GOODS AND SERVICES TAX (GST)

LEARNING OBJECTIVE

•Meaning and characteristics of Goods and Services Tax (GST)

•Objectives of goods and services Tax (GST)
•Classification of goods and services Tax (GST)
Central GST (GST)
State GST (SGST) or Union Territory GST (UTGST)

Integrated GST (IGST)

•Reverse Charge Mechanism
•Categorizing GST for Accounting Purpose
•What is intra-state supply (sale)
•What is inter-State supply (sale)
•Levy (charging) of Good and Service tax (GST)
•Accounting of goods and services tax (GST)
 M E A N I N G O F G O O D S A N D S E R V I C E S TA X ( G S T )

Goods and Services Tax (GST) is a comprehensive indirect tax levied at

the prescribed rate on every supply i.e., sale of goods and or services
except on petroleum and alcohol for human consumption, Import of goods
and /or services and taxes levied by the local authorities. Supply of goods
means sale of goods whereas supply of services means rendering of
services.
 CHARACTERISTICS OF GOODS AND SERVICES TAX (GST)
 

GST IS A COMPREHENSIVE INDIRECT TAX: GST is a comprehensive indirect tax which replaced all indirect
taxes that were earlier levied except Custom Duty, taxes on alcohol for human consumption, taxes on petroleum and
taxes levied by Local Bodies.
It can be collected/Charged by a Registered Taxpayer:- GST can be collected only if the supplier (seller) of goods
and/or services or both is registered under GST.
GST IS a value Added Tax: GST is a value Added Tax because GST paid (termed as Input GST) is set off against
GST Collected (termed as Output GST) .As a result, GST is levied on the incremental value of goods and \or services
supply (sold). For example, goods purchased for ₹ 10,000 paying IGST@18%,i.e, ₹ 1,800 are sold for C 15,000
charging IGST @18% i.e., ₹ 2,700.Rs 1,800 paid at the time of purchase is set off against ₹ 2,700 charged at the time
of sale and balance ₹ 900 is payable in the Government Account .In effect, GST is levied on differential amount of
sale and purchase.
It is a Destination based tax: GST is charged every time a supply (sale) is made till the time goods and/or services
reach the consumer, i.e., will not be sold further. Thus, it is a Destination Based Tax.
GST paid is not Cost: GST Paid (Input GST) on purchases of goods and \or services is not a cost for the purchaser
(except in some cases discussed later) but is an asset since it can be set off against GST Collected on sale of goods and
\or services. Similarly, GST Collected (Output GST on sale of goods and\or services is not income of the seller but is a
liability and is payable in the government account after adjusting input GST in the prescribed order.
Uniform GST Rate ON Goods and Services Across all States: Every state and Union Territories has their own
goods and Services TAX Acts. However, GST is levied on goods and \ or services supplied (sold) Under each
Classification at the same rate.
 CHARACTERISTICS OF GOODS AND SERVICES TAX (GST)
 

a) GST is a comprehensive indirect tax:

b) It can be collected/charged by a registered taxpayer:-
c) GST is a value added tax:
d) It is a destination based tax:
e) GST paid is not cost:
f) Uniform GST rate on goods and services across all states:
 OBJECTIVES OF GOODS AND SERVICES TAX
• Developing Common National Market: GST is levied at same rate on similar goods and
services in all the states and Union Territories .For example ,Mobile Phones sold across India
are levied GST(say)@18%.IT sets a ground for developing common national market.
• Ease OF Doing Business: in the pre-GST period, there were many indirect taxes administered
by different authorities. As a result, a business had to register itself separately under each such
Act and also had to comply with each such indirect tax. For example, Excise Duty , Sales Tax
Service etc .were separately administered . The introduction of GST has eased the going of
business as it will be registered and administered only under one indirect tax, I.e. GST. Hence,
ease of doing business.
• NO Cascading Effect of GST: GST paid (input GST) on purchases of goods and \or services is set
off against GST Collected on sale of goods and \or services. As a result, GST is levied on the
difference between sale value and purchases value. In effect, GST does not have cascading
effect.
• TO simplify Indirect Tax Regime by having one Tax and Fewer Rates of Taxes: GST has
replaced many indirect taxes (Excise Duty, Sales Taxes Services Tax etc.) The earlier indirect tax
regime had been complex both for the Government and business. Since, GST has replaced
almost all indirect taxes; it simplifies the application and administration of indirect taxes.
• Better Taxes Management: GST, being administered through computer system
besides it being a single indirect tax, has resulted in better tax management as tax
evasion is controlled besides timely collection of tax. For example, credit for input
GST is granted if the tax payer collecting GST is granted if the tax payer collecting GST
has paid the tax in government Account.
• Goods becoming cheaper : Since GST paid (input GST) is set off against GST Collected
(output GST) GST does not have cascading effect as against earlier years when there
was no set off indirect taxes (e.g. Excise Duty ) paid against indirect taxes
collected .As a result , goods and services shall become cheaper.
• Attracting Foreign Investors: Investment from outside India was not high because of
multiple indirect taxes. Introduction of GST and removal of multiple indirect taxes
shall increase Foreign Direct Investment (FDI) in India.
• Uplifting GDP: The structure of GST is such that it is levied at every stage of sale of
goods and/or services .It means business will be largely through recorded
transactions resulting in increase in tax collection by the Government due to
recorded sales resulting in uplifting GDP.
• Every State and Union Territory has its own central GST Act and State GST Act
For example, Delhi will have its own central GST (CGST) Act and Delhi GST (DGST)
ACT .Similarly, Tamil will have central GST (CGST) Act .Central Government has
Integrated GST Act (IGST) But for the purpose of better and clear understanding, GST
discussed as CGST, SGST and ISGT instead of discussing GST for each separately.
 OBJECTIVES OF GOODS AND SERVICES TAX

