Goods & Service Tax- Fundamentals and Background

An Article by CA Manpreet S. Taneja

“GST” as we all know is the hot topic of the day.

But do you know?

Q1.-Why Taxes are levied?

Ans. Government requires funds for various purposes such as for the provision of basic services, social/health, law and order etc.

Governments obtain funds from various sources, out of which one of the main sources is collection of taxes.

“Tax is the Price, which we Pay for the Civilised Society”

Q2. What are different types of taxes?

Ans. There are two types of taxes in an economy across the globe.

  1. Direct Taxes
  2. Indirect Taxes

Direct taxes comprise of taxes which are directly paid by the person on whom the burden of tax lies. For instance, Income Tax, Municipal tax, Property Tax, Wealth Tax are paid by the same person on whom the liability to pay taxes arises. That’s why they are called Direct Taxes.

Example: – Mr. Kidwai, an architect, has earned an income of say INR 20 lacs during financial year 202021. Therefore, in this case the tax payable on his total income will be paid by himself to the central government while filing his Return of Income (ROI) for 2020-21. The liability is arising on and paid by Mr. Kidwai.

Indirect taxes are the taxes which are collected by some other person from the person on whom the burden of the taxes arises. And then the collecting person pays the same to the central government on behalf of the person from whom he has collected tax.

For example: –Ms. Veronica, organises an official meet in Chaayos, C.P. Outlet. Chaayos give a bouquet of services and agrees for providing combination of goods & services for an agreed price on INR 25k. Now GST would be levied on consideration of INR 25K. Let’s say GST rate is 18%,Chaayos will give invoice of INR 25000(base amount) + INR 4500 (GST @ 18% on INR 25k) totaling to INR 29,500/-. Chaayos would collect the total amount from Ms. Veronica and would pay INR 4500 as GST on her behalf to Central Govt.

The liability for paying GST is arising on Ms. Veronica and paid by Chaayos on her behalf after collecting the same from her.

Ms. Veronica can claim the benefit of GST paid while offsetting her outward GST liability.

Furthermore, Customs Duty, Excise Duty, Service Tax, Octroi, Central Sales Tax, Value Added Tax (VAT) are all examples of indirect taxes.

Indirect taxes are levied on Manufacture of Goods, Trade of Goods and Rendering of Services.

In India there is Federal Structure and all the taxes are divided into two broad categories as cited above i.e., Direct Taxesand Indirect Taxes.

Government of India has given the powers for collection of taxes to Department of Revenue and it further has segmented these powers into Central Board of Direct Taxes (CBDT) for Direct Taxes Compliances and Central Board of Indirect Taxes and Customs (CBIC) for Indirect Taxes Compliances.

Q3. -What does GST mean? When does it came into effect? What other Indirect taxes are primarily into force post GST regime?

Ans. With effect from 01.07.2017, Government of India has brought in a new Indirect Tax Structure in the Indian Continent. They have introduced “Goods and Service Tax (GST)” in place of earlier indirect tax structure, i.e., Excise Duty and Service Tax.

Earlier, Excise Duty was levied on manufacture or produce of goods and Service Tax was levied on Rendering of Services.

GST has subsumed earlier indirect taxes but Customs Duty continues to be levied post GST regime as well.

Customs duty is levied on import and export of goods whereas, GST is levied on domestic produce of goods or rendering of services.

In India, we have adopted two model GST Structure. As is evident that India is a democratic country. There are two structure economy. One is Government in Centre and second is respective Government of State or Union Territory.

Therefore, we have basically four types of Goods and Service Taxes: –

  1. Central Goods and Service Tax (CGST)
  2. State Goods and Service Tax (SGST)
  3. Integrated Goods and Service Tax (IGST)
  4. Union Territory Goods & Service Tax (UTGST)

The GST is levied on Supply of Goods or Services, whereas Excise duty was levied on erstwhile Manufacture and Service Tax was charged on rendering of services.

Q4. – How GST is levied?

Ans. GST is levied on Supply of Goods or Services as discussed above.

There are two types of Supplies: –

  1. Inter- State Supplies: – It means supply of goods or services from one State/Union Territory to Other State/Union Territory
  2. Intra- State Supplies: – It means Supply of Goods or Services within Same State/Union Territory.

Q5. What are the components of GST?

Ans. Dual GST-Model is applied on every supply of goods and services.

For Inter State Supply of Goods or Services, Integrated Goods & Service Tax is Levied- which is equivalent to CGST plus SGST.

For Intra State Supply of Goods or Services, CGST and SGST/UTGST are charged respectively.

Q6. What are the compliance requirements for a Taxpayer?

Ans. A tax payer registered under the GSTIN has to follow compliances like filling of Periodical Returns, Payment of taxes, reporting of transactions such as Sale & Purchases and certain other obligations on happening of some events.

About Author:

Hi, This insightful article was penned down by Mr. Manpreet S Taneja. Read what he has to say about himself.

Know Me:  One of the torch bearers for an esteemed Institute, I am well liked as CA Manpreet.

I am passionate about managing Finance and Investment and love to explore new avenues. Numbers and formulas have always lured me and now auditing and taxation has become my expertise.

Tax advisory, Financial Reporting, Secretarial compliances and other Managerial considerations are my other prowess one can count on. After working with reputed firms and renowned banks, I have gained rich experience of over 5 years and successfully ventured into practice.

I believe in what Winston Churchill has rightly said “Success is not final; failure is not fatal: it is the courage to continue that counts.” and that is the motivation that drives me towards excellence.

Qualification: Chartered Accountant, B.Com (Hons.)

Specialization: Audit, Taxation, Finance, Bank Audit

Firm Name: Manpreet Taneja & Co.

Mobile No.: 8826953372

Email ID: ms35085@gmail.com

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