Chapter - 1

Basic concept of GST

1. What is GST?
2. What is the date from which GST came into force in India?
3. Which indirect taxes have been replaced with the implementation of GST?
4. What is the structure or framework of GST in India?
5. What is SGST?
6. What is CGST?
7. What is UTGST?
8. What is IGST?
9. What is the difference between CGST, SGCT, and IGST?
10. What is the meaning of “Goods” under GST?
11. What is the meaning of “Services” under GST?
12. How GST will be beneficial?
13. Drawbacks of GST
14. GST Abbreviations and their Full Forms
15. Frequently Asked Questions

1. What is GST?

The full form of GST is Goods and Service Tax. It is an indirect tax introduced in India from 1st
July 2017. It is a value-added tax levied on the manufacture, sale, and consumption of goods and
services. Alternatively, GST can be defined as a destination-based tax where the tax is collected
on the place where the ultimate consumption is done, no matter how long the journey of good
otherwise had been!! At every stage of supply, credit for, the taxes already paid on purchases or
inward supply is allowed. And, the final payout occurs from the pocket of the consumer of goods
or service. There are differential rates prescribed by Central Board of Indirect Tax & Customs
(CBIC). There is also a GST council set up to make and implement the by-laws.
GST stands for Goods and Services Tax. It is a new tax system in India that replaced multiple
indirect taxes like excise duty, service tax, and VAT. GST is a single tax that is levied on the sale
of goods and services across India.

2. What is the date from which GST came into force in

India?
With a lot of constitutional amendments and years of delay the Goods and Service tax finally
was made applicable in India from 1st July 2017. Although the foundation was laid way back in
2004 when the idea was initiated by the Kelkar Task Force. Since then, after a lot of discussions,
approvals and debates, GST successfully rolled out in the year 2017 as one of the biggest
taxation reforms witnessed by the Indian economy after the eve of Independence.

3. Which indirect taxes have been replaced with the

implementation of GST?
With the introduction of GST, the majority of Indirect taxes have been wiped out. The one nation
one tax has subsumed in itself many existing taxes both at Central and State Level.

Here is a list of Central Taxes which merged in GST:

o Central excise Duty and Additional Excise Duties

o Excise Duty under Medicinal & Toilet Preparation Act
o Service Tax
o Central Sales Tax
o CVD & Special CVD
o Central Surcharges and Cess in relation to supply of goods and services

The State levies which have been integrated with GST-

o VAT
o Entertainment Tax (except imposed locally)
o Entry Tax
o Purchase Tax
o Luxury Tax
 o Tax on Advertisement
o Tax on lottery, betting, and gambling
o State Surcharges and Cess about the supply of goods and services

4.What is the structure or framework of

GST in India?
In India, we have the federal government, which means we have ministers at center and state
levels. The same modal has been adopted under GST. The government has adopted GST in its
Dual or concurrent model. As a result of which, both the Centre and State governments will levy
GST simultaneously. The implemented GST structure is categorized under four heads, namely –

 IGST – Integrated Goods and Service Tax (IGST)

 CGST – Central Goods and Service Tax (CGST)
 SGST – State Goods and Service Tax (SGST)
 UGST – Union Territory Goods and Service Tax (UGST)

5.What is SGST?
The full form of SGST is State Goods and Services Tax. It is a tax levied by the State
Government on the supplies of goods and services within the same state, i.e., intrastate. The tax
liability under SGST will be first set off against SGST or UTGST, and then the balance can be
set off against IGST input tax credit only. The tax amount collected under SGST is used by the
State Government of the state where the transaction occurred. The State Goods and Services Tax
rate shall equal the rate of CGST on a particular product or service.

6. What is CGST ?
The full form of CGST is Central Goods and Services Tax. It is a tax levied by the Central
Government on the supplies of both goods and services within the same state i.e. intrastate. The
tax liability under CGST will be first set off against CGST, and the balance can be set off against
IGST input tax credit only. The tax amount collected under CGST shall be transferred to the
Central Government. On a particular product or service, the rate of Central Goods and Services
Tax shall be equal to the rate of SGST.

Example for CGST and SGST with calculation:

Let’s suppose M/s Rajesh Ltd is a dealer in Chhattisgarh who sold goods to Vijay Ltd in
Chhattisgarh worth Rs.10,000. The GST rate is 18% comprising of a CGST rate of 9% and an
SGST rate of 9%.

