NAME: JINTAN JAIN
ROLL NO: HTBC218
GROUP NO: B11
DIVISION: B
SUBJECT: INDIRECT TAX
TOPIC: INTRODUCTION TO GST
Introduction to GST
Goods and Services Tax (GST) is a comprehensive indirect tax levied
on the supply of goods and services in many countries worldwide. It is a
multi-stage, destination-based tax designed to replace multiple indirect
taxes, simplifying the taxation system.
Key Features of GST
1. Comprehensive Tax – It subsumes various indirect taxes like
VAT, service tax, excise duty, and other levies.
2. Destination-Based – Tax is collected at the point of consumption,
not at the point of production.
3. Multi-Stage Taxation – Levied at each stage of the supply chain,
with credit for taxes paid on inputs.
4. Input Tax Credit (ITC) – Businesses can claim credit for taxes
paid on inputs, reducing the tax burden.
5. Uniform Tax Structure – Ensures a uniform tax rate across
different states, reducing economic disparities.
Types of GST in India
1. CGST (Central GST) – Collected by the central government.
2. SGST (State GST) – Collected by the state governments.
3. IGST (Integrated GST) – Collected on inter-state transactions by
the central government.
4. UTGST (Union Territory GST) – Applicable in Union
Territories.
Benefits of GST
Eliminates the cascading effect of taxes.
Promotes ease of doing business.
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Increases tax compliance and transparency.
Boosts economic growth by unifying the market.
GST has been widely adopted across many countries, with India
implementing it on July 1, 2017, revolutionizing the taxation system.
1.1 What is GST
Goods and Services Tax (GST) is a comprehensive, multi-stage,
destination-based tax levied on the supply of goods and services. It is
designed to replace multiple indirect taxes such as excise duty, VAT,
service tax, and other state and central levies, creating a unified taxation
system. GST aims to eliminate the cascading effect of taxes, where tax
is applied on tax, thereby reducing the overall tax burden on consumers.
GST operates on the principle of input tax credit (ITC), meaning
businesses can claim credit for taxes paid on inputs, reducing the tax
liability at each stage of production and distribution. This helps in
reducing costs and making goods and services more affordable.
It is a destination-based tax, meaning the tax is collected in the state
where the goods or services are consumed rather than where they are
produced. GST is divided into three components: CGST (Central
GST), SGST (State GST), and IGST (Integrated GST), ensuring a
fair distribution of revenue between the central and state governments.
GST simplifies compliance through an online system for registration,
filing, and tax payments. By making taxation more transparent and
efficient, GST fosters economic growth, boosts government revenue,
and enhances ease of doing business in the country.
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1.2 Need for GST
The introduction of the Goods and Services Tax (GST) was essential
to reform India’s complex and fragmented taxation system. Before
GST, businesses had to comply with multiple indirect taxes at both
the central and state levels, leading to inefficiencies, tax cascading,
and compliance difficulties. The need for GST arose to streamline the
taxation process, improve transparency, and create a unified market.
Elimination of Tax Cascading
Before GST, indirect taxes such as excise duty, VAT, and service tax
were levied at different stages without a mechanism for input tax
credit across the entire supply chain. This led to tax on tax,
increasing costs for businesses and consumers. GST introduced a
seamless input tax credit (ITC) system, ensuring that taxes paid on
inputs can be set off against taxes on outputs, reducing the overall tax
burden.
Simplification of the Tax Structure
India previously had a complex tax structure with multiple levies such
as excise duty, VAT, CST, octroi, entry tax, luxury tax, and
service tax. Each state had different tax rates, leading to confusion
and inefficiencies. GST replaced these with a single, nationwide tax
system, making compliance easier for businesses.
Creation of a Unified National Market
Before GST, businesses faced challenges in inter-state trade due to
different state-level taxes and checkpoints, causing delays and
increased costs. GST has removed these barriers by ensuring a
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consistent tax rate across states, allowing for smoother movement of
goods and services. This promotes a common national market,
benefiting businesses and consumers alike.
Boosting Economic Growth
GST enhances economic efficiency by reducing business costs,
encouraging investment, and making Indian products more
competitive in global markets. With lower compliance costs, fewer
tax disputes, and a transparent system, businesses can focus on
growth rather than tax complexities
1.3 Dual GST Mode
India follows a Dual GST Model, meaning that both the Central
Government and State Governments levy and collect GST on a
common tax base. This model was adopted to ensure a balanced taxation
system, as both levels of government have the right to impose taxes
under the Constitution.
1. Structure of Dual GST
Under this system, GST is divided into three components:
1. CGST (Central Goods and Services Tax) – Collected by the
Central Government on intra-state (within the same state)
transactions.
2. SGST (State Goods and Services Tax) – Collected by the
respective State Government on intra-state transactions.
3. IGST (Integrated Goods and Services Tax) – Collected by the
Central Government on inter-state (between different states)
transactions and imports.
