When GST Is Applicable For The Top 3 Sectors
The GST celebrated its 4th anniversary on 1st July 2021, the tax system which was both praised and criticized has overcome all the hurdles to obtain this destination. As a part of this Remembrance Day let’s revisit the bill and know the factors like when GST is applicable, slabs in GST, etc. So kindly read the complete article to learn when GST is applicable for the top 3 sectors.
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What is a tax?
Hugh Dalton defines ‘tax as a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the taxpayer in return, and not imposed as a penalty for any legal offense’.
The classification in a tax system includes land tax, sales tax, service tax, income tax, etc. All the other taxes except income tax were believed to be in practice even before the establishment of the British regime. Sir James Wilson was the first person to introduce income tax in the nation. Wilson collected this tax as compensation for the losses created by the 1857 War Mutiny.
First, we will get a miniature picture of the tax levitation in India, mainly in the production and sales departments.
Raw — material — product — retailer — customers
This is the sequential order in the manufacturing sector where taxes get added up in each step. Before getting into the list outs let’s study the history and implementation of the GST tax system.
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The goods and service tax was implied in the nation to compile all the other taxes which were levied by both the central and state governments in the production, distribution, and sales sector. The taxes that were prevailing before implementing GST are
- Central Excise Duty
- Duties of Excise
- Additional Duties of Excise
- Additional Duties of Customs
- Special Additional Duty of Customs
- State VAT (Value Added Tax)
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entertainment Tax
- Entry Tax
- Taxes on advertisements
- Taxes on lotteries, betting, and gambling
People are mostly exposed to these taxes thus, the necessity to define them becomes unnecessary. But the one tax which may look odd is the name Cess.
The government levies a percentage of tax on the basic tax amount a person was previously paying. Because of this kind of applying a tax on the existing tax value, the Cess tax is famously known by the name “Tax on Tax”. In the case of sales, the cess tax gets implemented in the raw material procuring stage. In the case of sales and distribution mostly the cess reaches the customer since the initial added value gets transferred in each sequential stage and finally impacts the retail price.
Basically, the government levies this tax to achieve a certain goal, for example, to improve the education and health sector, during natural calamities to support the needy, kind of things. Once the government reaches the destination, they remove the Cess. Mostly Cess is defined as a procedure to assist the poor from the rich.
Even after the implementation of the GST Cess is levied during the needful times. To overcome all these varied taxes the Atal Bihari Vajpayee government proposed the idea of GST in the year 2000. Vajpayee government proposed the GST system based on the recommendations from the Vijay Kaelkar committee. Held up for a long time, the bill was finally passed on March 29th, 2017, and came into effect from the 1st of July.
The GST is a destination-based tax system; the earlier tax version was the “tax on tax” system since it was a value-added tax model. The current tax model determines the tax based on the destination where the product is sold.
Now signing off from the intro let’s get to know the facts:
When GST is applicable for the top 3 sectors:
Startup (or) Entrepreneurship sector:
Entrepreneurship is the effective establishment that plays a major role in the nation’s economy, GDP, and employment generation. GST tax system is closely associated with this sector. Taxation is included in every aspect of a startup, especially manufacturers, starting from the raw material procurement to end product sale they bear tax charges.
The essential question that an entrepreneur possess is when GST is applicable for my firm or when does my startup comes under the GST registration?
When a firm makes more than 20 lakhs per annum it becomes mandatory for the establishment to register itself under GST. But in the case of the northeast, J&K, Himachal Pradesh, and Uttarkhand, the turnover limit is 10 lakh rupees.
If your startup comes under the above two mentioned category then get the firm registered on the official government GST site. Learn the registering process through the government GST tutorial website
The vital question that surrounds the sales sector is when GST is applicable for the product sales. GST gets applied to the products based on the list outs provided by the government under this tax scheme.
The slab is the name given to the various percentage available in GST that are applicable for various products. Subsequently, there are five slabs in the goods and service tax. They are 5%, 12%, 18% and 28%. All the commodities are listed under these four slabs.
5% – Domestic food products and essential drugs are listed under this category. Coal also comes under this 5% slab.
12% – Computer, packed and processed food items, spectacles, and lens, exercise as well as notebooks, short-range communicating radio eg: walkie-talkie.
18% – Other household products like toothpaste hair oil and makeup items, as well as self-requirement items known as tractor tires, electric bulbs, electronic equipment, etc.
28% – commodities categorized in this slab are mostly luxurious and addictive drug items.
The service sector is another enriched tax-paying field in the nation. In India, more than the production sector the service sector lends the greater contribution to the country’s economy. Thus, the inevitable question arrives is when GST is applicable for services and what is the tax percentage for services are?
Services are also taxed in the same way as products. The various services available in India are categorized under the four slab divisions in GST.
Services with 5% taxation – First class and air-conditioned class railway travel, economical class air travel, transport services for goods, print media advertisements, newspaper printing services, ornamental works, processing of skin and leather.
Services with 12% taxation – non ac restaurant services without liquor sales, rental stays in hotels, camps, and clubs with a fee less than Rs.2500/day, complex, or any other retail sale constructions.
