What is GST (Goods & Services Tax)? Meaning & Types of GST Returns

GST is a comprehensive, multi-stage taxation system applicable to the sale of goods and services. Its primary aim is to restrain the cascading pattern of other indirect taxes in India. GST full form is Goods and Services Tax, which replaced several indirect taxes like VAT, service tax, excise duty, etc. in 2017. Serving as a single indirect tax law in India, its primary advantages include a uniform taxation structure, streamlined process, online processing, and transparent taxation.

GST registration is mandatory for any business with a turnover of over ₹ 40 Lakh in a financial year. Manufacturers pay GST on raw materials purchase and value addition. Service providers pay it on both the purchase of products and the value earned. Retailers pay GST on their purchased products and added margins, and consumers pay it on their purchased products or services. The GST regime levies taxes at every point of sale. Now, let’s understand what is GST, and the meaning and types of GST return in detail.

What is GST?

The GST is a comprehensive indirect tax that would be levied on the sale, manufacture and consumption of goods and services on the national level. When implemented, the GST would replace all other indirect taxes such as the VAT, Service Tax, etc. on goods and services.

Once this tax is rolled out, the different taxes and levies imposed on all goods and services at the Centre and state level will be subsumed within a single tax. This single tax will have only two components - a central GST and a state GST. Under this system, the tax will be levied only on the value addition that happens at every stage, while the manufacturer or seller of the goods will be able to offset the taxes he incurs at every stage against the central or state GST which he has already paid to procure his material.

This effectively means that the final consumer will bear only the GST that was charged by the last dealer in the supply chain.

Also Read: Take Advantage of Lesser Known Income Tax Deductions

Know the Journey of GST in India

 

The implementation of the Goods and Services Tax (GST) in India was a significant milestone in the country's taxation and economic reforms. Initially planned for April 2010, the implementation faced delays due to stakeholder differences and political issues. Finally, on 1 July 2017, after nearly a decade of intense debate, GST became a reality. GST aimed to consolidate various indirect taxes, such as Central Excise Tax, Service Tax, and VAT/Sales Tax, into a single comprehensive tax system. This destination-based, multi-stage tax brought efficiency to businesses by simplifying distribution systems and streamlining indirect taxes.

Also Read: GST And It's Various Facets

Objectives of Goods and Services Tax (GST) 

The Goods and Services Tax (GST) in India aims to establish a unified and simplified tax system. By replacing multiple indirect taxes imposed by the central and state governments with a single comprehensive tax, GST intends to streamline taxation, reduce complexities, enhance transparency, and promote ease of doing business in the country. The objective is to create a harmonized and efficient tax regime that benefits businesses and taxpayers alike. The introduction of GST aims to achieve the following objectives:

Simplification and Streamlining of Tax Structure

GST simplifies the complex indirect tax structure, reduces compliance costs, and enhances tax administration efficiency.

One Nation, One Tax

GST creates a common national market, eliminating barriers to inter-state trade and enabling a seamless flow of goods and services.

Elimination of Cascading Effect

GST eliminates the cascading effect of taxes by allowing input tax credit, ensuring taxes are not levied on taxes.

Broadening of Tax Base

GST broadens the tax base by bringing more businesses under the tax net, reducing the scope for tax evasion.

Promotion of Transparency and Compliance

GST establishes a comprehensive and transparent tax system, promoting greater tax compliance among businesses and individuals.

Boosting Economic Growth

GST reduces the tax burden on businesses, encourages entrepreneurship, and attracts investments, thereby fostering economic growth.

Different Types of GST in India

There are four different types of GST, as given below:

1. CGST (Central Goods and Services Tax) – charged on intra-state supplies of products and services
2. SGST (State Goods and Services Tax) – charged on the sales of goods or services within a state
3. IGST (Integrated Goods and Services Tax) – charged on inter-state product and service transactions
4. UGCT (Union Territory Goods and Services Tax) – charged on the supply of goods and services in a Union Territory of India, viz. Chandigarh, Lakshadweep, Dadra & Nagar Haveli, Daman & Diu, and Andaman and Nicobar Islands

In most cases, the tax structure under the new regime will be as follows:

What is a GST Return?

