INTRODUCTION

Tax policies play an important role on the economy

through their impact on both efficiency and equity.
A good tax system should keep in view issues of
income distribution and, at the same time, also
Endeavour to generate tax revenues to support
government expenditure on public services and
infrastructure development.

The introduction of Goods and Services

Tax (GST) would be a very significant step in the
field of indirect tax reforms in India. By
amalgamating a large number of Central and State
taxes into a single tax, it would mitigate cascading or
double taxation in a major way and pave the way
for a common national market. From the consumer
point of view, the biggest advantage would be in
terms of a reduction in the overall tax burden on
goods, which is currently estimated at 25%-
30%. Introduction of GST would also make
our products competitive in the domestic and
international markets. It will lead to the abolition
of taxes such as Central Sales Tax, State level
Sales Tax, Entry Tax, Stamp duty, Telecom
License Fees, Turnover Tax, Tax on
Consumption or Sale of Electricity, etc. It will also
improve government's fiscal health as the
tax collection
systemwould become more transparent, making tax
evasion difficult. CAG Mr. Vinod Rai in his inaugur
al address to the National Conference on GST
put forth the concept as "An integrated scheme
of taxation that does not discriminate between goods
and services and is a part of the proposed tax
reforms that centre on evolving an efficient and
harmonized consumption tax system in the
country."GST stands for Goods and Service
Tax. It was first initiated in 1986
by Vishwanath Pratap Singh 7th Prime Minister
of India. After that in 2007, the current
government proposed to implement GST and
presented the same in Lok Sabha in 2011. In Dec
2014 GST again presented. in Lok Sabha and in
same is passed in 2015. After approval of
Rajya Sabha same is called as101th amendment
of the Constitution and is rolling out from 1 July
2017. After the passage of 25years of economic
reforms in the indirect taxes is going for a
revolutionary change in the form of GST.GST is
defined as the giant indirect tax structure designed to
support and enhance the economic growth of a
country. More than 150 countries have implemented
GST so far. However, the idea of GST in India was
mooted by Vajpayee government in 2000 and the
constitutional amendment for the same was
passed by the Loksabha on 6th May 2015
but is yet to be ratified by theRajyasabha.
However, there is a huge hue and cry
against its implementation. It would
bei n t e r e s t i n g t o u n d e r s t a n d w h y t h i s p r
oposed GST regime may hamper the gr
o w t h a n d development of the country.
▪ To concentrate and conform One Country – One
Tax.
▪ To ensure consumption-based tax instead of
Manufacturing.
▪ To ensure Uniform GST Registration, payment and
Input tax Credit.
▪ To eliminate the cascading effect of Indirect taxes
on single transaction.
▪ To ensure the subsume all indirect taxes at Central
and State Level under.
▪ To reduce tax evasion and corruption.
▪ To increase productivity.
▪ To increase Tax to GDP Ratio and Revenue surplus.
▪To increase Compliance.
▪ To reduce economic distortions.
▪ Boost to exports:
If Indian market will be competitive in pricing, then
more
And more foreign players will try to enter the
market, which results in more
Numbers of exporters and benefits to Indian
Market. As far there is no tax
Rate is finalized, but yes GST is much needed in the
countries where, it lacks
Transparency and complex taxation system. GST will
take away cascading
Effect of various taxes that are charged on sale/
production/ purchase and
So. Products reaches to customers at very high rate
as compared to
manufacturing, so with GST there will be only one
tax and it will reduce
Burden to pay on manufacturers.
The Goods and Services Tax has revolutionized
the Indian taxation system. The GST Act
was passed in the Lok Sabha on 29th March,2017.
and came into effect from 1st July, 2017.Goods &
Services Tax Law in India is a comprehensive, multi-
stage, destination-based tax that will be levied on
every value addition. In simple words, GSTis an
indirect tax levied on the supply of goods and
services. GST Law has replaced many indirect tax
laws that previously existed in India.
Is an indirect tax (or consumption tax) used in India
on the supply of goods and services. It is a
comprehensive, multistage, Destination-based tax:
comprehensive because it has subsumed almost all
the Indirect taxes accept 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.
So, before Goods and Service Tax, the pattern of tax
levy was as follows:

Under the GST regime, tax will be levied at

every point of
sale. Now let us try to understand “GST is a
comprehensive, multi-stage, destination-based tax
that will be levied on every value addition.”