Services with 18% taxation – liquor sale and air-conditioned restaurant services, outdoor catering, commercial accommodation less than Rs.7500/day, cultural art performances in theatre, films with ticket fare less than 100.
Services with 28% taxation – Commercial accommodation with a fare more than Rs.7500/day, all other remaining entertainment facilities inclusive of gambling.
Few other must-known facts on GST:
Constitution and article of GST:
GST was implemented through the 101st Constitutional Amendment act and under article 279 of the Indian constitution. Also, the tax bill was introduced in parliament as the 122nd constitutional amendment bill.
GST: direct or indirect tax?
The tax structure gets differentiated into two types, first one is the direct tax, which is levied directly on the asset, for example, personal Income tax.
The other one is an indirect tax where the tax doesn’t impact the initial buyer rather it gets implied on the end product consumer, for example, the sales tax. Since all the previously existing indirect taxes are inculcated today in the goods and service tax, GST is termed as Indirect tax.
When the first GST became applicable in the world:
France became the first country to implement the goods and service tax in 1954, following which, today 160 countries have introduced GST in their nation.
The first state to approve GST in India:
Assam was the first state to approve GST on 12th August 2016 and Telangana became the first state to pass the bill on 9th April 2017.
Taxes in GST:
When GST was applicable it was implemented with three variant taxes namely SGST, CGST, IGST. Let’s find on which term these taxes get implied,
SGST – Gets applied when the sale is within the state, thus it is named as an intra-state tax.
CGST – Also applicable when the sale is within the state, hence this variant too is an intra-state one.
IGST – This tax gets applicable for a sale between two different states, IGST is an inter-state tax.
In addition to this topic, the tax sharing phenomenon between the central and state is also an essential thing to learn. As the name itself suggest SGST and CGST, we can observe that the first one reaches the state revenue directly and the second one ends in the central revenue.
In the case of IGST, the tax initially reaches the central, and then the union government distributes the share to the destination state. The Tax distribution will be carried out with 3 months.
Indian GST Model:
The GST model in India is a dual model since the taxation is handled by both the central and state here. The nation adopted this model of GST from Canada, Canada established the GST model of taxation in the country in 1991.
Indian GST council decides the laws and regulations like how and when GST is applicable? There are a total of 33 members in the council in which 2 members represent the union government while the rest of the 31 members are representing the 28 states and 3 union territories.
Finance Minister resides as the chairman of the council. Currently, the FM Nirmala Sitharaman heads this GST council. The recent 44th council meeting on 12 June 2021 made the needed changes and regulations in the tax system.
Ambassador of GST:
The 74-year-old and famous actor Amitabh Bachchan is the brand ambassador of GST. The Central Board of excise and custom has made him the ambassador of this tax system on July 1st, 2017. Amitabh Bachchan propagated the idea of GST which is ‘One Nation One Tax One Market’, through the Indian Finance sector video. The video was titled ‘GST – An initiative to create a unified market’.
Products eluding GST:
We learned about where and when GST is applicable in the same way it is also important to know the products exempted from GST.
- Major cultivating products like tea leaves, fruits, vegetables, milk, jaggery, turmeric, curd, coffee bean, etc.
- Following that silk products, charcoal, firewood, wool, fabrics, agricultural tools, and musical instruments are also exempted from GST.
- In addition to this certain services like Transportation, Agriculture services, Tourism, Library services, and Electricity Distribution too are exempted from GST.
Penalty under GST evasion:
When the applicable GST gets unpaid by a concerned person, he becomes liable for certain charges. If the unpaid tax tends to be a higher value, then the person may be even liable to prison charges. For any unspecified tax evasion, the penalty could be up to 25000 Indian rupees.
Merits of GST:
- GST has minimalized the complexity in the previous tax format by bringing all the varied indirect taxes under one roof.
- This tax system has reduced the tedious process involved in the tax filing process.
- GST has created a good impact on the nation’s GDP.
- GST was also initiated to control the corruption and black economy.
- Above all the vital aspect of GST was to remove the cascading effect.
Demerits of GST:
- Though GST has positively assisted certain business sectors, it created a negative impact on the real estate sector.
- The cost of taxation has increased due to the affordability of the software required to submit tax registration in digital format.
- The tax burden for SMEs has increased since with the previous tax version firms only with more than 1.5 crores annual income were liable to pay excise duty. Whereas in the GST version firms exceeding 40 lakhs are registered under GST.
- The long-standing criticism from both the people and the opposition side was to bring the petroleum products under GST, such that it could bring down their cost value.
- Tax distribution between the center and state governments are facing complexity.
Hope the article would have answered all the basic questions like where GST was practiced initially? When GST is applicable? Pros and cons of GST and few other unknown facts. Thus, I believe this article would have been useful and informative. GST is taxation introduced by the Indian government to enhance the nation’s economy, to create an environment for ease of doing business, bring down corruption, etc. Similarly, the beginning of this taxation system was difficult for the public, since GST was introduced in the middle of a financial year it became a challenge for people to change their taxation structure in a short period. However, the tax form has completed its 4th year successfully, people have also learned the handling of this taxation system. Economists believe the government will enhance this system by addressing the few other public pleas in the upcoming financial years.