Every business with GST registration must file monthly, quarterly, or annual returns based on the business type. It is a document detailing all the incomes, sales, purchases, and expenses a registered taxpayer files with the tax authorities. They use these details to calculate a taxpayer’s net tax liabilities. Under the Goods and Service Tax regime, a registered taxpayer must file GST returns, broadly including purchases, sales, output GST on sales, and input tax credit on purchases.

Also Read: How Can A Salaried Woman Save Taxes?

Who Needs to File GST Returns?

According to the GST regime, any regular business with an annual turnover of ₹ 5 Crore or more must file two GST returns each month and once a year. That accounts for 25 GST returns every year. Some special category GST-registered taxpayers must furnish separate returns, including non-resident taxpayers, taxable persons with Composition Scheme, persons with UIN (Unique Identification Number), input service distributors, and people who collect TCS or deduct TDS.

Taxpayers with GST registration must follow these activities to file returns under GST:

• File different types of returns in GST electronically
• Upload invoice-wise details
• Provide details regarding the input tax credit from GST returns that suppliers and return recipients file
• Match invoice information
• File again if there is a mismatch in the invoice information

Goods and Services Tax vs. Generation-Skipping Transfer Tax

Goods and Services Tax (GST) and Generation-Skipping Transfer Tax (GSTT) are two distinct taxes with different purposes. GST is a comprehensive tax system in India that aims to streamline indirect taxes, while GSTT applies to gifts or inheritances given to beneficiaries significantly younger than the giver. GST ensures taxation of assets placed in a trust, with beneficiaries receiving amounts over the tax credit. In contrast, GSTT addresses the transfer of assets across generations, exempting direct children or grandchildren from the "generation skipping" category. These taxes serve distinct objectives within their respective jurisdictions.

Understanding the Different Types of GST Returns

There are more than twenty types of GST return filings designed for different types of business corporations. Each return type has its unique schedule and filing due date. However, only eleven of these GSTR types are active. These include the following:

1. GSTR 1

The GSTR 1 division contains details of the outward sales of a business. The last date to fill out the form is the 11^th of a month for the preceding month or the 13^th of the current month for a quarter.

2. GSTR 3B

It denotes the total outward and input tax credit. A business must fill it every month.

3. GSTR 4

Composition vendors fill this form every year by around April 30.

4. GSTR 5

It deals with returns from NRIs doing business with Indian citizens. The returns contain details of all the sold services, amenities, and imports along with other information about the taxpayer. The 20th is the due date for the current month to pay for the previous month.

5. GSTR 6

It pertains to the Input Service distributor and includes all taxpayer-related information along with other supply details from the 1^st GSTR category. The last date to file this GSTR is the 13^th of the current month.

6. GSTR 7

This type of GST return includes TDS or Tax Deducted at Source. It includes penalty and personal details to be filled in before the 10^th of the current month.

7. GSTR 8

It is the return category for E-commerce brands registered under the GST laws. Primary information includes biodata, return details, and information about tax amounts, customers, etc. The last date for filing is the 10^th of each month.

8. GSTR 9A

All members of the Composition Scheme must fill this GSTR before December 31 every year.

9. GSTR 9B

This is another annual GSTR type to be filled before December 31. Individuals working on behalf of E-commerce firms must fill out this form to collect tax money.

10. GSTR 10

This is a special case GST return, as it is the ultimate filing before the GST registration cancellation or suspension. It must disclose all basic data, tax amount, payable and collected liabilities, etc. The business must fill out this form three months before cancellation.

11. GSTR 11

This is the only GSTR that individuals with a UIN or Unique Identification Number must fill. Usually, they are delegates or dignitaries residing in India but working with international bodies. The last date to fill out this form is the 28^th of a month.

Other than these major types of GST returns, there are a few others, like GSTR 3A, that a tax defaulter receives from the authorities. Some auto-drafted GSTR types include GSTR2A, 2B, and 4A, which are self-generated based on incomplete information submitted on the portal. Taxpayers with a turnover of over ₹ 5 crores must fill out new forms like GST ANX1 and GST ANX2.