MULTI-STAGE
There are multiple change-of-hands an
item goes through along its supply chain:
f r o m manufacture to final sale to consumer
Let us consider the following case:

• Purchase of raw materials

• Production or manufacture

• Warehousing of finished goods

• Sale of the product to the retailer

• Sale to the end consumer

Goods and Services Tax will be levied on each
of these stages, which makes it a multi-stage
tax. Value Addition The manufacturer who
makes shirts buys yarn. The value of yarn gets
increased when the yarn is woven into a shirt.
 The manufacturer then sells the shirt to the
warehousing agent who attaches labels and
tags to each shirt. That is another addition of
value after which the warehouse sells it to the
retailer.The retailer packages each shirt.
Separately and invests in the marketing
of the shirt thusincreasing its value.
 GST will be levied on these value
additions i.e. the monetary worth added
at each stage to achieve the final sale to the
end customer.
DESTINATION-BASED

Consider goods manufactured in Rajasthan

and are sold to the final consumer in
Karnataka. Since Goods & Service Tax (GST)
is levied at the point of consumption, in this
case Karnataka, the entire tax revenue will go to
Karnataka.
The reform process of India's indirect tax
regime was started in 1986 by Vishwanath
Pratap Singh , Finance Minister in Rajiv’s
government, with the introduction of the
ModifiedValue Added Tax (MODVAT). Subse
quently,Manmohan Singh,the then Finance M
inister under P V Narasimha Rao, initiated early
discussions on a Value Added Tax at the state level.
A single common "Goods and Services Tax
(GST)" was proposed and given a go-ahead in
1999
d u r i n g a m e e t i n g b e t w e e n t h e t h e n Prim
e Minister Atal Bihari Vajpayee
and his economic a d v i s o r y p a n e l , w h i c h i
ncluded three former RBI governors
I G P a t e l , Bimal , Jalan and Rangarajan.

Vajpayee set up a committee head

e d b y t h e t h e n financ e minister of West
Bengal,Asim Dasgupta to design a GST model. The
Ravi Dasgupta committee was also tasked with
putting in place the back-end technology and
logistics (later came to be known as the
GST Network, or GSTN, in 2017) for
rolling out a uniform taxation regime in the
country. In 2002, the Vajpayee government
formed a task force under Vijay Kelkarto
recommend tax reforms. In 2005, the Kelkar
committee recommended rolling out GST as
suggested by the12th Finance
Commission.A f t e r t h e f a l l o f t h e BJP-led
NDA g o v e r n m e n t i n 2 0 0 4 , a n d t h e e l e c t i
o n o f a C o n g r e s s - ledUPA government, the
new Finance Minister P Chidambaram in
February 2006 continued w o r k o n t h e s a m e
and proposed a GST rollout by 1 April
2 0 1 0 . H o w e v e r i n 2 0 1 0 , w i t h the
Trinomial Congress routing CPI(M) out of power
in West Bengal, Asim Dasgupta resigned as the
head of the GST committee. Dasgupta admitted
in an interview that 80% of the task had been
done.I n 2 0 1 4 ; t h e NDAgovernment was re-
elected into power, this time under the lea
dership of Narendra Modi. With the
consequential dissolution of the 15thLok
Sabha , the GST Bill
– approved by the standing committee for
reintroduction – lapsed. Seven months afte
r the formation of the Modi government, the
new Finance Minister Arun Jaitley introduced the
GST Bill in the Lok Sabha , where the BJP
had a majority. In February 2015, Jaitley
set another deadline of 1 April 2017 to implement
GST. In May 2016, the Lok Sabha passed the
Constitution Amendment Bill, paving way for GST.
However, the Opposition, led by the Congress,
demanded t h a t t h e G S T B i l l b e a g a i n s e n t
back to the Select Committee of
t h e Rajya Sabha d u e t o disagreements on
several statements in the Bill relating to taxation.
Finally in August 2016, The Amendment Bill was
passed. Over the next 15 to 20 days, 18 states
ratified the GST Bill and the President Pranab
Mukherjee gave his assent to it. A 22-members
select committee was formed to look into the
proposed GST laws. State and Union Territory
GST laws were passed by all the states and
Union Territories of India except Jammu &
Kashmir, paving the way for smooth rollout of the
tax from 1 July 2017. There was
to be no GST on the sale and purchase of securities.
That continues to be governed by Securities
Transaction (STT)
Advantages for the government:
 ▪ Will help to create a unified common national
market for India, giving a boost To foreign
investment and “Make in India” campaign;
▪ will mitigate cascading of taxes as Input Tax
Credit will be available across Goods and services at
every stage of supply;
▪ Harmonization of laws, procedures and rates of tax
between Centre and States and across States;
▪ Improved environment for compliance as all
returns are to be filed online, Input credits to be
verified online, encouraging more paper trail of
Transactions at each level of supply chain;
▪ Similar uniform SGST and IGST rates will reduce
the incentive for evasion by eliminating rate
arbitrage between neighbouring States and that
between intra and inter-state sales;
▪ Common procedures for registration of taxpayers,
refund of taxes, uniform formats of tax return,
common tax base, common system of classification
of goods and services will lend greater certainty to
taxation system;
Advantages to Trade and Industry:

