Goods and Services Tax (GST)

Tax is a compulsory financial charge levied on the citizens of a country to finance government's spending. When we earn our salary we pay a portion of it to the govt. based on the tax slab we lie in, called the direct tax while when we eat in a restaurant or order something online, we are levied with a surplus charge on our orders called an indirect tax.

Earlier we used to have a very complicated tax system and the same products where sold at different prices in different states like petrol since different states charged different taxes.
With the implementation of GST, the indirect tax system has become uniform.

Here the GST has 3 parts:
i) CGST (Central Goods and Service Tax) collected by the central government.
ii)SGST (State Goods and Service Tax) collected by the state.
iii)IGST (Integrated Goods and Service Tax) shared by the central govt. and the destination state when the transaction is inter-state.

So, when a good is manufactured and sold in the same state, the central and the state government have share on the tax i.e CGST and SGST is applied.

When the good is produced in one state and sold in another state IGST is levied and shared between the state government where the good is sold and the central government. The state where the good is manufactured already generates jobs for it's people so that state is not given a share in IGST.

As we can see in the above example a GST of 18% is divided into two parts 9% each for the state and the central govt. CGST+SGST imply that the product we're consuming is manufactured and consumed in the same state.

How GST is calculated and removes the cascading effects of the previous system?

Let's say that the value of T-shirt in the first step is Rs 300 and the GST(tax) is 10%.

As we can see the GST is imposed over the value addition, NOT the total price. 

How was the Tax collected in the earlier system?

T-shirt:   Tax = 0.1*300 = 30, Hence the total selling price=Rs 330.

T-shirt branded: Tax = 0.1 * (330+50) (NOT on just 50), Hence the selling price = Rs 418.

Branded t-shirt packaged: Tax=0.1 * (418+20) (NOT on just 20), Hence SP = Rs 461.8.

We can see that in earlier taxation system the same item was taxed multiple times.

What is a GST return?

Say you are a celebrity and you buy a T-shirt in the above e.g table for Rs 330, including Rs 30 as GST and now you brand the T-shirt i.e add Rs 50 to it's value and sell it to someone for Rs 385 which includes GST of Rs 35 (5+30).

You pay Rs 30 as GST and receives Rs 35 as GST from the buyer. So, now you have to return the excessive GST to the govt. that you have i.e Rs 35, your part + customer's part of GST.

The GST council has set over 1300 goods + 500 services under 4 categories comprising of 5%, 12%, 18%, 28% tax slabs. Luxurious items fall under 28% slab and necessary items under 5%.
Now, I give you a task to think why the govt. hasn't included petrol under GST ?

Hope this article clears all the ambiguity encircling GST and armours you to discuss about it while chit-chatting with uncles, bhaiyas or friends in your society.