratio and, to a certain extent, reduce inflation. Nonetheless, the
reform will mostly benefit the manufacturing sector while posing certain difficulties for the
service sector.

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 12

After the implementation of the GST, there has been a decrease in manufacturing costs on the
domestic market, which has a favourable effect on the country's ability to compete in the
global market. The GST differs from other taxes such that it is assessed at the point of
consumption, not the point of manufacture.

Currently, different tax rates are used for goods and services. Several nations have seen
uneven growth, such as New Zealand, which had a greater GDP than nations like China,
Thailand, Australia, and Canada. 12 The GST rate is applied in a number of slabs, including
5%, 12%, 18%, and 28%, which will inevitably result in significant tax increases for the
government and enormous growth for the manufacturing sector with lower tax rates.
Definitely, there is something positive for everyone.

With GST, everything must be carefully planned out to ensure an ordered rate of taxation.
There are still many industries that need to be covered by the GST, and this requires careful
planning. For the average person and various businesses, the collection of Central and State
taxes will be completed at the moment where sales begin; both components will be paid on
manufacturing costs, which will lower the price of the product and consequently increase
consumption. As a result of the customers knowing exactly how much tax they are paying
and on what basis, the system will be more transparent. [5]

IX. IMPACT OF GST ON VARIOUS SECTORS

The Goods and Services Tax will consolidate the Indian economy under a single set of tax
rates, creating a single market that will be easier to enter and operate, which will enhance
savings and lower costs across all industries. Due to lower tax rates, some industries would
benefit from the GST, while others will suffer due to increased GST interest rates. We touch
on the effects of GST on several sectors in this section.
 A. FMCG SECTOR

The fast-moving consumer goods (FMCG) industry is the fourth biggest sector of the
Indian economy. Food goods make up the majority of the FMCG sector, accounting for
43% of the whole industry. The second and third largest market shares are held by
personal care (22%), followed by fabric care (12%). Increased knowledge, shifting
lifestyles, and ease of access have been this industry's key growth drivers.

The prior tax rate for the FMCG sector was approximately 22-24% overall. Now, the tax
rate under GST is 18–20% on average. The GST was advantageous for the FMCG sector
because it reduced logistical costs by a sizable amount. Prior to the advent of GST, the
FMCG industry's distribution costs made up 2–7% of overall costs, but they now only
account for 1.5%. Transportation and storage costs have decreased under the GST regime
as a result of the elimination of the CST, efficient supply chain management, tax
payment, and input tax credit claims. The consumer items become more affordable as a
result of this.

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 13

Transported goods will be subject to GST taxation. The value of the same kind of goods
or services will be used as the transaction value if the transaction value is unavailable,
according to the GST valuation guidelines.

Essential food items like wheat, rice, milk, and fresh vegetables have been added to the
0% tax bracket. Branded paneer and frozen vegetables are included in the 5% tax bracket,
which largely has no effect. Because they are added to the 12% tax band, a select few
products, such as butter, ghee, and cheese, are expensive under the GST. Giving dry fruits
as gifts during Diwali will now cost more money due to the addition of dry fruits to the
12% GST bracket. Products including toothpaste, hair oil, and soaps are now subject to an
18% tax rate. That is consistent with the government's stance on maintaining minimum
tax rates on goods of widespread usage. In reality, according to the GST rate chart, 81%
of all products fall into the 18% tax bracket or lower. The remaining 19% is subject to a
28% tax bracket. Most of the premium-class goods have been added to the 28% tax band,
which is the highest rate. Ayurvedic products were taxed at 12% that is splendidly high
than the prevailing tax rate.

B. REAL ESTATE

One of the most important segments of the Indian economy is the real estate industry. It
follows agriculture as the system's second-largest employer. Currently making up 7% of
the GDP, the real estate industry is predicted to increase that to 10% by 2025.

Taxability of Real Estate Transactions before GST

Nature of Duty Rate of When was tax required to be paid? or What

Tax triggered tax?
 VAT* 1 to 4%
Service Tax 4.5%
Registration Charges 0.5 to 1% On Sale of Under Construction Properties

Stamp Duty Charges* 5 to 7%

Table 3 Source: GST Positive Impact Towards Real Estate Sector (cleartax.in)