▪ Increased ease of doing business;

▪ Reduction in multiplicity of taxes that are at
present governing our indirect tax system leading to
simplification and uniformity;
▪ Elimination of double taxation on certain sectors
like works contract, software, hospitality sector;
▪ will mitigate cascading of taxes as Input Tax Credit
will be available across goods and services at every
stage of supply;
▪ Reduction in compliance costs - No multiple
record keeping for a variety of taxes - so lesser
investment of resources and manpower in
maintaining records;
▪ More efficient neutralization of taxes especially for
exports thereby making our products more
competitive in the international market and give
boost to Indian Exports;
Advantages to States:

▪ Expansion of the tax base as they will be able to

tax the entire supply chain from manufacturing to
retail;
▪ Power to tax services, which was hitherto with the
Central Government only, will boost revenue and
give States access to the fastest growing sector of the
economy;
▪ GST being destination based consumption tax will
favor consuming States;
▪ Improve the overall investment climate in the
country which will naturally benefit the development
in the States;
▪ Largely uniform SGST and IGST rates will reduce
the incentive for evasion by eliminating rate
arbitrage between neighbouring States and that
between intra and inter-state sales;
Despite the success of VAT, there are still certain
shortcomings in the structure of VAT, both at
the Centre and at the State level.

Justification at the Center Level

▪ At present excise duty paid on the raw material

consumed is being allowed as input credit only. For
other taxes and duties paid for post
manufacturing expenses, there is no mechanism for i
nput credit under the Central Excise Duty Act.

▪ Credit for service tax paid is being allowed

manufacturer/ service provider to a limited
extent. In order to give the credit of service tax paid
in respect of services consumed, it is necessary that
there should be a comprehensive system
under which both the goods and services are
covered.

▪ At present, the service tax is levied on restricted

items only. Many other large numbers of services
could not be taxed. It is to reduce the effect of
cascading of taxes, which means levying tax on
taxes.
Justification at the State Level
▪ A major defect under the State VAT is that the
State is charging VAT on the excise
duty paid to the Central Government, which goes ag
ainst the principle of not levying tax ontaxes.

▪ In the present State level VAT scheme, Cenvat

allowed on the goods remains included in the value
of goods to be taxed which is a cascading effect on
account of Cenvat element.

▪ Many of the States are still continuing with various

types of indirect taxes, such as luxury tax,
entertainment tax, etc.

▪As tax is being levied on inter-state transfer of

goods; there is no provision for taking input
credit on CST leading to additional burden on the
dealers.
GST Council has met thirteen times since its
constitution and some important decisions taken in
the GST Council meeting are:-

▪ Rules for conduct of business in GST Council;

▪ Timetable for implementation of GST;
▪ The threshold limit for exemption from levy of
GST would be Rs. 20 lakhs for the States except for
the Special Category States, as enumerated in Article
279A of the Constitution, for which it will be Rs 10
Lakhs);

▪ the threshold for availing the Composition scheme

would be Rs. 50 lakhs. Service providers and some
others would be kept out of the Composition
Scheme;

▪ To compensate States for 5 years for loss of

revenue due to implementation ofGST, the base year
for the revenue of the State would be 2015-16 and a
fixed growth rate of 14% will be applied to it;

