GOODS AND

SERVICES TAX
The Government of India, following the credo of ‘ONE
NATION AND ONE TAX’ and wanting a unified market in
order to ensure the smooth flow of goods across the country
implemented the Goods and Services Tax (GST) from July
1,2017.
What is GST?
GST is a comprehensive, multi-stage, destination-based
tax that will be levied on every value addition.

is one indirect tax for the entire country.

So, before Goods and Service Tax, the pattern of tax levy was as follows:
Multi-stage
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:
● Purchase of raw materials
● Production or manufacture
● Warehousing of finished goods
● Sale to wholesaler
● Sale of the product to the retailer
● Sale to the end consumer

Goods and Services Tax is levied on

each of these stages which makes it a
multi-stage tax.
 Value Addition

The manufacturer who makes biscuits buys flour, sugar and other material. The value of
the inputs increases when the sugar and flour are mixed and baked into biscuits.

The manufacturer then sells the biscuits to the warehousing agent who packs large
quantities of biscuits and labels it. That is another addition of value after which the
warehouse sells it to the retailer.

The retailer packages the biscuits in smaller quantities and invests in the marketing of the
biscuits thus increasing its value.

GST is levied on these value additions i.e. the monetary value added at each stage to
achieve the final sale to the end customer.
Destination-Based
Consider goods manufactured in Maharashtra and are sold
to the final consumer in Karnataka. Since Goods & Service
Tax is levied at the point of consumption. So, the entire tax
revenue will go to Karnataka and not Maharashtra.
What are the taxes that GST
replaces?
The following is the list of indirect taxes in the pre-GST regime:
● Central Excise Duty
● Duties of Excise
● Additional Duties of Excise
● Additional Duties of Customs
● Special Additional Duty of Customs
● Cess
● State VAT
● Central Sales Tax
● Purchase Tax
● Luxury Tax
● Entertainment Tax
● Entry Tax
● Taxes on advertisements
● Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST has replaced all the above taxes.
What are the components of GST?
There are 3 taxes applicable under this system: CGST, SGST & IGST.
● CGST: Collected by the Central Government on an intra-state sale (Eg:
transaction happening within Maharashtra)
● SGST: Collected by the State Government on an intra-state sale (Eg:
transaction happening within Maharashtra)
● IGST: Collected by the Central Government for inter-state sale (Eg:
Maharashtra to Tamil Nadu)
In most cases, the tax structure under the new regime will be as follows:
Illustration:
● Let us assume that a dealer in Gujarat had sold the goods to a dealer in
Punjab worth Rs. 50,000. The tax rate is 18% comprising of only IGST.
In such case, the dealer has to charge Rs. 9,000 as IGST. This revenue will
go to the Central Government.
● The same dealer sells goods to a consumer in Gujarat worth Rs.
50,000. The GST rate on the good is 12%. This rate comprises of
CGST at 6% and SGST at 6%.
The dealer has to collect Rs. 6,000 as Goods and Service Tax. Rs. 3,000 will
go to the Central Government and Rs. 3,000 will go to the Gujarat
government as the sale is within the state.
Journey of GST in India
The GST journey began in the year 2000 when a
committee was set up to draft law. It took 17 years
from then for the Law to evolve. In 2017 the GST Bill
was passed in the Lok Sabha and Rajya Sabha. On
1st July 2017 the GST Law came into force.
*le gst in 2000
Difference between VAT and GST
 Advantages Of GST
● GST is a transparent tax and also reduce number of indirect taxes.
● GST will not be a cost to registered retailers therefore there will be no hidden
taxes and and the cost of doing business will be lower.
● Benefit people as prices will come down which in turn will help companies as
consumption will increase.
● In the GST system, when all the taxes are integrated, it would make possible
the taxation burden to be split equitably between manufacturing and services.
● GST will also help to build a transparent and corruption free tax
administration.
● Presently, a tax is levied on when a finished product moves out from a factory,
which is paid by the manufacturer, and it is again levied at the retail outlet
when sold.
 Disadvantages Of GST
● The GST structure has been marketed well to portray it as a simple
concept but in reality, the understanding is complicated and
distortionary to fully exploit the expected benefits.
● Multiple tax rates and many complexities will result into tax disputes
and lead to more corruption.
● Various issues recognized are usage of internet, number of return to
be filed monthly, the final tax incidence on goods and services.
● High confusion regarding the product classification and multiple
rates is a major concern.
● The food industry has criticized the levying of higher rates on value-
added manufactured goods and has asked for a simpler regime.
● GST is a consumption tax and hence the disposable income of
consumer will go down.
 What changes has GST brought in?

In the pre-GST regime, every purchaser including the final

consumer paid tax on tax. This tax on tax is called Cascading Effect
of Taxes.
GST has removed this cascading effect as the tax is calculated
only on the value-addition at each stage of the transfer of
ownership.
This indirect tax system under GST has improved the collection of
taxes as well as boosted the development of Indian economy by
removing the indirect tax barriers between states and integrating the
country through a uniform tax rate.