Goods and Services Tax (GST) – Structure & Impact
🟠 Topic 60: Goods and Services Tax (GST) – Structure & Impact
📌 Introduction
The Goods and Services Tax (GST) is a landmark indirect tax reform that transformed India’s indirect tax structure. Introduced in 2017, GST replaced a complex web of multiple central and state taxes with a unified tax system, creating a ‘One Nation, One Tax’ regime. GST simplifies taxation, reduces cascading effect, and boosts ease of doing business.
🔹 Constitutional & Legal Provisions
| Provision | Description |
|---|---|
| 101st Constitutional Amendment Act, 2016 | Introduced GST in India |
| Article 246A | Gave concurrent power to Centre & States to levy GST |
| Article 279A | Established GST Council |
| GST Acts | CGST Act, SGST Act, IGST Act, UTGST Act |
🔹 What is GST?
📖 Definition
GST is a destination-based, comprehensive indirect tax levied on the supply of goods and services across India, replacing Central Excise, Service Tax, VAT, Entry Tax, etc.
Characteristics of GST
✔️ Destination-based tax – Levied at the place of consumption, not origin.
✔️ Value-added tax – Tax paid at every stage gets set off against output tax liability (Input Tax Credit).
✔️ Dual GST Model – Both Centre and States levy GST simultaneously.
✔️ Comprehensive coverage – Applies to goods and services uniformly.
🔹 Structure of GST
1️⃣ Dual GST Model
| Tax Component | Levied By | On |
|---|---|---|
| CGST (Central GST) | Central Government | Intra-state supply |
| SGST (State GST) | State Governments | Intra-state supply |
| UTGST (Union Territory GST) | UT Governments | Intra-UT supply |
| IGST (Integrated GST) | Central Government | Inter-state supply & imports |
2️⃣ GST Rate Structure
| Slab | Applicable Goods/Services |
|---|---|
| 0% | Unprocessed food, healthcare, education |
| 5% | Essential goods (edible oil, milk powder) |
| 12% | Processed food, mobile phones |
| 18% | Most services, electronics |
| 28% | Luxury items (cars, air conditioners) |
👉 Cess on demerit goods like tobacco, aerated drinks.
3️⃣ GST Council – Apex Decision-Making Body
| Member | Role |
|---|---|
| Union Finance Minister | Chairperson |
| State Finance Ministers | Members |
✔️ Decisions by 3/4th majority (Centre 1/3rd, States 2/3rd).
✔️ Recommend tax rates, exemptions, dispute resolution mechanisms.
4️⃣ Input Tax Credit (ITC)
- Allows set-off of taxes paid on inputs against output tax liability.
- Eliminates cascading tax effect.
Example:
Tax paid on raw materials: ₹100
Tax collected on final product: ₹150
Net GST payable: ₹150 – ₹100 = ₹50
5️⃣ GST Compliance System
✔️ GSTIN (GST Identification Number) – Unique ID for taxpayers.
✔️ GSTN (GST Network) – IT backbone handling filing & payment.
✔️ Monthly/quarterly returns filing (GSTR-1, GSTR-3B, etc.).
🔹 Taxes Subsumed under GST
| Central Taxes | State Taxes |
|---|---|
| Central Excise Duty | VAT (Value Added Tax) |
| Service Tax | Purchase Tax |
| CVD (on imports) | Entry Tax, Octroi |
| SAD (on imports) | Luxury Tax, Entertainment Tax |
🔹 Benefits of GST
1️⃣ Simplified Tax Structure
- Replaced multiple indirect taxes with one unified tax.
- Reduced tax compliance burden for businesses.
2️⃣ Removal of Cascading Effect
- Seamless input tax credit across supply chain.
- Reduces overall tax burden on consumers.
3️⃣ Improved Compliance
- Common digital platform (GSTN) ensures transparency.
- E-way bill system reduces tax evasion.
4️⃣ Boost to Make in India
- Uniform tax rates across states enhance competitiveness.
- Encourages inter-state trade and investments.
5️⃣ Increased Tax Revenue
- Wider tax base due to improved compliance.
- Tax buoyancy enhanced by integrating informal sectors.
Case Study – GST Impact on Logistics Sector
- Pre-GST: Trucks spent ~60% of transit time at state borders for tax clearance.
- Post-GST: Unified tax eliminated border checks, reducing logistics cost by 20%.
- Boosted warehouse consolidation and efficient supply chains.
🔹 Challenges in GST Implementation
1️⃣ Compliance Burden
- Frequent filings and reconciliations, especially for SMEs.
- Mismatch in input-output filings causes disputes.
2️⃣ Rate Instability
- Frequent rate changes create uncertainty.
- Sectors like real estate, textiles faced classification issues.
3️⃣ Refund Delays
- Exporters faced long delays in GST refunds, impacting working capital.
4️⃣ Compensation to States
- States were promised GST compensation for 5 years.
- COVID-19 revenue shortfall led to Centre borrowing on behalf of states.
5️⃣ Exclusions from GST
- Petroleum products, alcohol, electricity still outside GST.
- Limits seamless input tax credit across sectors.
🔹 GST Compensation Cess
- Additional cess on sin goods (tobacco, luxury cars).
- Funds used to compensate states for revenue loss during GST transition (2017-22).
🔹 GST Collections Trend
| Year | Monthly Avg Collection (₹ crore) |
|---|---|
| 2021-22 | ~1.2 lakh crore |
| 2022-23 | ~1.5 lakh crore |
| 2023-24 (April 2023) | ₹1.87 lakh crore (highest ever) |
🔹 GST and Ease of Doing Business
✔️ Improved India’s Ease of Doing Business Rank.
✔️ Enabled real-time tax compliance tracking.
✔️ One nation, one market facilitates seamless trade.
Case Study – GST & MSMEs
- Composition Scheme for small taxpayers (turnover < ₹1.5 crore).
- Quarterly returns (QRMP) for businesses with turnover up to ₹5 crore.
- Reduced compliance costs for small traders.
📚 Practice MCQ
1️⃣ Consider the following statements about GST:
- GST is a destination-based tax.
- GST is collected at the point of origin.
- GST allows seamless input tax credit across the value chain.
Which of the above statements are correct?
✅ Options:
(a) 1 and 3 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2, and 3
2️⃣ Which of the following taxes were subsumed under GST?
- Service Tax
- VAT
- Excise Duty
- Property Tax
✅ Options:
(a) 1, 2, and 3 only
(b) 2, 3, and 4 only
(c) 1, 3, and 4 only
(d) 1, 2, 3, and 4
