GST or Goods and Service Tax is essentially an Indirect Tax which has replaced many other Indirect Taxes in India. The GST Act came into effect on 1st July 2017.
This blog aims to help you understand all about the technicalities of GST specifically for Tamil Nadu including the concept of GST, how it is different from other taxes, gst advantages and disadvantages, rates applicability of GST, and its impact on businesses.
What is GST?
The Goods and Services Tax or GST refers to a value-added tax that is levied on goods and services across the country. As an umbrella tax structure, GST aims to bring a lot of black money back into the mainstream economy and presents India as a unified market to business owners as the tax gets implemented at every step of value creation.
Put simply, GST is-
- A comprehensive and destination-based tax that is applied to every stage of value addition
- The GST law has replaced several other indirect tax laws that previously existed under the Indian Taxation structure.
- It is one tax for the entire country where the tax is levied at every point of sale.
How is GST different from other taxes?
Subsuming several existing indirect taxes being levied by the Centre and State Governments including VAT, Central Excise duty, Service Tax, Purchase Tax, Central Sales Tax, Local Body Taxes, and Octroi among others, GST brings consolidated benefits to all the stakeholders such as government, industry, and the citizens.
GST lowers the cost of goods and services, makes the products and services globally competitive and boosts the overall economy.
There are primarily four taxes applicable under this system, as discussed below-
- CGST– It is collected by the central government of India on an intra-state sale (e.g., transaction happening within the state of Tamil Nadu)
- SGST– It is collected by the respective state government on an intra-state sale (e.g., transaction happening within the state of Tamil Nadu)
- IGST– It is collected by the central government for inter-state sale (Eg: Tamil Nadu to Gujarat)
- UTGST- This is applicable in the five union territories.
In most of the cases, the tax structure under the new regime is as follows-
- a) For sale within the state-
CGST + SGST (instead of VAT + Central Excise/Service tax in earlier tax regime)
- b) For sale to another state-
IGST (instead of Central Sales Tax + Excise/Service Tax in earlier tax regime)
Let’s understand this better with an example
If a dealer in Tamil Nadu had sold the goods to a dealer in Maharashtra worth Rs. 40,000, the tax rate, in this case, is 18% comprising only IGST. The dealer has to charge Rs. 7,200 as IGST and this revenue will go to the Central Government.
Now assume that the same dealer sells goods to a consumer in Tamil Nadu worth Rs. 40,000. The GST rate on the goods is 12%. This rate comprises of CGST at 6% and SGST at 6%. The dealer, therefore, has to collect Rs. 4,800 as Goods and Service Tax from which Rs. 2,400 will go to the Central Government and Rs. 2,400 will go to the Tamil Nadu government as the sale is within the state.
Important Points Regarding Implementation of GST in Tamil Nadu
- With a gst code 33, Tamil Nadu rolled out the goods and services tax (GST) on 1st July, 2017 for which the state government brought almost 86% of the dealers under the new tax regime.
- Customization of software for GST brought in place by passing state GST bill by Tamil Nadu government.
- State-wide training of officials and traders have been conducted along with upgrading of necessary software and hardware.
- Data from India today shows that Tamil Nadu is one of the top contributors of GST in the first five months of its implementation (till 30th November 2017).
- All Tamil Nadu businesses that successfully register under GST are assigned a unique GSTIN or Goods and Services Tax Identification Number.
If your business operates from any other state than Tamil Nadu, then a separate GST registration is required for that state. Similarly, any business with multiple business verticals in the state of Tamil Nadu needs to obtain a separate registration for each business vertical.
Who is liable to pay GST?
GST needs to be paid by all the businesses and traders with annual sales above Rs 20 lakh. In the case of northeastern and other special category states, the threshold for paying GST is Rs 10 lakh.
GST is applicable on all kinds of inter-state trade irrespective of this threshold.
How GST benefits Tamil Nadu?
Among the primary benefits of GST include-
Eliminates the cascading effect of tax
Being a comprehensive indirect tax, GST is aimed to bring indirect taxation under one single platform and successfully eliminates the cascading effect of ‘tax on tax‘ structure in the earlier regime.
GST brings greater transparency on the taxes levied on the supply of goods and services. Before the implementation of GST when a product was purchased, the common man only used to see the state taxes on the product label instead of the embedded tax components. Implementation of GST brings greater transparency to the system with one unified tax structure.
Simple online procedure
The entire process of GST (right from registration to filing returns) is made online and becomes super simple. This is beneficial for small businesses and startups as they do not have to run around to get different registrations such as excise, VAT, and service tax.
Lesser number of compliance
Under GST, there is a single unified return to be filed, thus reducing the number of returns to be filed in the earlier tax regime.
The introduction of GST was a huge step taken by the Indian government. To fully understand the benefits of GST to a particular state such as Tamil Nadu, the first requirement is to have a thorough conceptual understanding of GST and how it works.
All in all, GST is a positive step in bringing about parity between manufacturing and consuming states. However, owing to the present pandemic and recent changes announced in the GST bill, it will take some time to conclude the ongoing effects of GST.