Taxability of Real Estate Transactions post GST Implementation

Rate Input Tax
Particulars Applicability of Credit
Tax
On ready-to-move Not applicable – Because Sale of building is – Not
(RTM) properties for treated as activity or transaction which shall be available
which completion treated neither as a supply of good nor a supply
certificates are issued of service as per SCHEDULE III of CGST
Act,2017
On Under Applicable as supply of services as per Schedule 8%* Available
Construction I of CGST Act, 2017
Properties (For Homes
Purchased Under
Credit-Linked
Subsidy Scheme)
On Under Applicable as supply of services as per Schedule 12% Available
Construction I of CGST Act, 2017
Properties (Other than
above)
On resale properties Not applicable – Not
available
On Land purchase and Not applicable. As per Schedule III, sale of land – Not
sale is neither supply of goods nor services. available
Works contract Applicable 18% Available
Composite supply of Applicable 18% Available
works contract
Composite supply of Applicable 12% Available
works Contract to
Government
Authorities
Composite supply of Applicable 12% Available
works contract – for
use by general public
Composite supply of Applicable 12% Available
works contract –
Affordable Housing
Table 4 Source: GST Positive Impact Towards Real Estate Sector (cleartax.in)

*NOTE: The houses which are purchased under the Credit-Linked Subsidy Scheme are liable for
GST rate of 12%. The applicable rate would be 8% after decreasing the 1/3rd amount for the cost
of land.

Impact on Real Estate Investors and Buyers

 Under the earlier system, taxes were collected depending on the construction stage of the
property, i.e., whether the property was complete or under construction. While buying a
house that was still being built, the buyer was required to pay stamp duty, registration
fees, service tax, and VAT. The only fees that were due for properties bought after
construction was complete were stamp duty and registration fees. GST is a
straightforward tax that is levied on the entire purchase price. On all properties that are
still being built, a 12% GST on the property value will be imposed. Property value would
be net of stamp taxes and registration fees. 

Impact on Developers

Formerly, developers had to pay central excise duty, customs duty, entry taxes, VAT, etc.
on the cost of the building materials, as well as a 15% tax on services like labour,
approval, and architect fees. This tax burden has now been transferred to the buyer. For
instance, cement is currently subject to a 28% GST. The average tax rate on cement used
to be between 23 and 24 percent, however since the introduction of the GST, several other
IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 15

fees that were included in the average tax rate have been eliminated. For iron pillars and
rods used in building construction, the current GST rate is 18%, which is lesser than the
earlier average rate of 19.5%. Also, the spending cost will be cut along with the logistical
cost. All of this will lower the project costs for the developers, who must then pass the
savings along to the consumer in the form of a lower price. Before GST, a sizable portion
of project costs were not officially documented. This percentage will decrease as a result
of GST and the cloud-based billing system.

C. AGRICULTURAL SECTOR

The effect of GST on agricultural sector is anticipated to be optimistic. The agricultural

segment has the largest contribution in the total GDP of India. It contributes around 16%
of the total GDP. GST is important to improve the trustworthiness, transparency and
timely delivery under supply chain system.

Fertilisers were previously subject to a 6% tax (5% VAT and 1% excise duty). Contrarily,
the tax rate on fertilisers under the GST is 12%, about twice as high as it was under the
old tax system. The tractor business is affected similarly. Manufacturing of tractors is no
longer exempt from the 12% GST rate. It benefits producers because they can now
receive Input Tax Credit. While there used to be a 2% VAT charge on milk and a number
of milk products, there is currently no GST on fresh milk. Skim milk is added in the 5%
tax bracket, while condensed milk is added in the 18% tax bracket. Without a doubt, tea is
a necessity in every Indian home. The typical GST rate was 4-5%, which increased tea
prices, with the exception of Assam and West Bengal, where the VAT rate was 5%.
 The information above makes it clear that a price increase for a number of agricultural
products is projected as a result of an increase in inflation for a short time. The
establishment of GST as a single, unified national agricultural will tremendously help
farmers and wholesalers.

D. Information Technology Sector

The tax rate on common IT industry equipment like photocopiers, printers, fax machines,
and ink cartridges will increase to 28% under the GST from the previous tax rate of 18%.
Under the GST, the tax rate on software CDs, other electronic packaged software, and
software services will be 18% instead of the old system's 15% service tax. IT companies
would now need to organise the new gear and software to make the system GST
compliant. This will increase the cost of infrastructure. GST has a good effect on IT
traders that sell goods and services. They can now claim an Input Tax Credit for GST.
Due to the fact that there will be 111 points for taxes under the new taxation system and
that businesses will need to deal with both the federal government and the states
differently, compliance costs are anticipated to rise. While there was just one point of
taxes, the CST, and one point of registration under the previous taxing structure.  In the
past, service tax was charged in
IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 16

accordance with long-term contracts that were spread over a number of years for ERP
deployment. The supply of ERP would be regular or consistent under GST, and the tax
would be applied appropriately. 