▪ Approval of the Draft GST Rules on registration,

payment, return, refund and invoice, debit/credit
Notes with the understanding that minor changes
may be permitted with the approval of the
Chairperson, if required, based on suitable
suggestions from the stakeholders or from the Law
Department;
All entities exempted from payment of indirect tax
under any existing tax incentive scheme would pay
tax in the GST regime and the decision to continue
with any incentive scheme shall be with the
concerned State or Central government. In case, the
State or Central Government decides to continue
with any existing exemption/incentive scheme; it
will be administered by way of a reimbursement
mechanism.
Adoption of four slabs tax rate structure of 5%, 12%,
18% and 28%. In addition, there would be a
category of exempt goods and further access would
be levied on certain goods such as luxury cars,
aerated drinks, pan masala and tobacco products,
over and above the rate of 28% for payment of
compensation to the states.
GST rates on 1211 items were approved at the 14th
GST Council meeting held at
Srinagar on 18th and 19th of May 2017.
At the 15th GST Council meeting held at New Delhi
on 3rd June 2017, tax rates
On the remaining goods were approved
22 states and 2 Union Territories with Legislatures
(Delhi and Pondicherry) have
Already passed their respective State GST Bill in
their State Assemblies.
Issue of cross empowerment and administrative
division of taxpayers between
The States and Centre has been resolved.
The implementation of GST has the following
challenges: Challenging time frame of rolling out
GST by 1st July, 2017;
Infrastructure and Technology up-gradation of tax
system particularly of the States; Up-gradation of IT
systems of trade & industry;
Taxes which are not to be subsumed
GST may not subsume the following taxes within its
ambit:
1. Basic Custom Duty: These are protective duties
levied at the time of Import of goods into India.
2. Export Duty: This duty is imposed at the time of
export of certain goods which are not available in
India in abundance.
3. Road and Passenger Tax: These are in the
nature of fees and not in the nature of taxes on goods
and services.
4. Toll tax: these are in the nature of user fees and
not in the nature of taxes on goods and services.
Various Tax Rates imposed by GST
In any tax system registration is the most
fundamental requirement for
Identification of tax payers ensuring tax compliance
in the economy. Registration
Of any business entity under the GST Law implies
obtaining a unique number from
The concerned tax authorities for the purpose of
collecting tax on behalf of the
Government and to avail Input tax credit for the
taxes on his inward supplies.
Without registration, a person can neither collect tax
from his customers nor claim
Any input tax credit of tax paid by him.
Need and advantages of registration
Registration will confer the following advantages to
a taxpayer:
▪ He is legally recognized as supplier of goods or
services.
▪ He is legally authorized to collect tax from his
customers and pass on the credit of the taxes paid on
the goods or services supplied to the
purchasers/recipients.
▪ He can claim input tax credit of taxes paid and can
utilize the same for payment of taxes due on supply
of goods or services.
▪Seamless flow of Input Tax Credit from suppliers to
recipients at the national level.

Liability to register
GST being a tax on the event of “supply”, every
supplier needs to get registered. However, small
businesses having all India aggregate turn over
below Rupees20 lakh (10lakh if business is in
Assam, Arunachal Pradesh, Himachal Pradesh,
Uttarakhand, Manipur, Mizoram, Sikkim,
Meghalaya, Nagaland or Tripura) need not register.
The small businesses, having turnover below the
threshold limit can, however, voluntarily opt to
register. The aggregate turnover includes supplies
made by him on behalf of his principals, but
excludes the value of job-worked goods if he is a job
worker. But person’s who are engaged exclusively in
the business of supplying goods or services or both
that are not liable to tax or wholly exempt from tax
or an agriculturist, to the extent of supply of produce
out of cultivation of land are not liable to register
under GST.Also,if all the supplies being made by a
supplier are taxable under reverse charge, there is no
requirement for such a supplier to register in light of
Notification No.5/2017-Central Tax dated
19.06.2017.

