What is GST? - Full-Form, Meaning & Key Objectives

India's history highlights the introduction of the Goods and Services Tax (GST) on 1st July 2017 which, for the first time, introduced modern and simplified indirect taxation for the entire country by subsuming multiple indirect taxes, embraced the philosophy of “One Nation, One Tax” for the first time, and streamlined the complex indirect tax structure by replacing the multitude of taxes like the Value Added Tax (VAT), Central Excise Duty, Service Tax and Entry Tax with a singular one. Undoubtedly, the GST has changed the very definition of doing business as well as how people pay for products and services. It has, single-handedly, become the centre of discourse for scholars and practitioners of commerce and economics. 

What is the GST Full-Form and Meaning?

• GST Full Form: Goods and Services Tax
• Meaning: The GST framework in India demonstrates a radical change in the indirect tax structure by replacing multiple fragmented taxes with a single comprehensive destination-based tax. In contrast to the previous regime of taxation, wherein taxes were levied at various points in a supply chain, resulting in the menace of cascading taxes (double taxation), the GST regime ensures taxes are levied and collected at the final point of consumption. This brings greater efficiency, ease of doing business, and lower compliance costs to all stakeholders in the economy.

For instance, when you purchased a product in the past, the product’s price included unpaid excise duty, VAT, service charge, and other subsidies that you indirectly contributed to. Currently, GST applies to and simplifies it under a single nominal taxation system (country-based product or service slabs). 

Key Objectives of GST

The abrogation of the simple and pre-existing tax system for a more inclusive system based on the pivot of GST on a single tax system was aimed at enhancing the Indian economy to become more organised, clear, and focused on rapid growth. Below are the key objectives:

1. A Unified National Market

Even in the absence of the United Nations’ GST, during the pre-GST era, the fragmentation of every single state within the region into unique self-contained economic units, with complete autonomy over its domestic policy and taxation, constituted a key barrier and impediment to inter-state commerce. GST goes on to remove these barriers to endorse the concept of a singular common market in India, akin to the global market in other developed nations. 

2. Mitigating the Cascading Effect of Taxes

As a part of the Integrated Indirect Taxation System, the “Tax on tax system” has clearly been the gravest and most prominent fault of the preceding system. With GST, the “tax on tax” form of taxation is obliterated and replaced with the ITC system. Tax on the output of a product is reduced by the tax paid on its corresponding inputs. As a result, overall costs are lowered, and compliance is promoted.

3. Boosting Revenue and Transparency

With all functions of GST done electronically and the submission of Returns of Income (ROI) accompanied by automated invoice matching, all tax evasion avenues are blocked, and compliance costs are lowered. This also improves revenue and compliance on the rougher side of taxation.

4. Increasing the Efficiency of Business Operations

Before the implementation of the GST, businesses had to adhere to a multitude of state and central taxes. As a result of GST, these taxes are simplified to one, which reduces the amount of paperwork, disputes, and confusion. The implemented GST also improves India’s position on the World Bank Ease of Business Index.

5. Supporting 'Make in India'

The GST provides support to local industries by reducing the overall tax burden on manufacturing and improving inter-state logistics. The implemented GST also promotes Indian manufacturers to fair competition with both domestic and international markets. 

6. Increasing Tax Revenue

The implemented GST also brought a lot of small and medium enterprises (SME) service providers into the tax net, which in turn raised the government’s revenue without an increase in tax rates.

7. Promoting a Cashless Society

The implemented GST promotes a cashless economy in India due to businesses and consumers having to file a digital invoice and claim ITC in addition to the paperwork.

Key Types of GST in India

To ensure equitable revenue sharing between the Centre and the State, GST is administered in four tiers:

• Central GST (CGST): Charged and collected by the Central Government on intra-state sales.
• SGST (State GST): Charged and collected by the State Government on intra-state sales.
• Integrated GST (IGST): Charged by the Central Government on inter-state sales.
• UTGST (Union Territory GST): Applied as a tax under the jurisdiction of the Union Territory without a legislature.

Example of GST Payment

GST makes taxation easier, but the rate of tax still differs for different goods and services (0%, 5%, 12%, 18%, and 28%). Businesses and consumers must be vigilant of the tax rates during large purchases and investments.

Imagine a smartphone in Delhi is sold for ₹20,000, and the applicable GST is 18%.

• Old System: You would have paid excise duty and VAT, therefore raising the price.
• GST System: 18% tax is charged, therefore ₹3,600, and the price of the mobile becomes ₹23,600.

The tax system is simple, clear, and chargeable at the same rate in all states.

Role of GST in the Economy

The transformation of the Indian economy with the implementation of the 'Goods and Services Tax' has no boundaries. The cascading burdens, ease of doing business, favourable government policy, unification of the national market, and unhindered compliance record are just a few of the reasons this tax summary has created. Alongside the roadblocks are immense opportunities that are just waiting to be tapped into. Entrepreneurs, within a professional scope alongside students, stand to gain the most from understanding the expectations placed on them within the economy, given its current lack of stability.

 

Did you know?  The GST in India is one of the biggest tax reforms in the world, integrating a taxation system for more than 1.3 billion people. Not many nations have attempted such extensive reforms at once.

Read More 

• Old Tax Regime 
• New Tax Regime
• Impact of Trade Deficit on the Economy 
• Old Tax vs New Tax Regime 

FAQs on GST

What are the GST rates in India right now?

The current GST rates are divided into 0%, 5%, 12%, 18%, and 28%, based on the goods and services offered. The more essential a good is, the more it is taxed at lower rates, and the more luxurious, the higher the rates.

Who is among those obliged to register and acquire a GST?

The GST mandates the registration of any business whose annual turnover is more than ₹40 lakh (₹20 lakh in some states). Service providers, however, have a threshold of ₹20 lakh and ₹10 lakh in special category states.

What effect has GST had on an everyday individual?

The GST imposed has made the tax regime more visible by reducing the incidence of invisible taxation. While several essential goods have become more expensive, the range of basic and essential goods has become more affordable in relation to the previous tax regime.