Categories: Trademark

What is GST in India: Components, Impact, Advantages

Author

MGCO

Published On

16 Dec 2022

What is GST?

GST (Goods and Service tax) is described as an Indirect Tax which has replaced many Indirect Taxes in India. Simply, it is a Comprehensive, multi-stage, destination-based tax that levied on the supply of goods and services on every value addition. The GST Law was passed in the Parliament on 29th March 2017. But it came into effect on 1st July 2017. This law has replaced many indirect tax laws that previously existed in India.

For more information regarding GST Enrolment, must follow our blog.

Therefore, before GST, the pattern of tax levy was as follows:

But after the introduction of Goods and service tax, all the taxes have been subsumed such as Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi etc. Besides, it has been proven the biggest indirect tax reforms in the country. The motive behind the introduction of Goods and service tax is to bring together state economies and improve the overall economic growth of the nation. In intra-state sales case, there are two kinds of GST i.e Central GST and State GST whereas inter-state sales will be charged to integrated GST.

Let us understand the concept of Goods and service tax at multi-stage given below:

Consult Us

Multi-stage

From manufacture to the final sale to the consumer, there are multiple change-of-hands an item goes through along its supply chain. Consider the following case:

Purchase of raw materials
Production or manufacture
Warehousing of finished goods
Sale to wholesaler
Sale of the product to the retailer
Sale to the end consumer

Goods and Services Tax will be levied on each of these stages which makes it a multi-stage tax.

Value Addition

In the above figure, the manufacturer who makes biscuits buys flour, sugar, and other material. When the flour and sugar are mixed and baked into biscuits then the value of the inputs increases. Then, the manufacturer sells the biscuits to the warehousing agent who packs large quantities of biscuits and labels it. Here, another addition of value will occur after which the warehouse sells it to the retailer. He packages the biscuits in smaller quantities and invests in the marketing of the biscuits. Therefore, its value increases. On the other hand, Goods and services tax will be levied on these value additions i.e the monetary worth added at each stage to achieve the final sale to the end customer.

Why there is a need for GST in India?

In the current regime, Goods and service tax launching is taken as a significant step in the reform of indirect taxation in India. The nation was dealing from so long with the double taxation system, cascading, a multiplicity of taxes, taxable events, classification issues etc but the amalgamation of various central and state taxes into a single tax would help the country to get rid of all of them.

Impact of GST on Indian Economy

Following are the benefits offered by Goods and services tax to the Indian Economy:

Boosting factor to Foreign investment as well as for Make in India campaign and created a unified common national market
Boosting factor to export and manufacturing activity and leads to substantive growth
Eradicate poverty by generating more employment
Constant SGST and IGST rates to reduce the incentive for tax evasion.

Impact of GST on Consumers

Following are the benefits for consumers:

Simple tax system
Reduce the prices of goods and services due to the elimination of cascading
Constant prices throughout the country
Proper transparency in a taxation system
Raise employment opportunities

Consult Us

Impact of GST on Traders

Following are the positive impact of Goods and services tax on Traders:

Reduce multi-taxes
Mitigate cascading through an input tax credit
Efficient and effective neutralization of taxes especially for exports
Developed a common national market
Simple tax regime
Fewer rates
Fewer exemptions
No need for the distinction between Goods and Services

Conclusion

By all means, to take this step was never easy but however, the government is still trying to make the path of GST smooth and simple. Besides, it is equally important to have a look at global economies that have implemented GST previous to us and who are doing very well and had an experience in having a unified tax system & easy input credits.

MGIndia