a. Developing Common National Market

b. Ease OF Doing Business
c. NO Cascading Effect of GST
d. TO simplify Indirect Tax Regime by having one Tax and Fewer Rates of Taxes:
e. Better Taxes Management
f. Goods becoming cheaper
g. Attracting Foreign Investors
h. Uplifting GDP
i. Every State and Union Territory has its own central GST Act and State GST Act
 Registration under GST

 
Registration under GST is compulsory

If business is in Non-Hill area

a) Gross Turnover from supply(sales) of goods within the state, i.e., intra-state in a year is ₹40 lakh or more.
b) Gross Turnover from supply (Sales) of services within the state, i.e., intra-state in a year is ₹ 20 lakh or more.

If business is in Hill area

1. Gross Turnover from supply (sales) of goods within the state, i.e., intra-state in a year is ₹20 lakh or more.
2. Gross Turnover from supply (Sales) of services within the state, i.e., intra-state in a year is ₹ 10 lakh or more.
3. The business has inter- state turnover. It should be noted that no limit is prescribed for inter-state turnover, thus,
registration is compulsory of there is inter-state turnover of even single rupee.

Rate of GST
Goods and/or services are grouped in five categories. GST is applied on the goods and/or
services as specified on that category. The rates prescribed are 0%, 5%, 12%, 18% and 28%.
 CLASSIFICATION OF GOODS AND SERVICES TAX
GST is levied under following three categories

a. Central GST (CGST):- CGST is levied on intra-state supply (i.e., supply within the state)
of goods and/or services or both along with CGST. In case of intra-state supply (sale) both
CGST and SGST (or UTGST) is levied at half of the prescribed rate of tax. For example, if
rate of GST is 18%, 9% will be levied as CGST and 9% as SGST (or UTGST).
b. State GST (SGST) or Union Territory GST (UTGST):- SGST (or UTGST) is also levied
on intra-state supply (i.e., supply within the state) of goods and/or services or both along
with CGST. In case of intra-state supply (sale) both SGST (and UTGST) and CGST is
levied at half of the prescribed rate of tax. For example, if rate of GST is 18%, 9% will be
levied as CGST and 9% as SGST (or UTGST).
c. Integrated GST (IGST):-IGST is levied on inter-state supply outside the state) of goods
and/or services, import of goods and/or services into India and export of goods and/or
services from India.
 Which GST to be Levied on the supply?

Having discussed that GST are of three types, i.e., Central GST (CGST), State
GST (SGST) and Integrated GST (IGST), we need to know which type of GST
will be levied on supply of goods and/or services. It is discussed below:

a. CGST and SGST is levied on intra-state (within the state) supply of goods and/or
services. Whether a supply (sale) of goods and/or services is intra-state depends
on the place where the supply is made and the place to which supply is made. For
example, if both seller and purchaser of goods and/or services are located within
the same State (say Tamil Nadu), both CGST and SGST will be levied.
b. IGST is levied on inter-state supply (sale) of Goods and/or Services. Whether a
supply (sale) is inter-state also depends on the place from where the supply is
made and the place to which supply is made. For example, if the seller is located
in Delhi and the purchaser is located in Kolkata, IGST will be levied.
 Value on which GST is Levied (charged)
GST is levied (charged) by the seller of goods and/services or both at the prescribed rate on the
Taxable Value, i.e.., value of goods and/or services or both old or rendered after discounts(i.e.,
Trade Discount and Cash Discount). Stated it differently, GST is levied on the Gross Value less
Discount allowed (Trade Discount and Cash Discount), if any

Taxable Value of Goods and/ or services or Both on which GST is Levied

Valuation Rules of GST prescribed that GST is to be levied on Taxable Value of Goods/ or services
Or both supplied (sold). Taxable Value is determined by deducting all discounts both pre- sale
discount (i.e.,. Trade Discount, Quantity Discount, etc.) and post- sale discounts (i.e.Cash Discount,
Rebate , etc.