Nature of Registration

The registration in GST is PAN based and State

specific. Supplier has to register in each of such
State or Union territory from where heeffects supply.
In GST registration, the supplier is allotted a 15-digit
GST identification number called “GSTIN” and a
certificate of registration
incorporating therein this GSTIN is made available
to the applicant on the GSTN common portal. The
first 2 digits of the GSTIN is the State code, next 10
digits are the PAN of the legal entity, the next two
digits are for entity code, and the last digits check
sum number. Registration under GST is not tax
specific which means that there is single registration
for all the taxes i.e. CGST, SGST/UTGST, IGST
andcesses.A given PAN based legal entity would
have one GSTIN per State, that means a business
entity having its branches in multiple States will
have to take separate State wise registration for the
branches in different States. But within a State
anentity with different branches would have single
registration wherein it can declare one place as
principal place of business and other branches as
additional place of business. However, a business
entity having separate business verticals (as defined
in section 2 (18) of the CGST Act, 2017) in a state
may obtain separate registration for each of its
business verticals. Further a unit in SEZ or a SEZ
Developer needs to necessarily obtain separate
registration.
▪ Generally, the liability to register under GST arises
when you are a supplier within the meaning of the
term, and also if your aggregate turn over in the
financial year is above the exemption threshold of20
lakh rupees (10 lakh rupees in special category states
except J & K). However, the GST law enlists certain
categories of suppliers who are required to get
compulsory registration irrespective of their turnover
that is to say, the threshold exemption of20 lakh
rupees or 10 lakh rupees as the case may be is not
available to them. Some of such suppliers who need
to register compulsorily irrespective of the size of
their turnover are those who are,-
▪ Inter-state suppliers; However, persons making
inter-state supplies of taxable services and having an
aggregate turnover, to be computed on all India
basis, not exceeding an amount of twenty lakh
rupees(ten lakh rupees for special category States
except J & K) are exempted from obtaining
Registration vides Notification No. 10/2017-
Integrated Tax dated13.10.2017.
▪A person receiving supplies on which tax is payable
by recipient on reverse charge basis
▪ Casual taxable person who is not having fixed
place of business in the State or Union Territory
from where he wants to make supply. However
casual taxable persons making supplies of specified
handicraft goods need not take compulsory
registration and are entitled to the threshold
exemption of Rs. 20 Lakh. Handicraft goods are
specified in Notification no. 33/2017-Central Tax
dated 15.09.2017 as amended by Notification
no.38/2017-Central Tax dated 13.10.2017.
▪ Non-resident taxable persons who is not having
fixed place of business in India
▪ A person who supplies on behalf of some other
taxable person (i.e. an Agent of some Principal)
▪E-commerce operators, who provide platform to the
suppliers to make supply through it
▪ Suppliers of goods who supply through such e-
commerce operator who are liable to collect tax at
source. Persons supplying services through e
commerce operators need not take compulsory
registration and are entitled to avail the threshold
exemption of Rs. 20 Lakh as per Notification No.
65/2017-Central tax dated 15.11.2017.
▪ Those ecommerce operators who are notified as
liable for GST payment under Section 9(5) of the
CGST Act, 2017
▪ TDS Deductor
▪ Input service distributor
▪ Those supplying online information and data base
access or retrieval services from outside India to
anon-registered person in India. A casual taxable
person is one who has a registered business in some
State in India, but wants to effect supplies from
some other State in which he is not having any fixed
place of business. Such person needs to register in
the State from where he seeks to supply as a casual
taxable person. A non-resident taxable person is one
who is a foreigner and occasionally wants to effect
taxable supplies from any State in India, and for that
he needs GST registration. GST law prescribes
special procedure for registration, as also for
extension of the operation period of such casual or
non- resident taxable persons. They have to apply
for registration at least five days in advance before
making any supply. Also, registration is granted to
them or period of operation is extended only after
they make advance deposit of the estimated tax
liability .In respect of supplies to some notified
agencies of United Nations organization,
multinational financial institutions and other
organizations, a centralized unique identification
number (UIN) is issued.

Documents Required for GST Registration

▪ PAN of the Applicant.

