How GST in India works?

What is GST number in GST India

GST in India refers to Goods and Service tax, which was passed in Indian Parliament on March 29th March 2017 and was brought into effect from 1st July 2017. It is applicable in supply of goods and supply of services. Before introduction of GST there were several forms of indirect taxes in India. GST in India was introduced to simplify the indirect taxes and make in unified for the entire country. Under the GST, it is applicable on every point of sale

GST is the biggest tax reform in the history of taxation in India. Although it has been a massive challenge to let go of the old indirect taxation system and adopt the new GST laws, but it is the way to a brighter future.

GST in India 1
GST in India 1

Objectives of GST in India

To absorb all the Indirect Taxes in India


Before the GST, there were Value Added tax (VAT), Central Excise, Service tax etc. And all these indirect taxed were applicable over multiple supply chain stages. Earlier there was no centralized tax applicable on goods and services, some were applied by states, and some were applied by central government. Bringing all the indirect taxation under GST with one name, has immensely reduced the taxation compliance burden on the taxpayer and has also resulted in easy tax administration for government.

Eliminate cascading of indirect taxes in India


Since earlier there were multiple indirect taxes which were applicable in multiple stages there was an unavoidable cascading of taxes. For eg Excise duty was paid at the manufacturing stage, was incorporated on all subsequent indirect taxable amount applicable in the supply chain. But since GST is applicable only on the net value at each stage, it results in a hassle-free input tax credit for goods or services, as applicable.

To restrict tax evasion


GST is simple yet strategic. At every stage the GST applicable is only on the uploaded invoice of the supplier, which massively reduces the chances of claiming GST credit on fake invoices. Also because now the entire nation has GST/tax applicable it is much easy and quicker to catch defaulters. Hence GST in India has helped tremendously in reducing tax evasions.

Expand Taxpayers base


The earlier applicable indirect taxes had their own respective threshold turnover values, But since GST is applicable on goods and services both and also across the nation, It has resulted expansion of tax payers by bringing in sectors such as construction, edible perishable products etc.

GST in India 2
GST in India 2

Paying and Managing taxes online rather than offline with GST in India


Previously most of indirect taxation matters were handled offline be it assessment, filing returns, return requests. But with GST most of the procedures have become online and can be executed with a click of a button. With minimal human intervention, it is easy to execute any GST related matter in turn making it much easier to run and setup business in India.

Also read how to download GST certificate India

Enhance logistics & distribution with GST in India


Because various earlier indirect taxations are history now so is the multiple documentation associated with them. Which mean lesser documents and easy to comply in case of interstate transportation or tracking or distribution.

Embrace competitive pricing with GST in India


With cascading of taxes gone, the goods and service have become relatively cheaper. Which has helped Indian products and services compete with global prices. GST in India has also led to increased in consumption and increase in GST collection.
Also read What is input tax credit in GST in India

One Nation, One tax before GST in India


With GST in India replacing multiple earlier existing indirect taxes, it unites the country by making one tax for all. Now it is easier to make tax policies, by concerned policy makers, and are applicable on the same goods or services across the nation. This has also helped in introducing common laws post GST introduction in India such as e-way bill for transportation of goods and services.

Also read How to apply for GST number?

GST in India 3
GST in India 3

Indirect taxation before GST in India


During the earlier indirect tax taxation, there were various indirect taxations applicable by both the state government and the central government. States government usually performed indirect taxation collection based on Value Added Tax or VAT. And to do the same every state used to have a different set of rules & regulations.
Also read What is e-invoice in GST in India
sales of goods within the same state was taxed by the central government of India. CST (Central State Tax) was applicable in case of sale of goods between two different states of India. Other indirect taxation options such as the entertainment tax, octroi and local taxes were usually levied together by both state government of India and central government of India.
Also read What is reverse charge mechanism in GST in India
The following are the options of indirect taxation before introduction of GST in India

  • Central Excise Duty
    • Duties of Excise
    • Additional Duties of Excise
    • Taxes on advertisements
    • Additional Duties of Customs
    • Special Additional Duty of Customs
    • State Value added Tax
    • Central Sales Tax
    • Purchase Tax
    • CESS
    • Luxury Tax
    • Entertainment Tax
    • Entry Tax
    • Taxes on lotteries, betting, and gambling

Also Read Best software for GST in India

How Are Goods and Services Classified Under GST?

