Understanding the types of GST significantly benefits business owners when they need to calculate business expenses and the taxes they need to pay. GST is short for Goods and Services Tax that is applied to the sale of both goods as well as services. GST was launched as a single domestic indirect tax law that is the same throughout the entire country based on the ideology of 'One Nation, One Tax'.
In this article, we have discussed the types of GST in India, the difference between GST and other taxes, the GST registration process, GST returns, and how GST impacts various sectors.
Types of GST in India
There are different types of GST applicable throughout India for the supply of goods and services. There are four different components of GST which are CGST, SGST, IGST, and UTGST. Let's look at each component briefly:
CGST (Central Goods and Services Tax)
CGST is a tax under the GST system of taxation, which applies to the intrastate (within the state), sales of goods and services. Governed by the CGST Act, the revenue collected from CGST goes to the Central Government.
- Examples of goods and services covered under CGST
Read below to know how much CGST is applicable to various goods and services:
- 2.5% CGST applies to household items like cooking oil, spices, coffee, sugar, tea, coal, and sweets, as well as lifesaving medicines.
- 6% CGST on all processed food items and computer essentials.
- 9% CGST is levied on capital products, soaps, industrial goods, toothpaste, and hair oils.
- 14% CGST on all luxury items, refrigerators, motorcycles, and air conditioners (ACs).
SGST (State Goods and Services Tax)
The State Goods and Services Tax is governed under SGST Act and is also applicable to intrastate transactions. This means that when a good or service is sold or purchased within a state, as per the GST regime both State GST (tax goes to State Government) and Central GST (the tax that goes to Central Government) are applicable.
- Examples of Goods and Services Covered Under SGST
Read below to know how much SGST is applicable to various goods and services:
- 2.5% SGST on daily household items like sugar, edible oil, tea, coal, medicines, etc.
- 6% SGST for computing devices, and processed edible products like cheese, bread, etc.
- 9% on capital items like hair oil, toothpaste, soap, shampoo, etc.
- 14% SGST for electronic luxury items like AC, refrigerators, luxury sport utility vehicles (SUVs), and upscale vehicles.
IGST (Integrated Goods and Services Tax)
IGST, which is governed by the IGST Act, is levied on all inter-state transactions of goods and services i.e. transactions between two states as well as transactions across two or more states or union territories (UTs).
Under IGST, the revenue earned from the collection of this tax is derived by the Central Government at first. It is then further segregated among respective consumer states involved in the transaction by the Central Government. Taxes levied are 5%, 12%, 18%, and 28% on the above-mentioned categories in the SGST section.
UTGST (Union Territory Goods and Services Tax)
UTGST is applicable to the provision and transaction of goods and services within the Indian Union Territories, including Daman and Diu, Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Chandigarh. UTGST is levied along with CGST.
The Union Territory Goods and Services Tax or UTGST operates and is levied similarly to SGST, which means it is levied along with CGST.
Difference Between GST and Other Taxes
Comparison of GST With Other Taxes
After GST was applied various indirect taxes in India were done away with. However, value-added tax (VAT) and Excise Duty are the two taxes that are still applicable.
While VAT is applicable on the consumption of petrol, diesel, and alcohol, Excise Duty is charged on their production and manufacturing. It must also be mentioned that the VAT rate varies from one state to another, but excise duty and GST are constant across India.
The regulatory authority and the collection authority is the State Government for VAT whereas excise duty is collected by the central government. In the case of GST, the State GST and the Central GST are collected from each intrastate sale. Afterward, the tax is split between the central and state governments.
How GST is beneficial for businesses?
GST is beneficial for businesses, especially small businesses as they no longer need to worry about complying with excise, service tax, or VAT. It minimizes tax evasion, enhances ease of doing business, and has regulated unorganized sectors like the textile industry. It has also streamlined e-commerce and logistics among others. GST has also made business owners more accountable. Moreover, online systems have made paying GST simpler.
GST Registration
GST Registration Process
To register for GST, one needs to submit an application online with the required documents and information, such as business details, PAN, bank account, and authorized signatory. Once verified, a unique GSTIN is issued.
Eligibility Criteria for GST Registration
Here are the individuals and entities who need to register for GST:
- E-commerce aggregators
- Individuals associated in a supply chain with e-commerce aggregators
- Individual taxpayers as per the reverse charge mechanism
- Input service distributors and suppliers
- Casual and Non-Resident tax paying individuals
- For businesses, the threshold for GST registration is an annual turnover exceeding Rs. 40 lakhs (or Rs. 20 lakhs for specified category states in GST).
- Individual taxpayers who were taxable before GST was introduced.
The above-mentioned eligible individuals and companies must register under GST and get their unique registration number called GSTIN. The government of India has made it mandatory for all buyers, services, and goods providers and sellers to register for GST. GST registration approximately takes 2 to 3 days, and online registrations can be done easily.
Benefits of GST Registration for Businesses
The benefits of GST Registration are many. GST is a business-friendly tax; understanding GST is simple, and GST return filing is a hassle-free procedure. Whether you have a startup or an existing business, by doing GST registration, you need not follow different tax rules per state with one type of tax, you can do business anywhere across India.
Also, whenever a business decides to expand to other states, taxation doesn't pose any problem. Furthermore, GST has unified multiple indirect taxes under one roof and helped the overall economic structure of the country.
GST Returns
A GST Return details the comprehensive income of an individual or enterprise. It is used to compute the tax liabilities accordingly. Businesses and dealers must input details of purchases, sales, output GST, input tax credit, and other important details.