▪ Aadhaar Card.
▪ Proof of business registration or Incorporation
certificate.
▪ Identify and Address proof of Promoter.
▪ Address proof of the place of business.
▪ Bank Account statement/ Cancelled cheque
▪ Digital Signature.
▪ Letter of Authorization/ Board Resolution of
Authorized signatory
Composition Scheme is a simple and easy scheme
under GST for taxpayers. Small taxpayers can get
rid of tedious GST formalities and pay GST at a
fixed rate of turnover. This scheme can be opted by
any taxpayer whose turnover is less than Rs. 1.0
crore. CBIC has notified the increase to the
threshold limit from Rs 1.0 Crore to Rs.
1.5Crores.Who can opt for Composition Scheme
taxpayer whose turnover is below Rs 1.0 crore* can
opt for Composition Scheme. In case of North-
Eastern states and Himachal Pradesh, the limit is
now Rs 75* lakh .As per the CGST (Amendment)
Act, 2018, a composition dealer can also supply
services to an extent of ten percent of turnover, or
Rs.5 lakhs, whichever is higher. This amendment
will be applicable from the 1st of Feb, 2019. Further,
GST Council in its 32nd meeting proposed an
increase to this limit for service providers on 10th
Jan 2019*.Turnover of all businesses registered with
the same PAN should be taken into consideration to
calculate turnover.
Who cannot opt for Composition Scheme
The following people cannot opt for the scheme-
▪ Manufacturer of ice cream, pan masala, or tobacco
▪ A person making inter-state supplies
▪ A casual taxable person or a non-resident taxable
person
▪ Businesses which supply goods through an e-
commerce operator what are the conditions for
availing Composition Scheme? The following
conditions must be satisfied in order to opt for
composition scheme:

▪ No Input Tax Credit can be claimed by a dealer

opting for composition scheme
▪ The dealer cannot supply GST exempted goods
▪ The taxpayer has to pay tax at normal rates for
transactions under the Reverse Charge Mechanism
▪ If a taxable person has different segments of
businesses (such as textile, electronic accessories,
groceries, etc.) under the same PAN,
They must register all such businesses under the
scheme collectively or opt out of the scheme.
▪ The taxpayer has to mention the words
‘composition taxable person’ on every notice or
signboard displayed prominently at their place of
business.
▪ the taxpayer has to mention the words
‘composition taxable person ‘on every bill of supply
issued by him. As per the CGST (Amendment) Act,
2018, a manufacturer or trader can now also supply
services to an extent of ten percent of turnover, or
Rs.5 lakhs, whichever is higher. This amendment
will be applicable from the 1st of Feb,
2019.
How can a taxpayer opt for composition scheme?
To opt for composition, scheme a taxpayer has to
file GST CMP-02 with the government .This can be
done online by logging into the GST Portal. This
intimation should be given at the beginning of every
Financial Year by a dealer wanting to opt for
Composition Scheme.
How Should a Composition Dealer raise bill?
A composition dealer cannot issue a tax invoice.
This is because a composition dealer cannot charge
tax from their customers. They need to pay tax out
of their own pocket. Hence, the dealer has to issue a
Bill of Supply. The dealer should also mention
“composition taxable person, not eligible to collect
tax on supplies” at the top of the Bill of Supply.
How should GST payment be made by a
composition dealer?
GST Payment has to be made out of pocket for the
supplies made.
The GST payment to be made by a composition
dealer comprises of the following:
▪ GST on supplies made.
▪ Tax on reverse charge
▪ Tax on purchase from an unregistered dealer Only
on the specified categories of goods and services and
well as the notified class of registered persons with
effect from 1st Feb 2019 but is yet to be notified.
Hence, not applicable until then.
What are the returns to be filed by a composition
dealer? A dealer is required to file a quarterly return
GSTR-4 by 18th of the month after the end of the
quarter. Also, an annual return GSTR-9A has to be
filed by 31st December of next financial year.
1. Central Goods and Services Tax (CGST):
Under GST, CGST is a tax levied on Intra State
supplies of both goods and services by the Central
Government and will be governed by the CGST
Act.SGST will also be levied on the same Intra State
supply but will be governed by the State
Government. This implies that both the Central and
the State governments will agree on combining their
levies with an appropriate proportion for revenue
sharing between them. However, it is clearly
mentioned in Section 8 of the GST Act that the taxes
be levied on all Intra-State supplies of goods and/or
services but the rate of tax shall not be exceeding
14%, each.

