What is GST?
The new national consumption-based, multi-stage, unified tax known as the “Goods and Services Tax” (GST) would replace all other national and state tax systems such as the VAT, Service Tax, Excise Duty, and others. It will be imposed on the production, sale, and consumption of goods and services. It is anticipated to eliminate the current widespread cascading impact of tax-on-tax. If you work in manufacturing, trade, e-commerce, or services, it applies to you.
One of the largest fiscal reforms India will see is the Goods and Services Tax. This paradigm change in the indirect tax structure will have an effect on all enterprises, especially SMEs. In a federal nation like India, policymakers have repeatedly emphasised the benefits of a unified taxation structure. One of the numerous advantages cited by proponents of the Goods and Service Tax bill is the elimination of the cascading tax impact. “Cascading tax impact” simply refers to tax on tax. A customer is forced to endure the burden of tax on tax and rising costs as a consequence of this circumstance.
Every value addition will be subject to the GST, a comprehensive, multi-stage, destination-based tax. GST will now be charged at each point of sale. Assume that the whole manufacturing process takes place in the state of Rajasthan, with Karnataka serving as the ultimate point of sale. Since GST is charged at the point of consumption, Rajasthan will earn money while the product is being manufactured and stored there but lose money when it leaves the state and is sold to a customer in Karnataka. Because it is a destination-based tax and will be collected at the ultimate place of sale, which is Karnataka, this implies that the state of Karnataka will get that money on the final sale.
Direct and indirect taxes make up the current division of the Indian tax system. Direct taxes are charges for which the responsibility cannot be transferred to another party. Money tax is an illustration of this, where you alone are responsible for paying the tax on the income you generate. In the event of indirect taxes, the tax responsibility may be transferred to another party. This implies that the store owner may charge the consumer for VAT that is due on the sale. In essence, the buyer pays both the item’s price and the VAT associated with it so the retailer may deposit the VAT with the government. This indicates that the customer’s expenditure when purchasing an item is larger since in addition to the product’s price, he or she must pay the tax obligation.
This occurred as a result of the shopkeeper having paid tax while purchasing the goods from the wholesaler. He/she transfers the obligation to the client who must pay the extra sum in order to recoup that sum as well as to make up for the VAT he/she must pay to the government. Since the shopkeeper now has no alternative means of recovering any money paid out of his or her own pocket during transactions, he or she is forced to transfer the obligation to the client. Once it is in place, the Goods and Services Tax will deal with this problem. It contains an Input Tax Credit mechanism that enables merchants to claim the tax previously paid, reducing the overall tax burden on the end user.
The Indian economy would gain from having a single consolidated indirect tax that would replace many other existing indirect taxes in a number of ways:
- It will aid in creating a fair playing field for the nation’s enterprises.
- It will bring us on level with other countries whose tax systems are more organised.
- Gains will also result for the final consumer as they won’t have to pay cascading taxes any more.
- A single tax will now be applied to both goods and services.
- The GST Law attempts to simplify the system of indirect taxes. As previously indicated, GST would include all indirect taxes collected at the State and Central levels on goods and services. A unified GST Law is intended to establish a seamless national market.
- The GST method is an improvement on the VAT system. By reducing the indirect tax barriers between states and unifying the nation via a single tax rate, it is also anticipated that GST would increase revenue collection while also boosting the growth of the Indian economy.