In such a case, the dealer collects a total of Rs. 1,800 and deposits over the GST portal, out of
which Rs. 900 will be apportioned to the Central Government and Rs. 900 will go to the
Chhattisgarh Government.
7. What is UTGST ?
The full form of UTGST is Union Territory Goods and Services Tax. It is a tax levied by the
Government of Union Territory on the supplies of goods and services within the union
territories, i.e., intrastate. The tax liability under UTGST will be first set off against UTGST, and
the balance can be set off against IGST input tax credit only. The concept of this tax is the same
as SGST, the only difference is that instead of SGST, this tax is applicable in the union territories
of India. The tax amount collected under UTGST shall be transferred to the Government of
Union Territory. The rate of Union Territory Goods and Services Tax shall be equal to the rate of
CGST on a particular product or service.
8. What is IGST?

The full form of IGST is Integrated Goods and Services Tax. It is a tax levied by the Central
Government on the supplies of both goods and services between the states i.e. interstate as well
as on imports. The tax liability under IGST will be first set off against IGST and the balance can
be first set off against CGST and then against SGST/ UTGST input tax credit only. Integrated
Goods and Services Tax shall be collected by the Central Government and then distributed to
various States.

GST will be applicable on any supply of goods and/or services in both cases of import into India
and export from India.

Example for IGST with calculation :

Consider that a businessman M/s Rajesh Ltd from Chandigarh in India had sold goods to Anand
Ltd from Dadra & Nagar Haveli & Daman & Diu in India worth Rs.1,00,000. The GST rate is
18% referring particularly to the 18% IGST. In such a case, the dealer has to charge Rs.18,000 as
IGST. This IGST will go to the Centre, later split between the Centre and Dadra & Nagar Haveli
& Daman & Diu (if this is ultimate consuming state).
9. What is UTGST?
UTGST full form and when UTGST is applicable

UTGST stands for the Union Territory Goods and Services Tax. Similar to how SGST is levied
by the state governments on the intra-state supply of goods and services, UTGST is levied by the
handful of Union Territory governments.

UTGST is similar to SGST and is levied in Union Territories which do not have their own
legislature. UTGST is applicable to the supplies that take place in the Union Territories of
Ladakh, Andaman and Nicobar Islands, Chandigarh, Dadra & Nagar Haveli and Daman & Diu,
and Lakshadweep.

Please note that the Union Territories of Delhi, Jammu & Kashmir and Puducherry will fall
under SGST law as they have their own legislature.
10. Difference between CGST, SGST, IGST:
Criteria CGST SGST IGST
Meaning It is introduced by the It is imposed by the The CGST and the
central government to state government to SGST are combined
replace existing taxes replace existing taxes in this tax. It is
such as service tax such as sales tax, imposed by India's
and excise. luxury tax, and entry Central Government.
tax, among others.
Applicability It is applicable only It is applicable only It only applies in the
within the state. within the state. context of interstate
supply.
Input Tax Credit The CGST credit can The SGST credit can The IGST input tax
only be used against only be used against credit is applicable
CGST and IGST. SGST and IGST. against all forms of
GST.
Collection of Tax The central The state government The central
government is is responsible for the government is
responsible for the collection of SGST responsible for the
collection of CGST collection of IGST.
Exemption Limit The Rs.20 lakh There is an Rs.20 The number of
exemption limit is lakh exemption limit exemptions that can
valid. that applies. be sought has no
upper limit.
Registration There will be no There will be no If any supply is made
registration until the registration until the outside of the state,
turnover reaches 20 turnover reaches 20 registration is
Lakh rupees. (10 Lakh rupees. (10 required.
Lakh in northeastern Lakh in northeastern
states). states).

11. What is the meaning of “Goods” under GST?

Goods in GST means every kind of movable property like pen, car, food, animals etc. It also
includes actionable claims and growing crops or grass, although these things are not normally
construed as movable and are attached to earth. Reason for the same being, these things can be
sold separately or sold under a combined contact with land.

But, goods in GST does not include:

 Money
 Securities

12. What is the meaning of “Services” under GST?

Services under Goods and Service Tax means anything which is NOT

 Goods,
 Securities,
 Money
But activities like the conversion of money-by-money exchanges or authorized dealers for a
service charge or fee is included under the ambit of Service. The definition of service has
been given under section 2(102) of CGST Act 2017.

13. How GST will be beneficial?

(a) Removal of Tax Cascading Effect:
GST serves as an all-encompassing indirect tax system, aiming to consolidate diverse forms of
indirect taxation. One of its prime merits is eradicating the “tax on tax” phenomenon, commonly
referred to as the cascading effect.

To illustrate, consider the scenario before the GST era

Suppose a consultant rendered services valued at Rs. 50,000 and levied a 15% service tax (Rs. 7,500).
Simultaneously, the consultant purchased office supplies for Rs. 20,000, incurring a 5% VAT (Rs.
1,000).