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2. How Dual GST Works
When a transaction occurs within a state, both CGST and SGST
are applied at an equal rate, and the revenue is shared between the
central and state governments.
For inter-state transactions, IGST is levied, and the tax revenue is
later apportioned between the central and destination state.
3. Benefits of the Dual GST Model
Ensures Revenue for Both Governments – Helps maintain
financial autonomy for both the Centre and States.
Prevents Double Taxation – Eliminates overlapping taxes,
reducing the burden on businesses and consumers.
Creates a Uniform Taxation System – Provides a single tax
framework, ensuring ease of doing business across states.
Improves Tax Compliance – A structured and automated system
reduces tax evasion and promotes transparency
1.4 Definitions
Goods and Services Tax (GST) – A comprehensive, multi-stage,
destination-based tax levied on the supply of goods and services,
replacing multiple indirect taxes.
CGST (Central Goods and Services Tax) – The tax levied by the
Central Government on intra-state supplies of goods and services.
SGST (State Goods and Services Tax) – The tax levied by the
State Government on intra-state supplies of goods and services.
IGST (Integrated Goods and Services Tax) – The tax levied by
the Central Government on inter-state supplies of goods and
services, later distributed to the destination state.
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UTGST (Union Territory Goods and Services Tax) – The tax
levied on intra-UT (Union Territory) supplies, replacing SGST in
Union Territories without legislatures.
Input Tax Credit (ITC) – A mechanism allowing businesses to
claim credit for the tax paid on inputs, reducing the overall tax
liability.
Destination-Based Tax – A taxation system where the tax is
collected in the state where goods or services are consumed, not
where they are produced.
Supply – Includes the sale, transfer, barter, exchange, rental, lease,
or disposal of goods and services for consideration in the course of
business.
Composite Supply – A supply consisting of two or more
goods/services that are naturally bundled and supplied together,
where one is the principal supply.
Mixed Supply – A supply of two or more independent
goods/services provided together but not naturally bundled, taxed
at the highest applicable rate.
Taxable Person – Any individual, business, or entity registered
under GST and liable to pay tax.
GSTIN (GST Identification Number) – A unique 15-digit
number assigned to every registered taxpayer under GST.
Reverse Charge Mechanism (RCM) – A system where the
recipient, instead of the supplier, is liable to pay GST directly to
the government.
Exempt Supply – Supplies that are not subject to GST, such as
essential goods and services.
Zero-Rated Supply – Exports and certain specified supplies on
which GST is not charged, but input tax credit can be claimed.
These definitions form the foundation of the GST framework and
help in understanding the taxation process better.
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1.5 Goods and service tax network (GSTN)
Goods and Services Tax Network (GSTN) is a non-profit, private
limited company that manages the IT infrastructure for the
implementation of GST in India. It provides a single digital platform
for taxpayers, government agencies, and other stakeholders to ensure
seamless tax administration.
1. Role of GSTN
GSTN is responsible for:
Taxpayer Registration – Issuing GST Identification Numbers
(GSTINs).
Return Filing & Processing – Enabling businesses to file GST
returns online.
Tax Payment & Refunds – Facilitating secure digital payments
and refund processing.
Invoice Matching – Ensuring transparency by verifying input tax
credits.
Data Analytics & Compliance Monitoring – Detecting tax fraud
and improving compliance.
2. Structure of GSTN
Established as a private company under Section 8 of the
Companies Act, 2013.
Stakeholders:
o 49% Government ownership (Central and State
Governments).
o 51% Private ownership (later transferred to the
Government).
3. Benefits of GSTN
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Automated and Paperless Tax System – Reduces manual
intervention and errors.
Secure and Scalable IT System – Handles millions of transactions
daily.
Simplifies Compliance for Taxpayers – Single platform for all
GST-related activities
Conclusion
Goods and Services Tax (GST) is a transformative tax reform that
has streamlined India’s indirect taxation system. By replacing
multiple taxes with a unified structure, GST has eliminated
complexities, reduced tax cascading, and created a transparent,
efficient, and business-friendly environment. Its destination-
based and multi-stage nature, along with the input tax credit
mechanism, ensures fair taxation while reducing the overall
burden on businesses and consumers.
The Dual GST Model allows both the Central and State
Governments to levy taxes, ensuring balanced revenue
distribution. Additionally, the introduction of GSTN (Goods and
Services Tax Network) has enhanced digital compliance, making
tax administration more efficient.
GST has not only improved tax compliance but also boosted
economic growth by facilitating a unified national market,
reducing logistical inefficiencies, and increasing government
revenue. While there were initial challenges during its
implementation, continuous reforms and simplifications have made
GST more adaptable and beneficial for all stakeholders.
Overall, GST has revolutionized India’s taxation system,
fostering transparency, ease of doing business, and economic
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development. It continues to evolve, making India’s tax structure
more robust and globally competitive.
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