India’s biggest tax reform, the goods and services tax (GST) was implemented on July 1, 2017.
The single tax system subsumed all the previously existing federal and state levies (see table below) with an aim to create a single, uniform market across India.
Below, we provide a glossary on the key concepts and terminologies used in the GST system in India, and a list of goods and services with revised GST rates.
What is GST?
GST is a single value-added tax levied on the manufacture, sale, and consumption of goods and services at the national level.
There are three components to GST in India:
- CGST – Central Goods and Services Tax, levied on an intra-state sale and collected by the federal government (commonly referred to as “the center” in India).
- SGST – State/Union territory Goods and Services Tax, levied on an intra-state sale and collected by the state or union territory government.
- IGST – Integrated Goods and Services Tax, levied on interstate sales and collected by the federal government.
The IGST is the aggregate of the CGST and SGST; the SGST is appropriated from the state where the supplies are consumed.
Tax on supply
The GST is applicable on the “supply” of all goods and services unlike the previous system wherein the tax was applicable to the manufacture, sale, or provision of goods and services. The liability to pay CGST or SGST, therefore, arises at the time of supply.
Depending on whether the transaction is ‘inter-state’ or ‘intra-state’ (between states or within a state, respectively), separate GST provisions are applicable to help a business determine the place of supply for goods and services.
Input tax credit
Input tax credit (ITC) forms the backbone of the GST regime in India.
The GST is essentially a tax on value addition at each stage of the supply chain; every supplier, who is the person supplying the goods and/ or services or an agent acting as such on behalf of such a supplier, can claim credits (over input taxes paid at each stage of supply chain) in the subsequent stage of value addition.
The end consumer, therefore, bears only the GST charged by the last supplier in the supply chain.
No cross-utilization of the ITC is permitted: the credit of CGST paid on inputs may be used only for paying CGST on the output, while the credit of SGST on inputs may be used only for paying SGST, except in the case of inter-state supply of goods.
GST exempted supply
The exempted supplies are those that do not attract any GST and are specifically exempt from GST through government notification.
However, no ITC can be claimed with respect to inputs or input services used for making exempt supplies. In other words, in case of exempted supply, only output is exempted from tax but tax is levied on the input side.
Some of the GST exempt goods include fish, fresh fruits and vegetables, live animals (except horses), jute fiber raw or processed, printed books, and handloom among others.
Zero rating means that the entire supply chain of a zero rates supply is tax-free. That means, no tax is levied either on the input tax side or on the output side.
Zero-rated supplies include:
- Exports of goods or services or both; or
- Supplies made to customers located in special economic zones (SEZ) or SEZ developers.
ITC is available on zero rates supplies.
Nil-rates supplies are those goods and services that attract zero percent GST. These are listed in schedule 1 under GST rate schedule. Some of the examples are salt, jaggery, and cereals.
No ITC is available on inputs or input services used in providing nil rated supply.
It is the supply of goods and services that do not come under the purview of GST. However, other taxes may be applicable.
Currently, only petroleum products and alcohol for human consumption fall under this category.
The Goods and Services Tax Network (GSTN) is a not-for-profit, private limited company, promoted by the government with the specific mandate to provide information technology support and the digital services required for implementing the GST. It provided a portal where all GST returns are filed electronically.
Invoice matching system
The GST allows for a seamless flow of ITC across the supply chain. One of the essential features of the GST is to check ITC claims by the taxpayer to prevent any leakages.
For this purpose, an invoice matching system has been developed under GSTN to match the purchase and sale invoices of taxpayers.
Accordingly, every registered taxable person under GST is required to issue a tax invoice, which will be uploaded on the invoice matching system.