India has two systems of taxation – direct and indirect. Direct taxes are levied directly on the person who pays them. For example, income tax is a kind of direct tax that is levied on the individual earning the income and also paid by them.
Indirect taxes are levied on one person and paid to the government by another. For example, GST or Goods and Services Tax is collected each time you buy a product or avail a service. The tax is then paid to the government by the seller or service provider.
Interestingly, GST is a relatively new kind of tax. Let us take a closer look at when and why it was introduced.
What is GST?
The Goods and Services Tax was launched in India with effect from 1 July, 2017. It is a kind of indirect tax that is levied on a wide range of goods and services. Before GST was introduced, it was preceded by other indirect taxes like Value Added Tax (VAT), service tax, sales tax, excise duty etc.
The Goods and Services Tax was introduced as a replacement to many of these older indirect taxes. It essentially eliminated the cascading effect of taxes, wherein people paid tax on tax. As a result of this, the prices of the end product or service used to be quite high. GST eliminated this effect and streamlined the indirect tax system in India. It also simplified the tax system.
There are different types of GST in India, such as –
- Central GST (CGST)– Levied and collected by the Central Government on intra-state sales of products and services
- Stage GST (SGST) – Collected by the State Governments on intra-state sales
- Integrated GST (IGST) – Collected by the Central Government on inter-state transactions
You can use a GST calculator to get the breakup of the different types of GST you may have to pay on a product or service.
Difference Between GST and the Previous Tax Structure
Here is a closer look at how the GST system is different from VAT, which was the primary tax it replaced in the previous tax structure.
|Point of taxation||Sale of goods or supply of services||Sale of goods|
|Tax rates||Uniform across all of India||Varied from state to state|
|Authority over taxes collected||Shared between the centre and states||Confined to the states in which they were collected|
|Mode of tax payment||Both online and offline||Offline|
|Tax returns||To be filed on the 20th of the next month||To be filed on the 10th, 15th, and 20th of the next month|
So, whether you are a seller of goods or a provider of services, it is important to be aware of the GST provisions before you make your sales. You can make use of a GST calculator to get a better idea of the rates and the amount of taxes you should collect as a part of your sales or service provisions. Including the GST in your invoices can help you claim the input tax credit on the GST that you have to pay.
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This sums up some of the key differences between GST and erstwhile taxes like VAT. Today, the GST collection is a major source of revenue for the government. If you are a service provider or a seller of goods, make sure you get yourself registered for GST if you need to and pay your taxes on time.