The introduction of Goods and Service Tax has been an important step in the field of indirect tax reforms in India. Before GST came into effect, there was a multiplicity of indirect taxes and also their cascading effects, i.e. tax on tax at various stages as credit of taxes levied by one government was not available against the payment of taxes levied by another.
GST has been one of the greatest tax reforms in India which has a huge impact on businesses both; large and small, and thereby changing the way our economy functions. GST is a comprehensive indirect tax levy subsuming all central and state levy by a unified taxation system transforming the nation into a single market.
Major Central and State taxes will be subsumed into GST which will lower the overall compliance costs. The main goal of GST is to have a one nation one market and the avoidance of the cascading effect.
GST can be classified into the following types
- Central Goods and Service Tax (CGST) which is governed by The Central Goods and Service Tax Act, 2017.
- Integrated Goods and Service Tax (IGST) which is governed by the Integrated Goods and Service Tax Act,2017.
- State Goods and Service Tax (SGST) governed by the CGST Act.
- Union Territory Goods and Service Tax (UTGST), governed by The Union Territory Goods and Service Tax Act, 2017.
Further, depending upon the place of supply, GST supplies can be classified as
- Intra-State Supply
- Inter-State Supply
Central Goods and Service Tax (CGST)
The Central Goods and Service Tax is a provision for levy of tax on intra-state supply of goods and services both by the Central Government and the matters related to it. Here are some of the key terms with respect to CGST:
- Central Tax – Central Tax means the central goods and service tax levied under the CGST Act.
- Person – Person includes
- an individual,
- a Hindu undivided family,
- a company, a firm,
- a Limited Liability Partnership,
- an association of persons of individuals, whether incorporated or not; in India or outside India,
- any corporation established by or under any Central, State Act or Provincial Act or a Government company
- any body corporate incorporated by or under the laws of a country outside India,
- a co-operative society registered under any law relating to co-operative society,
- a local authority,
- Central Government or a state government
- Society as per the Societies Act,
- Trusts and,
- Every artificial juridical person, not falling within any of the above
Place of business includes
- a place from where the business is ordinarily carried on, and includes a warehouse, a go-down, or any other place where a taxable person stores his goods, supplies or receives goods or services both; or
- a place where a taxable person maintains his books of accounts
- a place where a taxable person is engaged in business through an agent by whatever name called.
- Principal Supply
Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming a part is ancillary.
- Address of Delivery
Address of delivery means the address of the recipient of the goods or services or both indicated on the tax invoice issued by a registered person for delivery of such goods or services or both.
- Business Vertical
Business vertical means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals. To identify this, factors that should be considered to determine whether the goods or services are related shall include taking into consideration the following:
- The nature of the requirements or services;
- The nature of the production processes;
- The type of class of customers;
- The methods used to distribute the goods or supply of services; and
- The nature of the regulatory environment (wherever applicable) including banking, insurance, or public utilities;
- Taxable Supply – Taxable supply means supply of goods or services which are leviable to tax and shall include zero-rated supplies too.
State Goods and Service Tax (SGST)
SGST is covered under The State Goods and Service Tax Act, 2017. The collection of tax through the levy of SGST will be a revenue for the State Government. With the introduction of SGST, all the state taxes such as Value Added Tax, Luxury Tax, Entertainment Tax, Entry Tax etc have been subsumed under SGST.
SGST shall be charged on Intra-state supplies of goods and services or both.
Integrated Goods and Service Tax (IGST)
IGST shall be levied on the inter-state supplies of goods and services or both, except on the supply of alcoholic liquor for human consumption.
IGST shall be charged on the value determined under CGST Act and the rate of IGST shall not exceed forty percent.
- All inter-state supplies shall be subject to IGST.
- The value of imported goods on which IGST shall be charged shall be determined under The Customs Act or the tariff value of such goods.
- There are no threshold limits with respect to the registration for persons making inter-state outward supplies and hence, a person making inter-state supplies has to register himself; compulsorily.
Hence, no unregistered person can make an outward inter-state supply but however, can make inward inter-state supplies.
UTGST ( Union Territory Goods and Service Tax )
UTGST as the name suggests is a tax for Union Territories. It is charged and levied when intra-state supply of goods and services or both is made along with CGST.
UTGST Act is applicable to the following territories –
- Andamans and Nicobar Islands
- Dadra and Nagar Haveli,
- Daman and Diu
- And any other territories as maybe specified.
When the location of supply and the place of supply are not in the same union territory, it is to be treated as an inter-state supply of goods or services.
NOTE – Delhi and Puducherry despite being union territories shall have applicable on them the SGST provisions and they will not fall under the parlance of UTGST Act.
Intra-State Supply and Inter-State Supply
- Intra-state Supply
Under GST when supply of goods and services are made within the state, or for a Union Territory within the Union Territory shall be treated as intra-state supply.
However, the supply of goods or services or both to a Special Economic Zone Developer or a Special Economic Zone Unit shall be treated as an inter-state supply even when their physical locations are within the same state.
- Inter-State Supply
Inter-state supply of goods or service means a supply of goods or services or both from a state to any other place outside it. A supply is an inter-state supply when in the following situations –
- When the place of supplier and the place of recipient are in two different states; or
- When the place of supplier and the recipient is in two different Union Territories or;
- When the one of them i.e the supplier or the recipient is located in a state and another one is located in a Union Territory.
To sum up the above, what type of GST shall be applicable on a transaction shall be determined through it’s place of supply. If it’s intra-state, CGST + SGST/UTGST shall be applicable. If it’s inter-state, IGST shall be applicable. For the transactions that happen within the same state or union territory but are considered as inter-state supplies, IGST shall be applicable.