As of July 1, 2017, Goods & Services Tax (GST) applies to all Indian service providers (including freelancers), traders, and manufacturers. On 01.07.2017, a variety of Central taxes, such as Service Tax, Excise Duty, CST, and state taxes, such as Entertainment Tax, Luxury Tax, Octroi, VAT, were merged into one tax – GST. At every step of the supply chain, GST will be charged with full set-off benefits. No manual intervention is required in the GST process.

The supply chain for any product involves a number of stages, including purchasing raw materials, manufacturing, selling it to the wholesaler, selling it to the retailer, and finally selling it to the consumer. It is interesting that GST will be levied on each of these three stages. For example, if a product is made in West Bengal and consumed in Uttar Pradesh, the entire revenue goes to Uttar Pradesh.

Additionally, taxpayers with a turnover less than Rs.1.5 crore can opt for the composition scheme and pay GST at a fixed rate.

How does GST work?

A central component (Central Goods and Services Tax or CGST) and a state component (State Goods and Services Tax or SGST) are part of GST, which both the centre and the state will levy on all entities within a state when they transact. It is the center’s responsibility to levie IGST on interstate transactions, i.e. when a transaction occurs between two states.

How does the input tax credit work?

Tax input credits allow you to reduce your tax on inputs you already paid and pay the remaining amount when you pay your taxes.

If you buy a product from a registered seller, you pay taxes on the purchase, and if you sell the product, you also collect taxes. When you use input credit, you can adjust the taxes paid at purchase with the amount of the output tax (output tax) and pay the remaining taxes, that is, the tax on sale minus the tax on the purchase.

Does everyone need to register for GST?

For businesses and corporations involved in the purchase and sale of goods and services, registration for GST registration charges is required. Registration for GST is mandatory for companies with a turnover greater than Rs. 20 lakhs (for services) and Rs. 40 lakhs (for goods).

As well as businesses that make interstate supplies of goods, businesses that make taxable supplies on behalf of other taxable persons, such as agents and brokers, must register for GST.

Moreover, the recent notification waives the registration requirement for e-commerce sellers/aggregators with sales less than Rs.20 lakh.

How much does GST tax cost?

  • Exempt items are items that are considered basic necessities, so they aren’t taxed.
  • 5% of household necessities and life-saving drugs are taxed.
  • 12% tax is applied to products like computers and processed foods.
  • The tax rate on hair oil, toothpaste, soap, capital goods, industrial intermediaries, and services is 18%.
  • The tax rate on luxury items is 28%.

Check out the GST rates here: https://cbec-gst.gov.in/gst-goods-services-rates.html.

You can calculate the Goods and Service Tax using different slabs using the GST calculator.

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