What Gets More Expensive >What Gets More Expensive & What Gets Inexpensiveamp; What Gets Inexpensive

The GST bill is obviously intended for the long run. However it would definitely be changing what the common man pays for almost everything. The only categories exempted from the GST for now are alcohol and petroleum.

Goods like FMCG items, SUVs, luxury cars, consumer durables, electronic items, and readymade garments will get cheaper. For those of you planning to buy a car for yourself or a two-wheeler, this might be the right time. With the implementation of the GST, prices of automobiles are set to become affordable. A Crisil Research predicts a spike in demand for two-wheelers, especially those in the 100 to 125cc category.

On the other hand, mobile phones, banking services, insurance services, telecom bills, air travel, travelling expenses, hiring of cabs, eating out, broadband services, movies, branded jewelry and all other services are set to get costlier.

However, raw food, ambulance service, cultural activities, pilgrimages and sports activities are all exempted from GST.

Why is GST a Good Idea?

Interestingly, this concept of co-operative financial federalism was first discussed by the Kelkar Committee 13 years back. Also, the GST has already been implemented by over 160 countries all over the world in one form or another and has proved to be a success. So let's see why this tax, if implemented correctly, can be a good idea.

• The GST is aimed at bringing relief to consumers as it will avoid the overall double tax burden, and eventually reduce the prices for most commodities. This will automatically boost competition amongst manufacturers and also attract foreign investors, easing out the tedious, multi-layered and complex tax structure in the country.
• The GST is a unanimous tax and one which is robust enough to compete with the tax systems of other countries in the world. It is expected to propel manufacturing entities and startups towards greater growth and give way to a comparatively simpler tax structure.
• The basic framework of GST is framed by the merging of large number of central and state taxes into a single tax. In the present scenario, the current tax burden on goods is estimated to be 25%-30% for an individual. After the introduction of GST, this will reduce the overall tax burden on goods, and will make Indian products more competitive in the domestic and international markets.
• GST is defined as a single indirect tax for the entire country, which will help India to emerge as a unified common market.
• Earlier, taxes were levied on the manufacturing of goods or on provision of services. But once GST comes into force, this would be applicable purely on the supply of goods and services, which will keep a check on the unnecessary VAT.
• A revolutionary change like GST will naturally imply drastic overhauling of the federal political-economic structure of the country too. After all, other countries that have already adopted GST have also undergone a similar experience.
• With the state-level taxes subsumed, there would be better operational efficiency since state border checkposts will expectedly be gone. This would increase the speed at which goods move through our states, thereby reducing logistics and inventory management costs. For example, trucks in India average just 270 km a day against 800 km in the US because of check-post delays at state borders, and GST could slash the inefficiencies in logistics and transportation.

The GST Structure

The Centre and states will levy the Double GST on a parallel basis. Majorly, it will be divided into CGST (Centre levied), SGST (state levied), and IGST (Integrated GST). IGST is an Interstate tax that will be levied to fuel the supply chain mechanism. This will cut down the compliance scrutiny and will facilitate the seamless movement of goods between states by eliminating unnecessary elements. According to the proposal, the tax percentage will vary form 18-20%, but this has to be discussed and decided mutually. Subsequently, the CGST, SGST and IGST will follow suit.

Once rolled out next year, even if it is in a watered down avatar, the GST is set to merge all sorts of taxes levied. These are the list of taxes which are collected by the Centre currently and are soon to be replaced by the GST.

• Central Excise duty
• Duties of Excise (Medicinal and Toilet Preparations)
• Additional Duties of Excise (Goods of Special Importance)
• Additional Duties of Excise (Textiles and Textile Products)
• Additional Duties of Customs (commonly known as CVD)
• Special Additional Duty of Customs
• Service Tax
• Cesses and surcharges as far as they relate to supply of goods or services

State taxes which are to be covered by the GST are:

• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entry Tax (All forms)
• Entertainment Tax (not levied by the local bodies)
• Taxes on advertisements
• Taxes on lotteries, betting and gambling
• State cesses and surcharges as far as they relate to supply of goods or services.

Alcohol for human consumption, Electricity and Real Estate are exempted from GST.

