The Goods and Services Tax (GST) is a comprehensive tax reform that eliminates cascading of taxes and brings the concept of ‘one nation, one tax’ to light. Implemented from 1st July 2017, GST is considered to be a major tax reform in the Indian economy.

What is GST?

The Goods and Services Tax is nothing but an indirect tax which is levied on goods and services, at each point of sale or service rendered; thus, eliminating cascading taxes levied by Central and State Governments. Instead of a of the excise duty (levied on goods) and service tax (levied on services rendered), GST is one single indirect tax levied combined on goods and services. This value-added tax is paid by the customer but is remitted to the government by business owners dealing in rendering services or selling of goods.

Objectives of GST

•    One of the major reasons for implementation of GST is to eliminate cascading of taxes that had an effect on the sale of goods and services.

•    This elimination will help to improve the competitiveness of goods and services, from a pricing point of view, thus, helping the nation’s GDP.

•    Due to the cascading of taxes by State and Central Governments, there was a lot of disparity in the tax system across the country and created a lot of confusion amongst the tax payers.

•    Due to the single tax system, there will be a reduction in tax compliances.

•    This will also increase the tax to GDP ratio and increase revenue surplus.

GST across the World

Though this tax reform has been recently implemented in India, in about 150 countries across the globe, GST has been implemented in some form or the other. In Singapore and New Zealand, there is virtually a single tax rate whereas in Indonesia there is zero rate with 5 positive rates having 30 categories of exemptions. In China though, GST is applicable only on goods and there’s a provision of repairs, replacement, and processing services.

Dual GST

During the implementation of GST, it was made very clear that India would adopt a Dual GST model. In this model, a CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) will be applicable on every transaction of goods and services. It is expected that there will be decrease in the effective tax rates for many goods and also reduction in the transactional costs paid by the taxpayers.

GST Rates

The GST rates have been fixed at 5%, 12%, 18% and 28% with special rates for precious metals and a list of exempted items.

Tax Rates Products  
0% Milk Kajal
Eggs Educations Services
Curd Health Services
Lassi Children’s Drawing & Colouring Books
Unpacked Foodgrains Unbranded Atta
Unpacked Paneer Unbranded Maida
Gur Besan
Unbranded Natural Honey Prasad
Fresh Vegetables Palmyra Jaggery
Salt Phool Bhari Jhadoo
5% Sugar Packed Paneer
Tea Coal
Edible Oils Raisin
Domestic LPG Roasted Coffee Beans
PDS Kerosene Skimmed Milk Powder
Cashew Nuts Footwear (< Rs.500)
Milk Food for Babies Apparels (< Rs.1000)
Fabric Coir Mats, Matting & Floor Covering
Spices Agarbatti
Coal Mishti/Mithai (Indian Sweets)
Life-saving drugs Coffee (except instant)
12% Butter Computers
Ghee Processed food
Almonds Mobiles
Fruit Juice Preparations of Vegetables, Fruits, Nuts or other parts of Plants including Pickle Murabba, Chutney, Jam, Jelly
Packed Coconut Water Umbrella
18% Hair Oil Capital goods
Toothpaste Industrial Intermediaries
Soap Ice-cream
Pasta Toiletries
Corn Flakes Computers
Soups Printers
28% Small cars (+1% or 3% cess) High-end motorcycles (+15% cess)
Consumer durables such as AC and fridge Beedis are NOT included here
Luxury & sin items like BMWs, cigarettes and aerated drinks (+15% cess)

GST seems to be the logical step taken towards improving the tax system in the country and bringing a tax reform.