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Goods and Services Tax, also known as GST, is an indirect tax implemented in India which is levied on the supply of goods and services. According to the Goods and Services Tax Law, GST is a comprehensive, multi-stage, destination-based tax which is applied at every value addition stage. The GST Tax Act came into effect on the 1st of July 2017, launched by the President and the Government of India. This article provides an overview of the main fundamentals of GST and compliance in India that are relevant to most foreign investors in the country.
When it came into an effect in 2017, GST replaced multiple indirect taxes in India, such as VAT, the excise duty, service tax, and others. GST is also a single domestic indirect tax for the whole country, and it replaces numerous other taxes previously applied by the central and State governments. Furthermore, GST returns filing procedure has been digitalized using a single online platform and thus significantly improves efficiency.
By introducing GST, the authorities have set forward the following objectives:
1. Prioritizing the principle of ‘One Nation, One Tax’, in essence introducing a unified system of compliance which would benefit both the taxpayers and the government
2. Centralizing indirect taxes in India
3. Increase the taxpayer base
4. To fight tax evasion practices
5. To improve the logistics and distribution systems
6. Promotion of competitive pricing and increasing domestic consumption
GST includes three components, namely:
1. CGST: Tax collected by the Central Government on an intra-State sale
2. SGST: Tax collected by the State Government on an intra-State sale
3. IGST: Tax collected by the Central Government on an inter-State sale
|
Type of Sale |
GST Component applied: |
|
Within the State |
CGST+SGST |
|
To another State |
IGST |
Generally, goods and services are divided into five different categories, and there are five general GST rates applied respectively at 0%, 5%, 12%, 18%, and 28%.
Some of the products to which these various GST rates are applied include:
|
Tax Rate |
Products |
|
0% |
Everyday grocery items |
|
5% |
Household necessities e.g. edible oil, sugar, spices, tea, coffee; coal; life-saving drugs |
|
12% |
Computers and processed food |
|
18% |
Hair oil, toothpaste and soaps, capital goods and industrial intermediaries |
|
28% |
Luxury items such as premium cars, consumer durables like air-conditioning and refrigerators, cigarettes and aerated drinks, and high-end motorcycles |
Furthermore, GST introduced such systems as E-Way Bills (such bills can be generated on the online portal for goods transported from one place to another) and the E-Invoicing system for businesses with annual sales over INR 5 billion (USD 66.7 million).
The CGST Act has indicated precise rules for taxpayers to comply. In particular, businesses with annual turnover which exceeds INR 4 million for goods or INR 2 million for services are required by law to register as a standard GST taxpayer. Furthermore, businesses operating in certain areas are required to register for GST regardless. Moreover, if a business operates from more than just one State, a separate GST registration for each State must be completed. A failure to register for GST will be deemed as an offence with heavy penalties applied, such as 10% of the tax amount due, subject to a minimum of INR 10,000. A standard GST registration procedure generally takes from 2 to 6 working days.
Other GST compliance requirements that taxpayers shall be aware of include tax invoices issuance compliance (such as following the clearly set format and ensuring all necessary inputs are inserted), returns filing compliance, and provisions related to E-Way Bills.
At PHC Advisory, we can offer your business in India all the necessary support related to bookkeeping, treasury, tax compliance, and other related solutions to navigate and fully comply with complex Indian regulations. We constantly monitor the regulatory and fiscal updates in the Indian market and if you would like to know more about the most recent tax developments, please contact us at info@phcadvisory.com.
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