Before learning more about Goods and Service Tax, let’s try to understand how taxes in India actually works. The Government of any country needs money for its functioning and taxes are a major source of revenue for a Government. The taxes thus collected are spent by Govt. on the public.
These taxes are broadly classified into two types : Direct Tax and Indirect Tax. Direct Tax is form of tax which is imposed on the income of the individual which varies from the amount of income earned by the individual from various sources such as salary income, income from business or profession, income/losses from Speculation gains, income from house property, income from other sources all this goes to form part of direct taxes. And Indirect tax is a tax which is not imposed directly on income of individuals, instead it is imposed on goods and services which in turn increase the cost MRP) of Goods and Services.
Unlike direct tax, indirect tax should be borne by the end customer. The indirect tax is categorized into many categories such as State VAT, Central Sales Tax, Customs, Excise duty, Service Tax etc., again these are divided between Center and State governments where few of these tax chapters are authorized, run and administered or levied by Central Government and few others by state governments. So the flow of taxes in the old regime was not transparent leading to deficits in collection of revenues for both center and states and thereby not giving the big picture of revenues collected as whole from indirect tax levies.
This is where GST is given birth to which unifies all these tax boundaries into one big square where it has scope and lime light for all forms of Indirect Tax taxation laws. Actually what GST’s birth has done is it has broadened the meaning of tax by subsuming almost all forms of Indirect Tax taxation laws. It has provided a single window for taxpayers who in earlier taxation system were reporting their sales/purchases/provisions of services/manufacturing details to various different authorities stationed for the purpose. But in GST the taxpayer needs to report about his Sale and purchases or provision of services to one i.e., GSTN network.
As GST is a tax on sale and provision of goods and or Services. As we all by now will be knowing that the birth name of this super-efficient taxation system is Goods and Services Tax which is a cult of various individual indirect taxes but in one plate. However I am interested in the statutory nickname of Goods and Services Tax which is GST.
As the word itself feels so familiar or it gives us a feeling that this form of taxation is the right thing for our economy. I have learnt one thing from life that there’s always an right or wrong and nothing in between. And GST falls under right category which will be proved as we venture our journey into it file our returns understand its simple mechanism of matching credits, respects it’s ideology of seamless flow of credits and so on.
About GSTN : GSTN is Goods and Service Tax Network with which tax payers interact with lawmakers for all their tax compliances. GSTN is the birthplace of GST from where it was introduced to taxpayers and general public at large. It is the hometown of GST and its siblings (CGST, SGST, UGST, IGST) will discuss about them in detail in this article.
When I said that GST is one unified tax then how come GST could have siblings is the first question that comes to our mind: then who is IGST, CGST, UTGST, and SGST? On one hand it is stated to us that almost all indirect taxes are merged into a single tax called Goods and Service Tax, and on the other hand, it is articulated that there will be four taxes as IGST, CGST, UTGST, and SGST. How to understand this now.
It is true that GST has subsumed all the forms of Indirect taxes into one but it has not unified the state boundaries of our country from administration angle. The state government needs revenue for its expenses even Union/Central Government. So calling CGST, SGST, UGST and IGST as various forms of taxation under GST would be wrong these are the branches which are controlled by respective governments or we can call it as the revenue channel which distributes the respective taxes among these governments based on the destination.
Yes you are right here, GST is a destination based taxation system, wherein the state producing the product or the state providing the service is not allowed to keep the taxes levied and collected but instead it is the property of the state in which it is consumed. For this we have to first know about these tax types in brief to understand the whole process in detail. I also forgot to mention here that these are the siblings of GST which are not separate from GST but they form as part of GST. Below are different GST full forms.
Sibling No. 1 CGST
▪ CGST full form is Central Goods and Service Tax.
▪ This is the tax which is levied by the Central Government of India on any transaction of goods and services tax taking place within a state.
▪ CGST comes into picture for all intra state outward supplies made by taxpayers/registered person
▪ It is one of the two taxes charged on every intrastate (within one state) transaction, the other one being SGST (or UTGST for Union Territories).
▪ What it replaces from old taxation system : replaces all the existing Central taxes including Service Tax, Central Excise Duty, CST, Customs Duty, SAD, etc.
▪ Actually CGST and SGST are twin brothers as the tax rate of CGST is usually equal to the SGST rate.
Sibling No. 2 SGST
▪ SGST full form is State Goods and Service Tax.
▪ This is the tax which is levied by the State Government of India on any transaction of goods and services tax taking place within a state.
▪ What it replaces from Old Taxation System : It replaces all the existing state taxes including VAT, State Sales Tax, Entertainment Tax, Luxury Tax, Entry Tax, State Cesses and Surcharges on any kind of transaction involving goods and services.
▪ It is the twin brother to CGST as the tax rate for SGST is usually equal to CGST rate.
Sibling No. 3 IGST
▪ IGST full form is Integrated Goods and Service Tax.
▪ This tax is applicable on interstate (between two states) transactions of goods and services, as well as on imports.
▪ This tax will be collected by the Central government and will further be distributed among the respective states.
▪ This sibling ensures that state has to deal only with the Union government and not with every state separately to settle the interstate tax amounts.
Sibling No. 4 UGST
▪ UTGST full form is Union Territory Goods and Services Tax.
▪ This tax is applicable on the goods and services supply that takes place in any of the five Union Territories of India, including Andaman and Nicobar Islands, Dadra and Nagar Haveli, Chandigarh, Lakshadweep and Daman and Diu.
▪ UGST will be charged in addition to the Central GST (CGST) so for every transaction with Union territory we will have two types of levies cumulatively (CGST (+) UGST)
▪ The reason why a separate GST was implemented for the Union Territories is that the common State GST (SGST) cannot be applied in a Union Territory without legislature. Delhi and Puducherry Union Territories already have their own legislatures, so SGST is applicable to them.
By now one will be well introduced to the four siblings of GST who strikes balance in this new taxation system. The twin brothers CGST and SGST are there to ensure that both Central and State governments get their share of revenue without any disparity and IGST ensures that the tax credits are flown smoothly into the GST taxation channel for all the transactions taking place between the states.