From 1st July 2017, almost all of India’s indirect taxes will be subsumed under a single common tax; the Goods and Services Tax (GST). It will be a consumption-based tax levied on the manufacture, sale, and consumption of goods and services across the country.

Following are the seven things you should know about GST:

1. Three major taxes

For a simpler overview of the taxes, GST is categorized into three major taxes. These include the Central GST (CGST), State GST (GST), and Integrated GST (IGST). The primary objective is to bring transparency to the suppliers and consumers, as well as the taxpayers and government.

2. Easier borrowing for businesses

Like technology start-ups aiming to capitalize on GST, financial start-ups will also witness huge gains. The country’s customer and small and medium enterprise (SME) commercial loan market is expected to reach $3 trillion in the next decade. This growth is primarily attributed towards the government’s focus on digital inclusion. A large number of small businesses record transactions in books. However, GST will modify this and all taxation procedures will be online. After an effective transition towards the GST regime will make it easier for lenders to assess the creditworthiness of small businesses. This will enable financial institutions to provide timely and economical business loans to help companies grow their ventures.

3. Eliminate cascading tax effects

Under the current tax regime, India levies a tax on taxes resulting in a cascading effect and increasing the burden on the end-users. GST will eliminate such an effect by combining different indirect taxes under a single rate. This will be beneficial in reducing the final prices paid by consumers reducing their burden.

4. Taxes replaced by GST

GST will subsume approximately 14 types of indirect taxes. These include:

  • Gambling and lotteries taxes
  • Central excise duty
  • Purchase tax
  • Additional duties of excise
  • Advertisement tax
  • Additional customs duty
  • Entertainment tax
  • Special additional customs duty
  • Entry tax
  • State value added tax (VAT)
  • Luxury tax
  • Central sales tax (CST)
  • Duties of excise
  • Central and state cesses and surcharges on goods and services

5. GST rates

The GST will decide the rates to be levied. The GST rates will vary from 0% to 28% based on the product categories. The four-tier slabs include 5%, 12%, 18%, and 28%. Essential items will levy a lower rate while luxury products and services will be under the highest slab.

6. Inclusions and exclusions from GST

Daily requirements like fish, cereals, fruits and vegetables, pulses, fresh meat, and dairy products are exempt from GST. Skill and education development services are also exempt. In addition, electricity, alcoholic drinks, and petroleum products including petrol, crude oil, aviation turbine fuel, natural gas, and diesel are outside the GST purview. However, these will attract VAT and central excise duties. The GST rollout marks a new dawn in Indian history. It is a huge step towards the country’s goal of establishing business transparency.