History of GST in India
- Initial Proposal:
The idea of GST was first proposed during Prime Minister Shri Atal Bihari Vajpayee’s tenure. A roadmap for GST was developed by the Empowered Committee of State Finance Ministers (EC). - Legislative Journey:
In March 2011, the Constitution (115th Amendment) Bill was introduced but lapsed in 2013. The Constitution (122nd Amendment) Bill was introduced in December 2014, passed in August 2016, and became the Constitution (101st Amendment) Act 2016. - GST Launch:
GST was officially launched on July 1, 2017, by Prime Minister Shri Narendra Modi in the presence of then-President Shri Pranab Mukherjee.
Tax Structure Before GST
Before GST, both the state and central governments imposed numerous indirect taxes. Some key taxes included:
- State-level taxes: VAT, luxury tax, entertainment tax, entry tax, etc.
- Central taxes: Central excise duty, additional duties of excise, CST, service tax, and customs duties.
These multiple taxes led to the cascading effect of taxes (tax on tax), which was eliminated with the introduction of GST.
The list of indirect taxes that were in place before to the GST is as follows:
- 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
What is GST?
Goods and Services Tax abbreviated as GST is another indirect tax which has come into substitute for others like service tax, VAT, excise duty among many others in India. The Indian Parliament passed the Goods and Services Tax Act on 29 March 2017, making it effective from July 1st, 2017. The GST is now the only law on indirect taxation which applies within the country.
GST Components
The GST system consists of three components:
- CGST (Central GST): Collected by the Central Government on intra-state sales (e.g., within Maharashtra).
- SGST (State GST): Collected by the State Government on intra-state sales.
- IGST (Integrated GST): Collected by the Central Government on inter-state sales (e.g., from Maharashtra to Tamil Nadu).
Multistage Tax
The Goods and Services Tax is a stage wise tax levied on the supply of goods and services right from the manufacturing to the point of sale. Several levels are:
- Purchasing raw materials
- Manufacturing or production
- Storage of finished products
- Wholesaling
- Retailing
- Final sale to consumers
Since GST is imposed at each stage, it is considered a multistage tax.
Expanding the Taxpayer Base
GST has come with a lot of initiatives such as making the registration grid simple and more uniform at the continental level thus increasing the tax base. More sectors have been taxed due to introduction of stringent rules for tax credits, e.g. the construction sector which was informal before. Business registration under GST has increased in the recent past.
Simplified Online Procedures to Make Doing Business Easier
Prior to GST, the taxpayers had a perplexing time dealing with different tax authorities with respect to enforcement of different tax laws. Most of the activities including assessments and refunds were off line. Today, most of the processes under GST are by on line means including registration, return filing and processing, refund application and grant and e-way bill issuance. This has greatly enhanced compliance and raised the ease of doing business in India. Furthermore, the government is also working on providing a single window facility covering all aspects of compliance for indirect taxes including return filing and e-way bill generation for GST.
Remaining Taxes Under GST
Some goods are still subject to specific taxes, such as a 2% concessional rate for interstate purchases under “Form C.” These goods include:
- Petroleum crude
- High-speed diesel
- Motor spirit (petrol)
- Natural gas
- Aviation turbine fuel
- Alcoholic liquor for human consumption
How Has GST Lowered Prices?
Under the pre-GST system, taxes were levied at every stage of the supply chain, leading to a tax-on-tax (cascading effect). GST removes this effect by taxing only the value addition at each stage, which helps lower prices. GST also integrates the country under a uniform tax structure, encouraging economic growth and enhancing tax collection.
New GST Compliances
With GST, several new systems have been introduced:
- E-Way Bills:
Introduced on April 1, 2018, for interstate movement of goods, and on April 15, 2018, for intra-state movement, e-way bills reduce wait times at checkpoints and minimize tax evasion. - E-Invoicing:
Effective from October 1, 2020, for companies with revenue exceeding ₹500 crores, and from January 1, 2021, for those exceeding ₹100 crores, e-invoicing ensures invoice data is directly transmitted to the GST and e-way bill portals, reducing data entry errors.
GST Returns
A GST return is a form which all registered taxpayers (GSTIN) are required to submit to the respective authorities. It lists down all the incomes, sales, expenses, and purchases in order to calculate the net tax obligation of the taxpayer.
Benefits of GST
- Eliminating the Cascading Effect:
GST has removed the cascading tax effect (tax on tax), reducing the cost of goods and services. - Technology-Driven Compliance:
The GST portal ensures seamless online processes, including registration, return filing, refunds, and responding to notices.
Conclusion
India’s tax structure has witnessed a major overhaul with the introduction of Goods and Services tax which incorporated many taxes into one. It has eased adherence to tax regulations and lowered costs, which boost economic activities. With the ongoing enhancements, GST will make taxation in India even more efficient and aid in the development of a more integrated market.