2. State Goods and Services Tax (SGST):

Under GST, SGST is a tax levied on Intra State

supplies of both goods and services by the State
Government and will be governed by the SGST Act.
As explained above, CGST will also be levied on the
same Intra State supply but will be governed by the
Central Government. An example for CGST and
SGST: Let’s suppose Ram is a dealer in Karnataka
who sold goods to Sham in Karnataka worth Rs.
10,000. The GST rate is 18% comprising of CGST
rate of 9% and SGST rate of 9%. In such case, the
dealer collects Rs. 1800 of which Rs. 900 will go to
the Central Government and Rs. 900 will go to the
Karnataka Government.
3. Integrated Goods and Services Tax
(IGST):
Under GST, IGST is a tax levied on all Inter-State
supplies of goods and/or services and will be
governed by the IGST Act. IGST will be applicable
on any supply of goods and/or services in both cases
of import into India and export from India.
An example for IGST:
Consider that a businessman Ramesh from
Karnataka had sold goods to Anil from Kerala worth
Rs. 1, 00,000. The GST rate is 18% comprised of
18% IGST. In such case, the dealer has to charge Rs.
18,000 as IGST. This IGST will go to the Central.
TRANSACTIO OLD NEW
N REGIME REGIME
REVENUE
SALE WITHIN THE CGST+SGST VAT+CENTRA WILL BE
STATE L SHARED
EXCISE TAX
EQUALLY
BETWEEN
CENTRAL
AND STATE

There will
SALE TO CENTRAL only be one
ANOTHER STATE IGST SALES TAX type of tax
+EXCISE TAX (central) in
case of inter-
state sales. The
Center will
then share the
IGST
revenue based
on the
destination
of goods
Illustration:
A dealer in Maharashtra sells goods
to a consumer in Maharashtra worth Rs.
10,000. The GST state is 18%: comprising CGST
of 9% and SGST of 9%.In such cases, the dealer
collects Rs. 1800 and of this amount, Rs. 900
will go to the Central Government and Rs. 900
will go to the Maharashtra government. Now, let us
assume the dealer in Maharashtra had sold the goods
to a dealer in Gujarat worth Rs.10, 000.The GST rate
is 18% comprising of only IGST. In such case, the
dealer has to charge Rs. 1800 as IGST. This IGST
revenue will go to the Central Government.

WHAT CHANGES DOES GST BRING IN?

Before GST, tax on tax was calculated and tax
was paid by every purchaser including the
final consumer. The taxation on tax is called
the Cascading Effect of Taxes.GST avoids this
cascading effect as tax is calculated only on
the value add. At each transfer of ownership.
Understand what the cascading effect is and how
GST helps by watching this simple video: GST will
improve the collection of taxes as well as boost the
development of Indian economy by removing the
indirect tax barriers between states and integrating
the country through a uniform tax rate.
Illustration:
Say a shirt manufacturer pays Rs. 100 to buy raw
materials. If the rate of taxes is set at 10%, and there
is no profit or loss involved, then he has to pay Rs.
10 as tax. So, the final cost of the shirt now becomes
Rs (100+10=) 110.

