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Table of Contents
What is GST?
GST was first mentioned in India on February 28, 2006, Budget Speech. It set the basis for a total rebuilding of India’s indirect tax system. The Goods and Service Tax Act was passed in Parliament on March 29th, 2017, and came into force on July 1st, 2017.
GST is short for “Goods and Services Tax.” It is an indirect tax that has substituted several indirect taxes in India, including excise duty, VAT, service tax, and so on. It is a single comprehensive tax imposed on all goods and services produced in India and those imported from other countries.
GST Bill
The GST Bill is officially declared as the Constitution (One Hundred Twenty-Second Amendment) Act, 2016. The bill’s idea is to create a more integrated market and include most of the indirect taxes into a single integrated tax, such as services tax, central excise, vat, entertainment, luxury, lottery tax, implied cess on goods and services, and surcharge, among others.
The following are some important aspects of the GST bill:
- GST is a uniform indirect tax, charged on goods and services made in and imported into a country. In India, there are four GST rate structures, which are as follows: 5%, 12%, 18%, and 28%.
- State Tax GST has substituted taxes on advertising, entertainment and amusement, and luxury tax, among many others.
- Central Tax GST has included service tax, central excise duty, and additional duties of excise (goods of special importance), among others.
- Eliminating the cascading impacts of tax is one of the key goals of the GST implementation.
How is GST Calculated?
In India, the current GST rates are 5%, 12 %, 18 % and 28 %. The following formula can be used by businesses, distributors, manufacturers, and retailers to calculate their GST amount:
GST Calculation
- Add GST:
GST Amount Calculation = (Original Cost x GST Percentage)/100
Net Price Calculation = Original Cost + GST Amount
- Remove GST:
GST Amount Calculation = Original Cost – [Original Cost x {100/(100+GST Percentage)}]
Net Price Calculation= Original Cost – GST Amount
A variety of tax calculators are accessible on several platforms to assist you in calculating the GST. Return filing month, the due date of filing return for the month, filing date, total tax liability for the month, and purchases where the reverse charge mechanism is applicable, are some of the details that will be necessary to calculate the GST.
Check out our easy-to-use online GST Calculator to calculate the GST amount for buyers and sellers.
Advantages of GST
1. Termination of Multiple Types of Taxes
- Different forms of taxes on goods and services have been limited since the introduction of GST.
- Central Excise, Sales Tax, Service Tax, Luxury Tax, Special Additional Duty of Customs, and other taxes are among them. As a result, there are no numerous tax assessments on goods and services.
2. Removal of Cascading Effect
- The removal of the cascading impact, i.e. the elimination of tax on tax, is the most significant advantage. Prior to the establishment of the GST, there was no provision for set-off against output VAT on service tax paid on input services.
- The GST framework intends to lower the tax burden on end-users by allowing input tax credits to be used across a wide range of goods and services.
3. Ease of Doing Business at National and International Level
- With the establishment of GST, the difficulty of filing indirect taxes has decreased. Previously, practically every company had serious concerns with excise customs, VAT registration, dealing with tax authorities, and so on.
- Due to a surge in exports, GST has earned a competitive advantage in the international market for goods and services produced in the country.
4. Regulation of Unorganized Industries
- Certain unorganized and unregulated sectors of the country, such as textiles and construction, have been regulated and are now held accountable.
- GST strives to make payments and compliances easier to manage online, and input credit can only be available if the supplier accepts the payment, ensuring that these industries are regulated and accountable.
5. Complete Online Process
- Under the GST regime, interactions with tax authorities would be limited, with the full flow of communications taking place online through a single gateway.
- Without engaging with tax authorities, e-transactions and the web system maintain a careful eye on fraud and avoidance.
6. Efficient Economy
- GST, which is unaffected by business models, procedures, geographic location, or organizational structure, will finally enhance long-term economic growth and efficiency. The Goods and Services Tax (GST) has improved India’s tax-to-GDP ratio.
- This all-inclusive tax ensures stability and equality in the workplace. GST establishes a single national market and eliminates economic misconceptions. As a result, there will be more voluntary compliance and the cost of compliance will be lower.
Disadvantages of GST
1. Larger tax burden on SMEs
- Under the previous tax structure, only businesses with yearly sales of more than Rs.1.5 crore were obligated to pay excise duty. Under the new tax structure, businesses having annual sales of more than Rs.40 lakh are obligated to pay GST.
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2. Compliance Burden
- Due to the filing of 3 tax returns every month, GST compliance is quite high. Also, the companies must now register for the GST in all states where they conduct business.
- The entire process of registering with the regulatory body, producing GST-compliant invoices, keeping digital records, and filing returns have put a tremendous amount of stress on SMEs and others.
3. Increased Costs
- GST required businesses to change their present accounting software to GST-compliant software or ERP in order to keep their operations running. The cost of obtaining, installing, and training employees on how to use GST-compliant software, on the other hand, might be substantial.
- Furthermore, since more businesses are required to hire tax professionals in order to become GST-compliant, small businesses’ costs of doing business have increased.
Conclusion
The introduction of GST in India, which took effect on July 1, 2017, was a game-changing reform that altered the way companies were conducted in the country. The reform has been warmly received by all stakeholders. More enterprises are entering the formal sector as a result of the GST regime. A massive transformation like this is going to cause some difficulty. For the Indian economy, the benefits of this minor inconvenience will be numerous and long-lasting.