(b) Simplified Taxation Process:

GST replaces multiple layers of indirect taxes with a single point of taxation. This simplifies tax
administration, reduces compliance complexities, and fosters greater ease of doing business.
 (c) Unified National Market:
The integration of multiple state taxes into one nationwide tax structure ensures
a uniform market for goods and services across the country. This eliminates
inter-state tax disparities, fostering smoother inter-state trade.

(d) Enhanced Input Tax Credit:

GST offers businesses the opportunity to claim input tax credit across the supply
chain. This boosts transparency, reduces tax evasion, and incentivizes
businesses to collaborate with GST-compliant suppliers.

14. DRAWBACKS OF GST :

(a) Elevated Software Costs

The transition to GST compliance entails businesses either upgrading their existing accounting and ERP
software or procuring new GST-compatible software. Both pathways contribute to increased expenditure,
further compounded by the need for employee training to adeptly navigate the new billing software
landscape.

(b) Compliance Challenges Leading to Penalties

Navigating the intricacies of the GST tax regime can pose challenges for small and medium-sized
enterprises (SMEs). Issuing GST-compliant invoices, adhering to digital record-keeping, and ensuring
punctual returns can all culminate in a web of compliance intricacies. These challenges mandate including
mandatory invoice details such as GSTIN, place of supply, HSN codes, and other requisites.

(c)Rising Operational Expenditures

As GST ushers in a new taxation paradigm, businesses are compelled to onboard tax professionals for
effective compliance. For small businesses, this marks an increment in operational costs, stemming from
the necessity to secure expert assistance.

Additionally, businesses must allocate resources to train their personnel in the nuances of GST
compliance, which further inflates their overheads.
(d) Transitional Phase Complexities

GST’s implementation midway through the financial year—on July 1, 2017—resulted in businesses
adhering to the traditional tax structure for the initial three months (April, May, and June). The
subsequent adoption of GST for the remainder of the financial year led to parallel systems, inducing
confusion and compliance dilemmas.

(e) Shift to Online Taxation Dynamics

Departing from conventional pen-and-paper invoicing and filing, businesses now transition to online
return filing and payment processes. This shift might prove challenging for smaller enterprises,
necessitating adaptation to digital taxation dynamics.

Cloud-based GST billing software, like the innovative ClearTax GST Billing Software, offers a solution
to this hurdle. The software streamlines return filing by automatically populating return forms using
uploaded invoices. It also identifies real-time errors within invoices, thereby amplifying efficiency and
accuracy.

(f) Enhanced Tax Burden for SMEs

The GST regime poses particular challenges for smaller businesses, especially those in the manufacturing
sector. Unlike before, where only businesses with a turnover surpassing Rs 1.5 crore paid excise duty,
GST mandates payment for any business with a turnover exceeding Rs 20 lakh.

However, SMEs within the Rs 20 to 75 lakh turnover bracket can choose the Composition scheme,
facilitating payment of a mere 1% tax on turnover in lieu of GST, accompanied by fewer compliance
responsibilities. A trade-off exists, however; businesses opting for this scheme forfeit the right to claim
input tax credit.

Commonly used GST Abbreviations and their Full

Forms:
Abbreviation Full Form
AOP Association of Persons
B2B Business to Business
B2C Business to Customer
BOI Body of Individuals
 HUF Hindu Undivided Family
GST Goods and Services Tax
TDS Tax Deduction at Source
TOS Time of Supply
CBDT Central Board of Direct Taxes
UIN Unique Identity Number
IGST Integrated Goods and Services Tax
SGST State Goods and Services Tax
GSTIN Goods and Services Tax Identification Number

Frequently Asked Questions (FAQs)

Q- How a particular transaction of goods and services would be taxed

simultaneously under Central GST (CGST) and State GST (SGST)?
In case of intra state (within the same state) supply of goods and services, both CGST & SSGT is
charged which implies that half of the tax you pay will go to the state treasury while the other
half goes to the central government treasury.

Q- How GST returns will be filed?

GST Returns can be filed online. You can either prepare and submit these returns online through
Government Portal or use the offline utilities. Also, there are various third party softwares which
can help you in filing GST returns with ease.
 Q- What are the benefits available to small tax payers under the GST
regime?
Composition scheme is available for small taxpayers which is simple & easy wherein there is
less compliance, limited tax liability and requirement to furnish quarterly returns.

Q- What is HSN & SAC under GST?

Harmonized system of Nomenclature (HSN) and Services Accounting Code (SAC) are meant to
standardise the classification of goods & services in a systematic and logical manner.

Q- How are the disputes going to be resolved under the GST regime?
This problem is to be resolved with the help of Advance ruling and introduction of new schemes
like Sabka Vishwas (Legacy Dispute Resolution Scheme, 2019).