Top 12 Features of Goods and Services Tax in India

Indian Prime Minister Atal Bihari Vajpayee formed a committee to draft the GST Bill in 2000. The UPA government introduced the Bill in Lok Sabha in 2012, and the NDA government reintroduced the Bill after many changes in 2014. Parliament's two houses passed the Bill later in the year 2017.GST in India brought about a paradigm shift in how businesses work and has helped to minimise the confusion surrounding the tax system. Other than just simplifying the tax structure, other merits of GST include a reduction in tax evasion and the tax burden on businesses and a boost to the logistics sector by eliminating unnecessary procedures at each stage.GST is levied on the supply of goods and services. GST Law is a comprehensive, multi-stage, destination-based tax levied on every value addition. It is a single domestic indirect tax law for the entire country. Also read: How Does GST Work in India?

The following are the main features of GST:

1. Single indirect tax in GST

GST has been introduced as a single, unified tax reform that has eliminated other indirect centre and state taxes, like Central Value Added Tax, Special Additional Duty of Customs, Service Tax, and VAT and converted them into a single tax. The elimination of these taxes has not only made compliance easier for businesses but has also helped make many goods and services more affordable for consumers.

2. Input Tax Credit System in GST

One of the most prominent GST features is the input tax credit. If a manufacturer or service provider has already paid input tax on a purchase, the same can be deducted from their total output tax liability. The input and output invoices must match to take advantage of the tax credit. This helps remove the cascading tax effect or the traditional 'tax-on-tax' regime. Moreover, it also helps in reducing tax evasion.

3. GST composition scheme

SMEs with an annual turnover of up to Rs. 1 crore or Rs. 75 lakh in specified states can also voluntarily opt for the composition scheme. With this scheme, businesses can pay a fixed GST rate of 1% on their turnover. However, such businesses can then not use the input tax credit benefit. A business must select whether to use the composition scheme or the input tax credit feature.

4. Four-tier tax structure in GST

GST has a 4-tier tax structure of 5%, 12%, 18%, and 28%. All goods and services can only be taxed as per this tax structure. Many essential commodities, such as food items, do not have any GST. Improved transparency and cheaper goods and services are two of the biggest advantages of this 4-tier structure.GST has revolutionised how businesses pay taxes by streamlining the complex web of taxes into a comprehensive multi-stage system that includes all the components in the supply chain and supports businesses at each step of value addition.

Here are some key points highlighting the significance of GST:

1. Unified Market: GST transforms India into a common national market by dismantling state-level entry taxes and barriers. This boosts inter-state trade, reduces logistics inefficiencies, and enhances business efficiency.
2. Enhanced Competitiveness: GST streamlines the taxation system across states, creating a level playing field for businesses across regions. This promotes healthy competition, boosts manufacturing, and encourages businesses to optimise their supply chains.
3. Higher Compliance: The technology-driven GST system encourages higher compliance rates among taxpayers. With online filing and transparent processes, it becomes more difficult for businesses to evade taxes.
4. Improved Input Tax Credit: GST allows businesses to claim an input tax credit on taxes paid at earlier supply chain stages. This mechanism reduces the tax burden on businesses and prevents tax cascading.
5. Boost to Economic Growth: By promoting efficiency, reducing tax barriers, and enhancing trade, GST contributes to economic growth. It attracts investment, creates jobs, and stimulates overall economic activity.
6. Formalisation of Economy: GST incentivises businesses to operate within the formal economy due to the transparency and compliance requirements. This helps in widening the tax base and curbing black money.
7. Government Revenue: GST provides a more stable and predictable source of revenue for both the central and state governments. It facilitates effective revenue planning and expenditure management.
8. Harmonisation of Tax Rates: GST aims to standardise tax rates across goods and services, reducing complexity and confusion for taxpayers and ensuring a more consistent tax structure.

Under GST, businesses must register and collect taxes based on their taxable supplies. The importance of GST is levied at each stage of the supply chain, with the final consumer bearing the tax burden. It is a streamlined indirect tax system that replaced India's previous multi-tiered tax structure.The Goods and Services Tax (GST) has four types: 1. Central GST (CGST) 2. State GST (SGST) 3. Integrated GST (IGST) and 4. Union Territory GST (UTGST) Also read: Tax Systems Before GST and After GST?

GST benefits consumers, the government, businesses, and industries. Here are a few advantages of the Goods and Services Tax:

- Simple compliance

The GST regime in India is built on a solid and comprehensive IT system. To make compliance simple and transparent, all taxpayer services, including registration, payment, returns, and more, are accessible to citizens online.

- Uniformity of tax rates and structures

By ensuring that indirect tax rates and structures are consistent across the board, the GST increases certainty and simplifies business. In other words, irrespective of the company's location, conducting business in the country would be tax-neutral, thanks to the GST.

- Better leakage controls

Another merit of GST is that the robust IT infrastructure it has brought on improves tax compliance. The easy transfer of input tax credits from one level to the next in the stream of value addition makes it possible for the GST to have a built-in mechanism to encourage businesses to pay their taxes on time.

Implementing GST in India has taken a big step toward restructuring indirect taxation. The issue of double taxation has been resolved, and a common national market has been developed by combining many states and central taxes into a single tax.The advantage from the customers' perspective is a decrease in the total tax burden on goods and services. The effective implementation of GST also sends a clear message to foreign investors about India's unrivalled capacity to support enterprises across various industries.