The concept of this tax offers quite a relief from all sorts of hassles, and will give way to an easy compliance of online registration, returns and payments, thereby avoiding the clerical and bureaucratic delays for businessmen and industrialists. This will, in turn, accelerate the "Make in India" dream too. Further, the paper-less system is supposed to achieve transparency, as it will be a fully electronic process. It is expected that the single point interface for all sorts of challan generation will surely pump up overall efficiency and output.

What about Effective Implementation?

GST is indeed a great idea, but implementation is definitely not going to be a cakewalk from what has been seen till now. With several state governments opposing the move, fearing a drop in tax revenue, proper implementation of the GST could turn out to be long drawn process. Policymakers and stakeholders will have to pass the service quality test by all the states to ensure a win and wow situation. The wide lacunae in the implementation have to be decoded and all the states must join in hands for the seamless implementation of the GST.

For starters, the Constitution Amendment Bill has to be approved by more than half of the state legislatures, which is expected to be achieved in a month's time.

Effect on Inflation and GDP

Inflation is expected to spike in the short run, right after the implementation of GST, as has been observed globally. However, in the long run, with the absence of double taxation, zero cascading effect of taxes, and lesser logistic costs, inflation is expected to drop. On the other hand, with the enhanced ease of conducting business in the country, reduced production costs, and increased profit margins for companies, experts say that the GDP is likely to rise by at least 1 to 2%. The resultant reduction in the size of the unorganized sector in India is also expected to augment GDP growth too.

Advantages and Disadvantages of GST

What are The Components of GST?

The Goods and Services Tax (GST) in India consists of four key components: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST). These components determine the type of tax to be paid based on the nature of the supply, whether it is within a state or across states. Understanding the different components of GST is essential to grasp the taxation system and its implications. Let's delve into the tax structure to gain a comprehensive understanding of how GST operates in India.

How Has GST Helped in Price Reduction

GST has played a significant role in reducing prices by introducing the concept of input tax credit. Under GST, businesses can claim credit for the taxes they have already paid on inputs or purchases. This credit is then used to offset the taxes they need to pay on their final products or services. As a result, the overall tax burden on businesses is reduced, enabling them to lower their prices. The benefit of input tax credit is ultimately passed on to the consumers, as reduced tax liabilities lead to lower cost prices for goods and services. This mechanism promotes price reduction, making products more affordable and contributing to consumer savings.

Conclusion

To sum up, it is always crucial to clear GST dues before the due dates. Anyone failing to do so has to pay hefty penalties along with the Business Loan interest rate. In case a business is going through a financial crunch, business owners can also apply for a Business Loan online and get the necessary funds instantly.

Frequently Asked Questions

1. What is the purpose of GST?

The purpose of GST is to create a unified and simplified tax system by replacing multiple indirect taxes with a single comprehensive tax.

2. How does GST differ from the previous tax system?

GST differs from the previous tax system by replacing multiple indirect taxes with a single comprehensive tax, streamlining the taxation process.

3. Do all businesses need to register for GST?

Yes, all businesses with an annual turnover above the threshold limit specified by the government are required to register for GST.

4. What are the penalties for non-compliance with GST regulations?

Non-compliance with GST regulations can result in penalties such as fines, interest on late payments, and suspension or cancellation of GST registration.

5. How does GST impact small businesses?

GST impacts small businesses by introducing compliance requirements, but also provides benefits like simplified tax structure and input tax credits. 

6. What is the main difference between CGST and SGST?

The main difference between CGST and SGST lies in their authority and collection: CGST is levied by the central government on intra-state supplies, while SGST is imposed by state governments on the same transactions.

7. What is the main difference between Direct Tax and Indirect tax?

The main difference between Direct Tax and Indirect Tax lies in how they are imposed. Direct taxes are levied directly on individuals or businesses based on their income or profits. Indirect taxes are imposed on goods and services, with the burden passed on to consumers through prices.

8. What is GSTR 2A and 2B?

GSTR 2A and 2B are auto-generated GST return forms that provide details of purchases. 2A is a read-only document reflecting vendor's sales, while 2B includes input tax credit availability.