Last Updated on 9 months by Anoob P T
When I started working on my own business, one of the concepts I had to learn was GST.
Many people have asked me, “What is GST in Simple Words?”
GST or Goods and Services Tax was implemented in India on 1st July 2017 and at the time of launch, I remember there was lot of confusion about GST related terms, slabs, benefits and everything else.
If you can’t explain it simply, you don’t understand it well enough
Albert Einstein
I will try to explain what is GST in simple words and address some other questions related to GST in the simplest possible manner.
Table of Contents
What is GST in simple words?
GST or Goods or Service Tax when it was rolled out was one of the biggest tax reforms in modern India. GST was implemented in India via the 101 Constitution Amendment Act.
As you probably know under GST, State and the Central Government of India can collect a unified tax instead of the pre-GST seperate tax which was a big hinderance for smooth business accounting.
To take you back to the pre-GST era, “Service Tax” was levied by the Central governnment and “VAT” (or Value Added Tax) was levied by the State government.
After the rollout of GST, cental and state govermnet taxes such as Service tax, entertainment tax, VAT, excise duty etc was merged into one form of taxation called as GST.
In simple words, GST is a combination of 17 indirect taxes which only excluded two categories alcohol and petroleum.
Basic Framework of GST
If you remember when GST was rolled out, there were advertisements that carried the message, “One Nation One Tax” but it is not quite accurate.
For a large and bureaucratic country like India, it is almost impossible to have a single tax system.
Therefore there are three main framework for GST.
Central GST (CGST): Centre Govt. will impose on supply of goods and services within a state.
State GST (SGST): State Govt. will impose on the supply of goods and services within a state.
Integrated GST (IGST): Centre Govt. imposes IGST on the inter-state supply of goods and services.
Tax Rates
The tax rates, also referred as Revenue Neutral Rate (RNR) is a 3 tier structure
(a) 12% – The rate is lower for items consumed by poor.
(b) 18% – Standard Rate. This covers most of the goods and services that we use.
(c) 40% – Demerit Rate. The rate is for luxury items, to tax the rich people.
GST – Supply of Goods and Services
To help you understand GST in simple words, we will now try to explain the concept of what exactly are goods and services.
Before the implementation of GST, goods and services were taxed at the place or orgin or at the suppliers end. After GST, the taxation is focused at the consumption end.
Let’s look at the definition of Goods and Service.
- Supply of Goods: In the case of physical movement of the goods, the final destination of the goods, where the good is received, will be the place (State) of supply of goods. For example, if a product is dispatched from Karnataka to Delhi. The place of supply of goods is Delhi.
- Supply of Services: The place(state) of supply of services depends on the nature of the service, which makes this section tricky.
For example, place of supply of services for an coworking space designer. If the coworking space design firm is based in Delhi but providing the service in Bangalore, then the place of service supply will be Delhi. This means that the firm would have be registered at both places and GST eliminates this.
Benefits of GST
- Ease of Doing Business: India has always been known as a country that was not easy to do business in. But with the introduction of GST, things have become a lot easier. Prior to GST, there were 17 indirect taxes and each state had its own VAT. Now with GST, there is a unified slab and it is easier for business to expand geographically.
- Improved Tax Compliance: One of the reasons why Indian government decided to implement GST is to help collect more taxes. With GST, all businesses are now forced to demand the invoice and resulted in improved tax compliance.
A lot of times I had noticed that many businesses were not insisting on invoice or bills after delivering a service because it was easier to avoid showing this as a transaction and thereby taxes.
As GST is applicable from the origin (supply) to the destination (consumption), all parties associated with the transaction, even last mile has started demanding invoice and showing the transaction in company books.
If the taxpayer does not claim input tax credit, then the business will lose the equivalent to GST input. This indirectly has forced businesses to be better tax compliant.
In Favour of Small Businesses: The GST and tax collection scheme is now more focused towards businesses with higher turnover (more than INR 50 Lakhs)
Taxpayers earning more than 50 lakhs have to declate thier net worth.
If you are a taxpayer with turnover of less than INR 50 lakhs, you can use composition levy that is capped at 2.5%.
If you are a professional with gross receipt of less than 50 lakhs, then you can use presumptive taxation scheme i.e. you can consider 50% as income/profit and pay income tax.
All of this indicates that the government is trying to get bigger businesses to pay thier euqal share of tax rather than demand more tax from smaller businesses.
What is GST number
In every country that has a tax system, a taxpayer whether business or professional has to be registered under the taxation authority.
When you register with a tax department, you are assigned a specific number that is used for filing taxes and getting refunds.
In GST, the taxpaer has to mandatorily register at the place of supply and is alloted a 15 digit GST Identification Number called “GSTIN”
In simple words, GST Identification number or GST is a PAN based number which is provided to the taxpayer at the time of GST registration. You should note that without a GSTIN, no individual or business can collect tax from customers or claim Input Tax Credit.
The format of GSTIN is :
15 CCCCC0000C 5 Z 2
Where,
15 represents the state code
CCCCC0000C represents Permanent Account Number
5 represents entity number of the same PAN holder in the state
Alphabet “Z” by default
2 represents check sum digit.
The registration for all the taxes i. e. CGST, SGST, UTGST, IGST is singular.
The process for obtaining GST number is an online process or it can be obtained through GST Seva kendra set up by the Government of India. Obtaining GSTIN is free of cost.
GST interest calculator
What is GST calculator?
GST calculator is an online calculator that helps you understand the GST payable for the month or the financial quarter.
The online GST calculator can be used by all types of users including manufactures, distributors and even buyers.
Advantages of GST Calculator
- GST calculator helps you determine net or gross product price on percentage based on applicable GST rates.
- GST calculator can be used to compute rates between
- It also helps to compute different rates between SGST, CGST, and IGST accurately.
- The GST calculator helps prevent human errors and shows instant results saving time.
Formula for GST Calculation:
This is the formulae for GST calculation for any business:
Where GST is excluded:
GST Amount = (Value of supply x GST%)/100
Price to be charged = Value of supply + GST Amount
Where GST is included in the value of supply:
GST Amount = Value of supply – [Value of supply x {100/(100+GST%)}]
GST State Code (all states)
The GST state code list is used by a taxpayer while registering for GST and entering invoice details in GST Returns.
Below is a list of all the GST State Codes:
| STATE | State code list under GST | STATE | State code list under GST |
| Jammu & Kashmir | 1 | West Bengal | 19 |
| Himachal Pradesh | 2 | Jharkhand | 20 |
| Punjab | 3 | Orissa | 21 |
| Chandigarh | 4 | Chhattisgarh | 22 |
| Uttarakhand | 5 | Madhya Pradesh | 23 |
| Haryana | 6 | Gujarat | 24 |
| Delhi | 7 | Daman & Diu | 25 |
| Rajasthan | 8 | Dadra & Nagar Haveli | 26 |
| Uttar Pradesh | 9 | Maharashtra | 27 |
| Bihar | 10 | Andhra Pradesh (Old) | 28 |
| Sikkim | 11 | Karnataka | 29 |
| Arunachal Pradesh | 12 | Goa | 30 |
| Nagaland | 13 | Lakshadweep | 31 |
| Manipur | 14 | Kerala | 32 |
| Mizoram | 15 | Tamil Nadu | 33 |
| Tripura | 16 | Puducherry | 34 |
| Meghalaya | 17 | Andaman & Nicobar Islands | 35 |
| Assam | 18 | Telengana | 36 |
| Andhra Pradesh (New) | 37 |
