All You Need to Know About GST Structure in India

GST is segregated into four categories i.e. CGST, SGST, IGST, and UGST, and the four slabs range from 5%-28%. 

In simpler words, the primary motive of GST is to control tax evasion and simplify the tax collection process in the country through its structure.

An Overview of GST Structure in India

The GST structure in the country refers to the unified four-tire tax structure. This structure has been introduced so that all necessary goods, services, and edibles are enclosed in the lowest GST tax bracket. High-valued goods and services and lower-value goods are planted in the highest GST tax bracket.

The current GST slabs for every regular taxpayer are pegged at 0%, 5%, 12%, 18% and 28%. An effort to keep a tab on inflation can be determined through the step where necessary goods and items, which are primary food items, are factored out from the GST regime.

Nonetheless, let’s take a look at the four-tier GST structure or Goods and Services Tax regime:

Zero rate (0%)

Within the arrangement of the GST council structure, it has been fixed that certain basic commodities will not be charged with tax. As a result, most Consumer Price Index (CPI) units can be positioned under this rate tier.

Here are some of the items that fall under the zero rate GST structure:

• Raw vegetables, such as tomatoes, potatoes, protein-based vegetables, etc.

• Maize, wheat, cereal grains, soybeans, unpacked corn, etc.

• Raw materials like raw silk, khadi yarn and fabric, handloom fabrics, unprocessed wool, charcoal, etc.

• Live animals, such as bird-shelled eggs, sheep, poultry, fish, etc.

Lower rate (5%)

A 5% tax will be applicable on a substantial part of common goods and services. This involves remaining articles under CPI and extensive consumption products. For example, coffee, rail tickets, frozen vegetables, economy flight tickets, etc.

Standard rate (12% and 18%)

A major portion of goods and services come under the supervision of this rate tier. Therefore, the Indian Government has decided to keep two standard rate slabs of 12% and 18% for this particular tier to keep a tab on inflation. The former tax rate comprises accessories, business class air tickets, cell phones, dairy products, costing less than Rs. 100. On the other hand, the items charged under the latter tax rate are cleaning equipment, electronic items, bakery items, panels, hairdryers, etc.

Higher rate (28%)

28% GST comprises the inclusion of more than 200 products, majorly including products, such as automotive, bathing products, electronic gadgets, cement, soft drinks, etc. However, certain items that fall under this slab are imposed with an additional tax by the Indian Government.

Objectives of Goods and Services Tax

To further explain the structure, the objectives of GST are listed below:

• Unified tax regime

The GST regime has promoted accumulation under a single inverted tax regime. But on the other hand, the advantage of a single tax pattern is that every Indian state would adhere to this GST rate structure for similar products and services. Hence, controlling GST rates is elusive for the Central Government. 

•  Keeping tabs on tax evasion

India’s GST laws are more stringent than previous indirect prevalent taxes. For example, under the new GST tax structure, taxpayers can demarcate input tax credits only on the bills constructed by their concerned suppliers. Further, the introduction of e-invoicing has encouraged this motive. In addition to that, since GST is a multi-sectoral taxing structure, it becomes convenient for the Government to keep tabs and catch tax-dodgers more efficiently.

• Enlarging tax payers’ base

GST has expedited the amplification of the taxed population in the country. Previously, every single registration had to be enlisted under every tax law with varied ending limits on the business’s wholesome value. However, the introduction of GST has led to an increase in business enrolment under tax statutes.

• To encircle majority of tax rates

For years, the country followed a descendant of indirect taxes, such as value-added tax (VAT), Central Excise at varied supply chain levels. Additionally, taxes were controlled by both the centre and states. Therefore, instead of a collaborative tax structure, GST was implemented.

Benefits of Goods and Services Tax

Besides full credit allowance, there are multiple benefits of GST in the country, and they are:

• Possible price reduction

Due to seamless credits, traders or manufacturers do not have to include tax amounts as a part of production costs which is a significant reason for a price reduction. Therefore, the introduction of GST at a higher rate means lower prices for goods and services.

• Increased government revenues

During VAT implementation, public revenues increased instead of dropping because many people paid taxes rather than dodging them. However, the Government introduced GST at a revenue-neutral rate where the revenues may not witness a considerable increase in the short run.

• Reduced compliance and procedural cost

In lieu of maintaining big returns, reporting, and records under different statutes, all individuals will find their reduced compliance cost under GST. Note that the assessee must keep the record of CGST, IGST, and SGST separately.

GST registration is essential for businesses to ensure that his/her business is legally authorised to supply goods and services. Businesses that comply with GST rules and regulations ensure a good impression upon buyers and creditors. 

Furthermore, owners can conveniently apply for business loans at an affordable interest rate if the business is GST registered. While applying for a high-value business loan, owners must submit their GST registration certificates to obtain their preferred loan amounts.

However, if the business is established in two different locations, the owner needs to obtain separate GST registration certificates for both businesses.

GST structure ensures smooth tax collection, distribution, and business setting under a formal economic tone. Also, if businesses are well aware and follow the GST structure properly, they can reap the advantages of a unified taxation system and easy input credits. Hence, GST can be seen as an effective step to introduce a formal structure in the Indian economy, thereby helping proper tax distribution and appropriation.