Dear readers welcome to Awareness Adda. Today topic is a short information about GST (Goods and Services Tax) lets starts with what is GST and how does it work.

GST (Goods and Services Tax):

            India is notorious for its complex tax system. For new businesses and startups, it becomes impossible to navigate through various direct and indirect taxes. Constant changes to taxes like Service Tax are making things even worst. But now, the things are set to change with new Goods and service tax – commonly known as GST. Goods and Services Tax (GST) is an indirect tax throughout India To replace taxes by Central and State Governments. And it was introduced as the 122nd amendment bill. This GST is governed by GST Council and its Chairman. Its Chairman is Union Finance Minister of India.

What is GST? How does it work?

            GST is one indirect tax for the whole nation, which makes India one unified common market. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer, Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with the set- off benefits at the all the previous stages.

What are the benefits of GST?

            Here is some list of benefits of GST. GST will replace 17 indirect tax levies and compliance costs will fall.

  • Removing cascading tax effect.
  • Higher Threshold for registration.
  • Composition scheme for small businesses.
  • An online simpler procedure under GST.
  • Lesser compliances.
  • Defined treatment for e-commerce.
  • Increased efficiency in logistics.
  • Regulating the unorganized sector.

An example of GST calculation:

            Let us assume that the GST is set at 20%. Suppose that the manufacturing cost of a Product A is 100 and assuming a GST of 20% the total amount is Rs. 120. The next step of taxation would be when the Product is sold to consumers, let’s say at a price of 150. So the GST will charge another 20% on just the difference between Rs. 150 and Rs. 120 i.e. only 20% on Rs. 30 which is equal to Rs. 6. So the final price is Rs. 150 + Rs. 6. Unlike the case of petrol pricing, there is no tax on a tax now. This eliminates the cascading effect of taxes which is very prevalent in our economy and has been simplified to an elemental level in the example.

What are the taxes that GST replaces?

            The GST replaces numerous different indirect taxes such as:

  • Central Excise Duty
  • Service Tax
  • Value Added Tax (VAT)
  • Central Sales Tax (CST)
  • Luxury Tax
  • Advertisement taxes
  • Octroi
  • Entertainment Tax
  • Countervailing Duty
  • Special Countervailing Duty
  • Entry Tax
  • Purchase Tax
  • Taxes applicable on lotteries.

How is GST different from VAT?

            VAT is applicable for goods sold and not service. Service tax takes care of services rendered. However, GST will be applicable for both goods and services and will have a uniform pricing. Very simply put, VAT is the tax a manufacturer has to pay for the additional value created. So, if the raw material costs INR 50 and finished product cost INR 100, the value added to raw material is INR 50. However, the VAT applicable on INR 100 and INR 50 will be based on the VAT guidelines and the difference of those tax amounts needs to be paid by the manufacturer. GST is essentially riding on the VAT calculation but with uniform taxation across goods and services. This is exceptionally easy computability as some goods are sold as services, like a food in a restaurant, and vice versa. The proposed framework rides on the current principles but is slightly different when it calculates the interstate sales. The interstate sales are handled by an integrated GST model. This system ensures correct allocation of SGST and CGST and the correct flow of money between the state and central exchequers.

How does it impact the overall economy of India?

  • It would not only widen the tax regime by covering goods and services but also make it transparent.
  • It is predicted that an overall economic growth of at least 2% is anticipated once GST is implemented.
  • It would free the manufacturing sector from cascading effect of taxes, thereby improving the cost-competitiveness of goods and services.
  • It would subsume all indirect taxes at the center and the state level.
  • It would create a business-friendly environment, thus by increase tax-GDP ratio.
  • It would bring down the prices of goods and services and thereby, increase consumption.
  • It would enhance the ease of doing business in India.

0% Tax:

There is no tax for some items here is the list of those.

Fresh meat, fish, chicken, eggs, milk, buttermilk, curd, natural honey, fresh fruits, and vegetables, Flour, Besan, bread, salt, bindi, sindoor, Stamps, judicial papers, printed books, newspapers, bangles, handloom, hotels, and lodges with tariff below Rs 1,000 and Jute.

0.25% Tax:

Rough Diamonds.

3% tax:


5 % Tax:

Apparel below Rs 1,000, Packaged food items, coffee, tea, spices, pizza bread, Footwear below Rs 500, Cream, Skimmed milk powder, branded pannier, frozen vegetables, Rusk,  coal, medicines, stent, lifeboats, Fish fillet, Kerosene, transport services (railways, air transport) and small restaurants.

12 % Tax:

Frozen meat products, butter, cheese, ghee, dry fruits in packaged form, Animal fat, sausage, fruit juices, Ayurvedic medicines, Tooth powder, agarbatti, coloring books, picture books, umbrella, Sewing machine, Cell phones, non-AC hotels, business class air ticket, fertilizers, work contracts, Apparel above Rs 1,000.

18 % Tax:

Footwear costing more than Rs 500, Biscuits (all categories), flavored refined sugar, pasta, cornflakes, pastries, and cakes, Preserved vegetables,  telecom services, IT services, branded garments , jams, sauces, soups, ice cream, Instant food mixes, mineral water, Tissues, envelopes, tampons, notebooks, Steel products, printed circuits, camera, speakers, and monitors, AC hotels that serve liquor, and financial services.

28 % Tax:

Alcohol, bidis, cigarettes, cigars, chewing gum, Molasses, chocolate not containing cocoa, Waffles and wafers coated with chocolate, pan masala, aerated water, paint, Deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, Water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, five-star hotels, race club betting, cinema.

Disadvantages and Demerits of GST

There are some disadvantages in GST here is the list of demerits of GST.

  • The Higher tax burden for manufacturing SMEs.
  • Change in business software.
  • The increase in operating costs.
  • Mid-year GST implementation is more complications.
  • An increase in taxes will lead to increase in prices.
  • Petroleum products are not part of GST.
  • Need for registration in different states.
  • Problems faced by e-commerce.
  • Composition scheme is not available for many.
  • No anti-inflationary measures.

Thanks for visiting Awareness Adda. Keep in touch with us. Thank you.