At the next stage, the wholesaler buys the shirt from

the manufacturer at Rs. 110, and adds labels to it.
When he is adding labels, he is adding value.
Therefore, his cost increases by say Rs. 40.On
top of this, he has to pay a 10% tax, and the final
cost therefore becomes Rs. (110+40=) 150+ 10% tax
= Rs. 165. Now, the retailer pays Rs. 165 to buy the
shirt from the wholesaler because the tax liability
had passed on to him. He has to package the shirt,
and when he does that, he is adding value again.
This time, let’s say his value add is Rs. 30. Now
when he sells the shirt, he adds this value (plus the
VAT he has to pay the government) to the
final cost. So, the cost of the shirt becomes
Rs.214.5 Let us see a breakup for this: C o s t =
Rs. 165 + Value add = Rs. 30 +
10% tax = Rs. 195 + Rs. 19.5 =
R s . 2 1 4 . 5 So, the customer pays Rs. 214.5 for
a shirt the cost price of which was basically only Rs.
170 (Rs1 1 0 + R s . 4 0 + R s . 3 0 ) . A l o n g
the way the tax liability was passed
o n a t e v e r y s t a g e o f transaction and the
final liability comes to rest with the customer.
This is called the Cascading Effect of Taxes
where a tax is paid on tax and the value of the item
keeps increasing every time this happens In the
case of Goods and Services Tax, there is a
way to claim credit for tax paid in acquiring
input. What happens in this case is, the individual
who has paid a tax already can claim credit for this
tax when he submits his taxes .In our example, when
the wholesaler buys from the manufacturer, he pays
a 10% tax on his cost price because the liability
has been passed on to him.
Then he adds 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, this time what he does is,
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 R s . 1 4 , a n d p a y s o n l y R s . 4 t o t h e
government. So, the Rs. 10 becomes
h i s i n p u t c r e d i t . When he pays Rs. 4 to the
government, he can pass on its liability to the
retailer. So, the retailer pays Rs. (140+14=) 154 to
him to buy the shirt. At the next stage, the retailer
adds value of Rs.30 to his cost price and has to
pay a 10% tax on it to the government. When
he adds value, his price becomes Rs. 170. Now, if
he had to pay 10% tax on it, he would pass on the
liability to the customer. But he already has
input credit because he has paid Rs.14 to the
wholesaler as the latter’s tax. So, now he reduces
Rs. 14 from his tax liability of Rs. (10% of 170=) 17
and has to pay only Rs. 3 to the government.
And therefore, he can now sell the shirt for
Rs. (140+30+17)187 to the customer.
Input credit means at the time of paying tax on
output, you can reduce the tax you have already paid
on inputs and pay the balance amount.
Here’s how-
When you buy a product/service from a registered
dealer you pay taxes on the purchase .On selling,
you collect the tax. You adjust the taxes paid at the
time of purchase with the amount of output tax (tax
on sales) and balance liability of tax (tax on sales
minus tax on purchase) has to be paid to the
government. This mechanism is called utilization of
input tax credit.
For example- you are a manufacturer: a. Tax payable
on output (FINAL PRODUCT) is Rs 450 b. Tax
paid on input (PURCHASES) is Rs 300 c. You can
claim INPUT CREDIT of Rs 300 and you only need
to deposit Rs 150 in taxes.
Who can claim ITC?
ITC can be claimed by a person registered under
GST only if he fulfills ALL The conditions as
prescribed.
a. The dealer should be in possession of tax invoice
b. The said goods/services have been received
c. Returns have been filed.
d. The tax charged has been paid to the government
by the supplier.
e. When goods are received in installments ITC can
be claimed only when the last lot is received.
f. No ITC will be allowed if depreciation has been
claimed on tax component of a capital good

What can be claimed as ITC?

ITC can be claimed only for business purposes. ITC
will not be available for goods or services
exclusively used for: a. Personal use b. Exempt
supplies. Supplies for which ITC is specifically not
available.

How to claim ITC?

All regular taxpayers must report the amount of
input tax credit (ITC) in their monthly GST returns
of Form GSTR-3B. The table 4 requires the
summary figure of eligible ITC, Ineligible ITC and
ITC reversed during the tax period. The format of
the Table 4 is given below:
Reversal of Input Tax Credit
ITC can be availed only on goods and services for
business purposes. If they are used for non-business
(personal) purposes, or for making exempt supplies
ITC cannot be claimed .Apart from these, there are
certain other situations where ITC will be reversed.

ITC will be reversed in the following cases-

1) Non-payment of invoices in 180 days– ITC will
be reversed for invoices which were not paid within
180 days of issue.
2) Credit note issued to ISD by seller– This is for
ISD. If a credit note was issued by the seller to the
HO then the ITC subsequently reduced will be
reversed.
3) Inputs partly for business purpose and partly
for exempted supplies or for personal use – This
is for businesses which use inputs for both business
and non- business (personal) purpose. ITC used in
the portion of input goods/services used for the
personal purpose must be reversed proportionately.
4) Capital goods partly for business and partly
for exempted supplies or for personal use – This
is similar to above except that it concerns capital
goods.
5) ITC reversed is less than required- This is
calculated after the annual return is furnished. If
total ITC on inputs of exempted/non-business
purpose is more
than the ITC actually reversed during the year then
the difference amount will be Added to output
liability. Interest will be applicable.
6) The details of reversal of ITC will be furnished
in GSTR-3B. To find out more about the
segregation of ITC into business and personal use
and subsequent calculations, please visit our article.
Special cases of ITC
▪ ITC for Capital Goods.
▪ ITC on Job work.
▪ ITC provided by Input service distributor.
▪ ITC on Transfer of Business.

Stages of GST
There are multiple change-of-hands an item goes
through along its supply Chain: from manufacture to
final sale to the consumer.
Let us consider the following case:
1. Purchase of raw materials.
2. Production or manufacture.
3. Warehousing of finished goods.
4. Sale to wholesaler.
5. Sale of the product to the retailer.
6. Sale to the end consumer.
Goods and Service Tax is levied on each of these
stages which makes it is multi stage tax.