Everything you wanted to know about Goods & Services Tax (GST)

Goods & Services Tax (GST) is the biggest tax reform that we have witnessed in recent years. It brought together a completely unified tax structure replacing the indirect taxes like VAT, Services tax, Excise duty, etc. The primary goal of implementing GST was to reduce the cascading effect of taxes and pass on the benefit in the form reduced prices to end consumers.

It was also supposed to boost the GDP by at least 1%.

To understand GST, we have to first look into what constitutes the GST.

GST constitutes of two three components - SGST, IGST and CGST. All state levied taxes such as Luxury tax, entertainment tax, and VAT (Value Added Tax) were merged to form SGST (State Goods & Services Tax). Central levied taxes such as Customs duty, excise duty, service tax, etc. were merged to form CGST (Central Goods & Services Tax). With the introduction of GST, there is no relevance of VAT as both are clubbed into a single umbrella. A business owner should be well-versed with GST rates, HSN codes, SAC codes, etc. so that they can calculate GST rates quickly and raise GST compliant invoices (without committing mistakes) at a faster pace.

How GST rates are levied?

There are 5 different brackets (0%, 5%, 12%, 18% and 28%) under which GST is levied. This tax is value-driven and multiple items are falling under each category. As a business owner, it is important to understand that GST will be levied where the services or goods are levied.

GST replaces the source based tax system with a destination based system; it is called as destination-based principle. For example, if a particular item e.g. mobile phone is manufactured in Karnataka but sold in Maharashtra, then the tax will be levied in Maharashtra. Hence, GST is not the same for all businesses.

Is GST registration compulsory?

This is one question that was & still haunting many business owners. The registration for GST is mandatory if the annual turnover of the business is Rs. 40 Lakh in a financial year and this is applicable even for special category states like Manipur, Mizoram, Sikkim, etc. In case the turnover of your business is below that threshold, the registration for GST is voluntary.

If your business is still using a legacy system that takes VAT and other taxes, you should migrate to GST. A better approach would be to make use of ERP software from a company

With ERP software from Tally Solutions, you can minimize the chance of rejection of your GST returns as these capabilities are built-in their software. You can also use the software to file GST returns, raise invoices, and every activity that you can relate to GST.

Types of GST

Below are the different types of GST:

  1. IGST - Interstate Goods & Services Tax
  2. CGST - Central Goods & Services Tax
  3. SGST - State Goods & Services Tax

Interstate GST will be levied if there is an interstate sale of goods & services. On the other hand, Central GST & State GST will be levied for intrastate sale of goods & services.

GST Tax Calculator

Experienced businessmen also find GST complicated on many occasions hence it can create nightmares for first-time business owners.

GST calculations for intra-state transactions are:

  • CGST = Applicable GST Rate / 2. If GST -> 18%, SGST = 9% and UTGST = 9%
  • SGST / UTGST = Applicable GST Rate / 2

GST calculations for inter-state transactions are:

  • IGST = Applicable GST Rate
  • GST Amount = (Original Cost*GST Rate Percentage) / 100
  • Net Price = Original Cost + GST Amount

If you want to perform reverse GST calculation, you can do the same using the GST tax calculator.

Conclusion

It is important to understand the tax regime appropriately whether you own a business or not. You should file the tax on time to avoid last-minute complications. GST is undoubtedly a tax reform that will be remembered for a long-long time. Having a GST tax calculator can ease the woes related to GST calculations.

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