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All You Need To Know About The GST Act: All Doubts Cleared

All You Need To Know About The GST Act: All Doubts Cleared
Goods and Services tax is perceived as a very complex and challenging to comprehend tax regime.
Someone with limited or no knowledge about taxes might not find it difficult to understand. Whether you are knowledgeable about GST or not, whether you are a registered individual or a business, it is always important to keep yourself updated with the GST latest news because there are frequent changes that keep happening in this law. There are about 800 changes that are made to this law since its implementation. It is always better to keep yourself updated about big or small news about GST. Weather be something as novice as knowing the IGST full form or about the newly launched e-invoicing, because it will help you stay compliant with this tax regime. 

To give a good idea about what GST is all about and to clear some fundamental doubts, below is a collection of frequently asked questions and most frequent doubts that are about the Goods and Services Tax Regime.

A brief about GST

What is GST and why it was introduced:

GST - Goods and Services Tax. The Idea of GST was incubated during 1999 in a meeting held between the then prime minister Atal Bihari Vajpayee and his advisory panel. Since then, there have been several discussions and meetings from time to time for almost two decades before it finally passed in the parliament in a historic midnight session held on 30th June - 1st July of 2017. 

Goods and Services Tax is a single tax that has subsumed several charges that were there in the previous tax system such as Sales Tax, Service Tax, Central Excise, Customs Duty, Entry Tax, Entertainment Tax, etc. It is a multi-level, destination-based, comprehensive, and technologically backed tax system. It was introduced to do away with the flaws in the previous tax regime and to create a more transparent and robust system. GST levies on a product from its manufacturing to the end buyer only on value addition. In the earlier tax regime, tax levying was on the value of the product at every stage from production to consumer. 

Under this tax regime, taxes on Goods and Services are divided into five different tax rates - 0%, 5%, 12%, 18%, and 28%. There is a 0.25% to 3% tax rate that is newly introduced for cut and semi-precious stones and gold. 0% tax is meant for goods and services which are exempted from levying of taxes. Mainly Goods and Services, which are necessary for every household, are included under this tax slab. 5% tax slab is for goods that are commonly used by citizens of all economic classes. 12% and 18% tax slabs are basically for Goods and Services that are common but are not luxuries. The 28% tax slab is for Goods and Services that come under sin-products( Tobacco, Cigars, etc.) or Luxury ( luxury cars, yacht, etc.). However, alcoholic drinks, electricity and petroleum products do not come under GST and taxes for these products are separately taxed by respective state governments. 

Further, GST is structured mainly in three different categories. CGST ( Central Goods and Services Tax), SGST ( State Goods and Services Tax), and IGST ( Integrated Goods and Services Tax). A tax levied on any product will have these three categories of taxes levied. For Example, if GST on shirt falls under the 12% tax slab, then the tax levied on that shirt will be 6% SGST that will be remitted to state government and 6% CGST that will be paid to the central government. IGST is a tax that is levied on inter-state supply of services and goods, and the tax collected from IGST is shared between central and state governments through an agreement between both governments.

Most Common Doubts and Questions about GST

What is cascading tax effect:

Cascading tax effect that is also known as Tax on Tax that happens when a service or product is taxed at every level of production till it reaches the end buyer or the consumer. This meant that the tax would be levied on a product on every stage of transfer. From manufacturer to the supplier to wholesaler and so on till it reached the final customer. A single product would be taxed at every level, inclusive of the tax charged on the previous transfer of the product. The taxes on a product would increase tremendously, making it expensive. In the previous tax system, there was a cascading effect. GST successfully removed this and replaced it with taxes only on value addition on each stage of the supply of goods. 

What is Input Tax Credit:

The input tax credit is tax paid on output (Sale) that can be claimed on the input (purchase). For Example, A shoemaker will have to pay GST on sale of the shoe, but they can claim an input tax credit on the purchase of raw material used in making shoes such as leather, glue, threads, etc. 

Who governs GST:

GST is governed by a 33 member GST council, which is headed by the Union Finance Minister assisted by Union finance ministers of states and union territories. GST council is responsible for making all the crucial decisions such as tax rates, proposal to bring changes and amendments in the GST act, revisions on the current rates and law, etc. 

What is the composition scheme:

Any small business with a turnover of 1.5 crores can opt for composition scheme. It is a simple scheme where a taxpayer can choose to pay taxes quarterly on the turnover at a fixed rate instead of monthly taxes.

What is GSTN:

GSTN - Goods and Services Network is the technological backbone of this tax regime. GSTN consists of backend where all the technical functioning happens. And the frontend that is the GST portal. Through the GST portal, a taxpayer can file returns, register for GST, pay taxes, etc. 
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