For GST in India to be applicable it was essential that the goods and services are classified in a standard manner acceptable worldwide. Hence an internationally acceptable system comprising of names and numbers was developed. The HSN (Harmonized System of Nomenclature) codes were used to classify various goods and the SAC (Services Accounting Code) codes were used to classify the various services under the GST in India.
Also read How to save GST in India legally?

GST in India 4
GST in India 4

How does the GST number vary with the various states

The following in the prefix of the GST number, which is an identification for the states of India.

SERIAL NO.STATE NAMESTATE CODE
1JAMMU AND KASHMIR1
2HIMACHAL PRADESH2
3PUNJAB3
4CHANDIGARH4
5UTTARAKHAND5
6HARYANA6
7DELHI7
8RAJASTHAN8
9UTTAR PRADESH9
10BIHAR10
11SIKKIM11
12ARUNACHAL PRADESH12
13NAGALAND13
14MANIPUR14
15MIZORAM15
16TRIPURA16
17MEGHALAYA17
18ASSAM18
19WEST BENGAL19
20JHARKHAND20
21ODISHA21
22CHATTISGARH22
23MADHYA PRADESH23
24GUJARAT24
25DADRA AND NAGAR HAVELI AND DAMAN AND DIU (NEWLY MERGED UT)26*
26MAHARASHTRA27
27ANDHRA PRADESH(BEFORE DIVISION)28
28KARNATAKA29
29GOA30
30LAKSHADWEEP31
31KERALA32
32TAMIL NADU33
33PUDUCHERRY34
34ANDAMAN AND NICOBAR ISLANDS35
35TELANGANA36
36ANDHRA PRADESH (NEWLY ADDED)37
37LADAKH (NEWLY ADDED)38

How many types of GST in India


GST in India is a destination-based tax. There are further 3 types of taxes applicable under the GST in India.

  1. CGST – It is the GST component collected by central government of India, applicable on Intra-state or transaction happening within a particular state.
  2. IGST – It is the GST component collected by Central Government of India applicable on inter-state transaction or transaction happening between two different states of India.
  3. SGST – It is the GST component collected by the state government of India, applicable on Intra-state or transaction happening within a particular state.

Also read What is ITC in GST in India

Disadvantages of GST in India

  • GST in India has increased the cost of operations
    With GST in India, Firms are required to update their accounts with the latest GST-compliant software to keep their business on the move. Enterprise Retail Platforms software is a costly option, and it also takes formal training to manage and run such software, which in turn increases the cost to the companies. Moreover, since compliance with norms of GST in India has drastically increased the operational cost of Small & Medium sized Businesses, and they must hire professionals such as Chartered accountants to help them out with the laws of GST in India.
  • Enhanced burden of compliance of GST in India
    As per the earlier indirect taxation laws in India the excise duty was applicable on firms/companies with an annual turnover of more than Rs.1.5 crore rupees. However, now with GST in India businesses with an annual turnover of more than Rs.40 lakh must pay GST in India
  • Considerable increase in GST liabilities for small & medium sized business
    As per the norms of GST in India every company must register on the Goods & Service Tax portal in their state of operation. The entire process of registering of the firm, maintaining documents of the firm, invoices, and filing returns of the firm is tiresome. It unnecessarily increased the pressure on the firms/companies/business which were already under bureaucratic pressures in India. Also, not many states are technological advanced to comply with all the norms of GST in India, increasing the hurdles of compliances for the companies. All such problems results in further difficulties for the firms/ companies/ enterprises, especially the new ones.
  • Massive penalties for business/firms/entities non-compliant with GST

Since all the companies must register themselves on the portal of GST in India it becomes cumbersome to do so and if these companies are not able to so then they have face huge penalties. Since most of these companies are not legally or technologically sound it becomes difficult for them to understand the various nuances of the GST in India. And hence they are left with either to hire an expert such as a professional Chartered accountant or look out for some help on the web.

Written by Monish Kumar

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