Here’s Everything You Need To Know About GST

What Is GST?

The goods and services tax (GST) is an indirect tax for the whole country. GST came into effect on July 1, 2017, making India a unified common market. It is a multi-stage and direction-oriented tax imposed on the sale of goods and services and on every value addition. It replaced multiple indirect taxes, including VAT, excise duty, and service tax. GST is charged at each point of sale. 

What Was The Objective Behind Adopting GST?

The following were the objectives behind adopting GST:  

1. Elimination of multiple tax systems
2. Increase in compliance 
3. Boosting the country’s revenue
4. To reduce the prices

What Are The Types Of GST?

GST in India is classified into three categories: 

• State Goods And Service Tax (SGST): The SGST is levied by a state government on intra-state transaction of goods and services. The revenue collected is earned by the state government wherein this transaction takes place. SGST subsumes earlier taxes, such as VAT, octroi, purchase tax, and luxury tax. For union territories, the Union Territories Goods And Service Tax (UTGST) replaces SGST.
• Central Goods And Service Tax (CGST): The central government levies GST on intra-state transactions of goods and services and collects the revenue through CGST.
• Integrated Goods And Service Tax (IGST): The IGST is levied on inter-state transactions of goods and services. It applies to exports and imports as well. IGST is collected by the Centre and the revenue generated through this tax is shared between the central and the state governments.

How Does GST Work?

SGST & CGST

Suppose a trader from Madhya Pradesh sells goods to a consumer in Madhya Pradesh for INR 10K. The GST on the transaction will be divided between SGST and CGST. 

Say the GST rate is 18%. It will be divided between SGST and CGST at 9% each. The total amount charged by the trader will be INR 11.8K. The amount of GST will be INR 1.8K – SGST of INR 900 and CGST of INR 900. 

While SGST of INR 900 will go to the Madhya Pradesh government, the Centre will get the CGST of INR 900. 

IGST

For IGST, suppose a trader from Madhya Pradesh sells goods to a consumer in Maharashtra for INR 10K. In this case, the applicable GST will be IGST. 

Say the GST rate is 18%, then the entire amount will be charged as IGST. The total amount charged by the trader will be INR 11.8K. 

The central government will collect INR 1.8K as IGST. 

What Are The Advantages Of GST For Startups & Small Businesses?

Easy Compliance

All taxpayer services, including payments, returns, registrations and more, are available to the taxpayers online, making compliance easy and transparent.

Uniformity Of Tax And Structures

GST makes doing business in the country neutral, irrespective of the choice of place of doing business.

Removal Of Cascading

Minimal cascading of taxes reduces the hidden cost of doing business.

Improvement In Competitiveness

Reduction in business transaction costs improves competitiveness for trade and industry.

What Are The Exemptions For Startups & Small And Medium Businesses Under GST?

If the annual turnover of a business is less than the threshold limit of INR 40 Lakh for goods and INR 20 Lakh for services, then the business is exempted from the GST. Businesses are also exempted from GST if they operate in the supply of exempted goods and services categories. Goods and services like fresh milk and agricultural services are exempted from GST.

How To Register A Startup Or Small Business Under GST?

The following documents are required to register a business under GST: 

1. Owner’s passport-sized photo
2. Company’s PAN card
3. ID Proof (passport, Aadhaar card or driver’s license)
4. Certificate of association for LLP, OPC or private limited companies
5. Detailed bank account information
6. Partnership deeds for partnership firms

The following are the steps to register for GST:

1. Gather the mentioned documents.
2. Visit https://www.gst.gov.in/ to start the registration.
3. Create an account on the website.
4. Fill in personal and business information, goods details, HSN/SAC (Harmonized System of Nomenclature / Service Accounting Code) codes and bank details.
5. If everything has been filled correctly, a GST number will be provided.