The cascading impact of taxes on all supplies of IT goods and services will be eliminated
by the GST. Customers will profit from this because it will lower the cost of the goods
and services. Several IT-related services like consulting, software development, and BPO
services are exempt from the GST and can be claimed by businesses. From 15% service
tax to 18%, the tax rate for independent contractors offering various IT services. Bloggers
with annual incomes under Rs. 20 lakhs are exempt from GST registration. Regardless of
their annual revenue, all e-commerce companies are required to register and pay taxes
under the GST. For them, even the composition scheme is irrelevant. Online business has
to collect TCS on sale and need to deposit to govt. and they can claim ITC on such tax
paid [6].

X. CHALLENGES IN IMPLEMENTATION

1) A more robust IT system: Technology has a big part to play in quick and simple
compliance. Numerous businesses, particularly MSMEs in the unorganised sector,
lack a sufficient IT infrastructure. It necessitates the adoption of an effective IT
system for sensible tax administration. Although GSTN is now acting as a special
purpose vehicle to assist the firms in this, additional specialised support is necessary.
 2) Need for Skilled Personnel: The country still has a severe shortage of IT and
accounting professionals even three years after the introduction of the GST. India has
a sufficient quantity of IT specialists, but there aren't enough certified public
accountants to support firms in meeting the new compliance standards.

3) Ambiguity in GST Provisions: To make compliance easier and eliminate the

cascading impact on taxation, the GST absorbed 17 separate levies. The system
requires clarification in a number of areas, including the precise classification of
commodities and services and the yet-to-be-determined tax rates for specific goods
and services. Every time the GST Council meets, a fresh agenda for dealing is
developed. Also, in India's biggest markets, the transition from origin-based to
destination-based taxation was not simple to achieve. Industrial states saw a loss of
revenue as a result of the current tax system, which bases tax collection on
consumption rather than the location of the production of products and services. The
council decided that for the first several years, the central government would make up
for this revenue loss. In addition, it has been demanded by a number of pressure
organisations to include high income commodities like petrol, petroleum products and
alcohol in the GST, which is still being discussed.

IMPLEMENTATION OF GOODS AND SERVICES TAX (GST) IN INDIA 17

4) Tackling the RNR conundrum: To achieve an ideal revenue-neutral rate, or RNR, the
government must balance net income loss with inflation. RNR is a rate at which the
government's revenue from the new tax system (in this case, the GST) will be equal to
the revenue from the previous tax system. It directly influences both the inflation rate
and fiscal policy. The greater RNR reduces India's competitive advantage
domestically compared to worldwide. The increased cost will cause inflation, which
will have a negative impact on purchasing power.  RNR is one of the biggest
obstacles to the implementation of the GST, and the government should make sure
there are no revenue losses when implementing a new taxing system.

5) Insufficient Knowledge Among Stakeholders: Many stakeholders had an

unfavourable view of the implementation of GST. Lack of sufficient knowledge of the
new tax system may have been one of the causes.  India, a democratic nation, ought to
inform its population about the most recent changes. People frequently pay more taxes
than necessary due to ignorance, especially in rural regions, and when they become
aware of this, they develop a bad opinion of the tax system [7].

References

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Services Tax Council. https://gstcouncil.gov.in/about-us
[2] A study on goods and services tax (GST). Legal Service India - Law, Lawyers and Legal
Resources. (n.d.). Retrieved April 4, 2023, from
https://www.legalserviceindia.com/legal/article-8223-a-study-on-goods-and-services-tax-
gst-.html
[3] Goods and Services Tax (GST) What is GST in India? Indirect Tax Law Explained. (n.d.).
Cleartax. https://cleartax.in/s/gst-law-goods-and-services-tax
[4] jose, T. (2019, October 6). What is tax-GDP ratio? – Indian Economy. Indian
Economy. https://www.indianeconomy.net/splclassroom/what-is-tax-gdp-ratio/
[5] M. V., M. (2020). A comprehensive analysis of goods and services tax (GST) in India.
International Review of Business and Economics, 4(2), 62–69.
https://doi.org/10.56902/irbe.2020.4.2.58
[6] Agrawal, M. (2019). Study of the leading sectors of Indian economy after GST
implementation - A literature review. Indira Management Review, 13, 86.
https://doi.org/10.36895/imr/2019/v13/144363
[7] Deshmukh, A. K., Mohan, A., & Mohan, I. (2022). Goods and services tax (GST)
implementation in India: A SAP–lap–twitter analytic perspective. Global Journal of Flexible
Systems Management, 23(2), 165–183. https://doi.org/10.1007/s40171-021-00297-3