The Goods and Services Tax (GST) was introduced to streamline the indirect tax system in India by subsuming multiple taxes levied by the Central and State Governments into a single tax. This initiative aimed to reduce tax cascading and create a unified national market for goods and services.
What is GST?
GST is an indirect tax that replaced several indirect taxes, such as excise duty, VAT, and service tax. The Goods and Services Tax Act was passed in Parliament on March 29, 2017, and came into effect on July 1, 2017.
Key Features of GST
GST applies to the supply of goods or services across the entire value chain—from the manufacturer to the consumer. It allows for input tax credit at each stage, ensuring that tax is levied only on the value added at each step. The final consumer bears only the GST charged by the last dealer in the supply chain, benefiting from set-off benefits at all prior stages.
Taxes Subsumed under GST
Central Taxes Subsumed:
- Central Excise Duty (except for petroleum products and tobacco)
- Additional Excise Duty
- Service Tax
- Additional Customs Duty (Countervailing Duty)
- Special Additional Duty of Customs
State Taxes Subsumed:
- State VAT/Sales Tax (except for petroleum products and alcoholic liquor)
- Entertainment Tax (excluding those levied by local bodies)
- Central Sales Tax
- Octroi and Entry Tax
- Purchase Tax
- Luxury Tax
- Taxes on lottery, betting, and gambling
Special Tax Provisions
- Petroleum products remain subject to central/state excise duties and VAT until brought under GST.
- Tobacco products may be taxed under both central excise and GST.
- Alcoholic liquor for human consumption is excluded from GST.
Components of GST
- Central Goods and Services Tax (CGST): Levied by the Central Government on intra-state supplies.
- State/Union Territory Goods and Services Tax (SGST/UTGST): Levied by State or Union Territory Governments on intra-state supplies.
- Integrated Goods and Services Tax (IGST): Levied by the Central Government on inter-state supplies and imports, with the revenue shared between the Union and States.
GST Compensation Cess
In addition to GST, a compensation cess is levied on specific goods and services, such as pan masala, tobacco, aerated drinks, cars, and coal.
Legislative Framework
To implement GST, the Constitutional (122nd Amendment) Bill was passed by the Rajya Sabha on August 3, 2016, and by the Lok Sabha on August 8, 2016. Article 279A(1) of the Constitution mandated the creation of the GST Council, constituted by the President within 60 days of the commencement of the Constitution (One Hundred and First Amendment) Act, 2016.
GST Council
Composition
- Union Finance Minister (Chairperson)
- Union Minister of State for Revenue or Finance
- Ministers in charge of Finance or Taxation from each State Government
Functions
The GST Council recommends policies on GST rates, exemptions, model laws, place of supply principles, and threshold limits.
Decision-Making
While the Council operates on a consensus basis, voting rights are weighted as follows:
- Central Government: One-third of total votes
- State Governments: Two-thirds of total votes
A proposal is carried if it garners at least three-fourths of the weighted votes.
GST Council Secretariat
The Union Cabinet approved the setup of the GST Council Secretariat in New Delhi on September 12, 2016. Key appointments include:
- Secretary (Revenue) as the Ex-officio Secretary to the GST Council
- Chairperson of CBIC (formerly CBEC) as a permanent invitee (non-voting)
- Additional Secretary and Commissioners appointed for administrative functions
GST Compliance Requirements
Mandatory registration and compliance are required for:
- Inter-state suppliers
- E-commerce operators
- Aggregators supplying services under their own brand name
- Casual and non-resident taxable persons
- Persons liable for tax deduction/collection (TDS/TCS)
- Input Service Distributors
- Suppliers of online information/database services from outside India
- Agents supplying goods on behalf of other taxable persons
Exemptions
GST does not apply to:
- Agriculturists
- Persons exclusively supplying exempt or non-taxable goods and services
By establishing a common taxation system, GST has brought significant transparency and efficiency to India’s tax structure, creating a robust platform for economic growth.
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