The GST Council has issued detailed GST rates and their application on various goods and services. While products do not require GST others may have varying applicable rates at 5% GST, 12% GST, 18% GST, and 28% GST accordingly.
Types of GST Returns and Their Due Dates
There are various types of GST return forms, such as GSTR-1, GSTR-3B, GSTR-4, and others. The specific return form to be filed depends on the type of taxpayer and GST registration.
Let's see these different types of GST returns and their respective due dates:
| Return Form | Description | Due Date |
|---|---|---|
| GSTR-1 | Monthly return for outward supplies | 11th of the next month |
| Quarterly (under QRMP scheme) | 13th of the succeeding quarter | |
| IFF | Optional monthly return for B2B supplies (first two months of the quarter) | 13th of the next month |
| GSTR-3B | Monthly summary return of outward supplies and input tax credit | 20th of the next month |
| Quarterly (under QRMP scheme) | 22nd or 24th of the succeeding quarter | |
| CMP-08 | Quarterly return for taxpayers under the composition scheme | 18th of the succeeding quarter |
| GSTR-4 | Annual return for composition scheme taxpayers | 30th of the succeeding financial year |
| GSTR-5 | Monthly return for non-resident taxable persons | 20th of the next month |
| GSTR-5A | Monthly return for non-resident OIDAR service providers | 20th of the next month |
| GSTR-6 | Monthly return for input service distributors | 13th of the next month |
| GSTR-7 | Monthly return for registered persons deducting tax at source (TDS) | 10th of the next month |
| GSTR-8 | Monthly return for e-commerce operators | 10th of the next month |
| GSTR-9 | Annual return by regular taxpayers | 31st December of the next financial year |
| GSTR-9C | Annual self-certified reconciliation statement | 31st December of the next financial year |
| GSTR-10 | Final return for canceled GST registration | Within three months of cancellation or cancellation order date, whichever is later |
| GSTR-11 | Monthly return for persons with UIN claiming a refund | 28th of the following month |
| ITC-04 | Annual or half-yearly return for goods sent to/received from a job-worker | 25th April (when the Aggregate Annual Turnover (AATO) is up to Rs.5 crore). |
| 25th October and 25th April (when AATO goes beyond Rs.5 crore) |
Consequences of Non-compliance With GST Return Filing
Penalties in case of non-compliance in GST are:
- Late fee applicable for delay at Rs. 100 per day per Act. i.e., as per CGST & SGST up to Rs 5,000. (IGST requires no late fee).
- Failure to file GSTR incurs a penalty of 10% of the tax due or 10,000 whichever is higher.
- Committing a GST filing fraud or charging a higher rate can lead to a 100% tax penalty or 10,000 whichever is higher.
- 100% of the tax due or 10,000 (whichever is higher) for any case of non-registration under GST.
- For instances of issuing an incorrect Invoice, the penalty is Rs. 25,000.
Impact of GST on Different Sectors
The implementation of Goods and Services Tax (GST) has had various impacts on different sectors of the economy. Here are some key impacts of GST on different sectors:
Impact of GST on the Manufacturing Industry
The implementation of GST in the manufacturing industry resulted in the elimination of cascading tax effects for distributors and manufacturers, leading to increased competitiveness and export rates. GST impact on the manufacturing industry was that the simplified GST regime reduced the compliance burden of indirect taxes and minimized litigations related to logistic taxes, thereby providing a significant boost to the industry.
Impact of GST on the Service Industry
The service sector is dependent on pay scale slabs and has highly benefited from the new GST system in the following ways. The GST impact on the service industry is as follows:
- Elimination of double taxation
- Easy tax calculation for maintenance and repairs
- Easy access to stock inputs
- Reduced charges for service providers
- Uniformity of tax throughout the country
Impact of GST on the E-commerce Industry
There are multiple impacts of GST on eCommerce businesses, the primary one being input tax credit. This means sellers can reduce the tax they have already paid on inputs (raw materials) and pay the remaining amount on output.
Besides, the reduced burden of multi-level state taxes encourages businesses to register themselves. It has decreased the complex multi-tier supply system while reducing the paperwork and compliance formalities.
However, on the downside, the GST impact on the e-commerce industry was that e-commerce companies need to pay GST on goods in warehouses, even when they are not sold. So, in a way, it also blocks the working capital.
Impact of GST on the Export and Import Sector
The implementation of GST in the export and import sector replaced multiple taxes such as VAT, Service Tax, Excise Duty, and Customs Duty. Under GST, these taxes were consolidated, and exports became zero-rated under the Integrated Goods and Services Tax (IGST) Act, eliminating taxes like CVD (Countervailing Duty) and SAD (Special Additional Duty). Therefore, the GST impact on the export and import industry has simplified the tax structure and had a positive impact on this sector.
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FAQs on Types of GST in India
1. What is GSTIN?
GST Identification Number known as GSTIN is a 15-digit alphanumeric unique code, assigned to any GST-registered business. It is based on the PAN (Permanent Account Number) of the taxpayer and each state in India has a different two-digit code as a prefix in the GSTIN.
2. What is the key advantage of GST to businesses?
The main benefit of GST for businesses is the simplification of taxes and the transformation of the whole nation into one large trading market.
3. Who needs to pay taxes under GST?
Individuals associated with GST-registered businesses anywhere within India, regardless of whether the business is under Forward Charge or Reverse Charge Mechanism, are liable to pay taxes.
