New Delhi, July 1: Three years ago, the Indian government - after long-held deliberations with state governments and other stakeholders - replaced the multi-pronged taxation regime with the 'One Nation, One Tax' mechanism. The Goods and Services Tax (GST), which subsumed most other indirect taxes prevalent in India till then, came into effect on this date in 2017. The day is annually observed as the 'GST Day'. GST Day 2020: History and Significance of The Day That Commemorates Introduction of 'One Nation, One Tax' Regime in India.
What is Goods and Services Tax?
GST is a destination based tax. It follows a multi-stage collection mechanism. Under this system, tax is collected at every stage and the credit of tax paid at the previous stage is available as a set off at the next stage of transaction. This shifts the tax incidence near to the consumer and benefits the industry through better cash flows and better working capital management.
Indian GST System Explained
- The GST is applicable on the supply of goods or services as against the erstwhile concept of tax on the manufacture or sale of goods.
- It is a destination based consumption tax. This means that tax would accrue to the State or the Union Territory where the consumption takes place.
- The tax regime in India is a dual GST with the Centre and States simultaneously levying tax on a common tax base.
- The GST levied by the Centre on intra-State supply of goods or services is called as CGST, and that levied by the States is called SGST.
- The GST applies to all goods other than alcoholic liquor for human consumption.
- It is also exempted from the five petroleum products, viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel.
- The central taxes subsumed under the GST are Central Excise Duty, Special Additional Duty of Customs, Service Tax, Central Surcharge and Cesses.
- State taxes subsumed under the GST are VAT, Sales Tax, Entertainment Tax, Purchase Tax, Taxes on lotteries, State Surcharges and Cesses.
- Under the Indian GST regime, goods and services are categorised in one of the following five tax brackets: 0%, 5%, 12%, 18% and 28%.
GST is aimed at bringing buoyancy to the Government Revenue by widening the tax base and improving the tax compliance. GST is likely to improve India’s ranking in the Ease of Doing Business Index and was estimated to increase the GDP growth in the long-run.