Basics of GST (Goods and Services Tax)

July 1, 2017 – The GST law is finally implemented and represents a marked change from the previous Excise tax, Service tax and Value Added Tax regime. GST is an indirect tax that subsumes all the previously stated taxes in order to provide for the Indian government’s visionary ‘One Nation, One Tax’ plan.

There are five rates for charging GST – 0%, 5%, 12%, 18% and 28%. There is, however, a 3% GST rate prescribed on gold items. However, petroleum products, alcohol and electricity are kept outside the purview of GST law. Taxes on these items are charged by the respective state government.

What are the various types of GST? When are they charged?

There are broadly three types of GST – CGST (Central GST), SGST (State GST) and IGST (Integrated GST). The type of GST charged depends upon the type of the transaction. The transactions within the state or intra-state transactions are charged with CGST and SGST equally. In cases of inter-state transactions, IGST is charged.

What is HSN code?

HSN stands for Harmonised System of Nomenclature. It represents a system for identifying each good or service with an 8 digit code. The government can this way classify all goods and services and easily set tax rates for each unique good or service.

What is the rate of GST applicable on an item or service?

After figuring out the classification of the good or service in terms of the HSN code, the rate of tax can be checked from the list issued by the government for the relevant HSN code.

As an example, for the item with HSN code, 42031010, which specifies clothing articles made of leather, the specified rate is 18%. In cases of intra-state sale, the CGST and SGST charged shall be 9% each. In case the sale is an inter-state sale, the IGST rate charged shall be 18%.

Who is liable to pay GST?

The liability to pay GST has been set on the basis of aggregate turnover. Recently the government incremented the aggregate turnover to Rs. 20 lakhs, in order to be liable to pay GST.

Aggregate turnover refers to the total turnover, including exports, non-taxable supplies, intra-state supplies etc. In other words, if an entity makes exempt supply of Rs. 17 Lakhs during the year and the taxable supply of goods/ services is Rs. 4 Lakhs then the entity shall be liable to pay GST on the entire taxable supply.

However, there are certain special status states where the limit for aggregate supply has been kept at Rs. 10 lakhs, in order to be liable to pay GST.

Below is the list of states which are assigned special status under Goods and Services Tax Law:

1. Arunachal Pradesh
2. Assam
3. Jammu & Kashmir
4. Manipur
5. Meghalaya
6. Mizoram
7. Nagaland
8. Sikkim
9. Tripura
10. Himachal Pradesh
11. Uttarakhand

If the aggregate turnover in the above mentioned states, is in excess of Rs. 10 Lakhs, then the entity shall be liable to pay GST on the eligible supplies.

How to obtain GST registration?

If you have determined that your aggregate turnover is above the limit specified above, then you must obtain a GST registration and file returns. The GST registration or GSTIN (GST Identification Number) is a PAN based registration and a Chartered Accountant can help you with obtaining the same.

Which returns to file?

In order to better understand which returns to file and when, you can read our article here: Which GST return to file and when?

How do you calculate the GST amount payable?

Well, first determine the GST rate applicable on your products/ services. Then multiply such rate with your sales. GST input or credit is available on the GST paid for purchases. In other words:

GST amount payable = GST payable on sales – GST payable on purchases

For example, if GST rate applicable on your sales is 18%, total sales for the month is Rs. 1 lakh and total GST paid on purchases is Rs. 10,000, then GST payable shall be Rs. (18% * 1,00,000) – 10,000 or Rs. 8,000.

How to get input of GST on inward supplies?

In case you are a GST registered person, GST can be availed on eligible inward supplies. In other words, the GST paid on inward supplies/ goods received/ services received can be reduced from the GST payable on outward services provided by you. This ensures elimination of the cascading effect (or the levy of tax on tax) and reduces the impact of GST finally deposited directly to the government by the GST registered person. However, in order to obtain GST input, it must be ensured the receiving party’s GSTIN is mentioned on the invoice provided by the supplier.

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