Understanding Taxes and GST: A Beginner’s Guide

Introduction: Types of Taxes in India

Before we dive into GST, it’s important to first understand the two major types of taxes in India. Taxes are broadly classified into:

• Direct Taxes
• Indirect Taxes

1. Direct Taxes

Direct Taxes are levied directly on individuals or organizations based on their income or profits. These taxes cannot be shifted to another person, meaning the person or entity liable to pay the tax bears the entire burden. Direct Taxes are progressive in nature, which means the tax liability increases as the income increases.

Example: Income Tax is a direct tax because it is charged directly on a person’s earnings.

2. Indirect Taxes

Indirect Taxes, on the other hand, are consumption-based taxes. They are not progressive in nature; the tax rate is the same for all individuals, regardless of their income level.These taxes are collected by the supplier or service provider at the time of sale from the customer and then deposited with the government.

Example: Goods and Services Tax (GST) is an indirect tax because customers pay it while purchasing goods or services, and the seller later remits it to the government.

What is GST?

Now that we understand the difference between direct and indirect taxes, it becomes easier to see where GST fits in.

The Goods and Services Tax (GST) is a comprehensive indirect tax that was introduced in India on 1st July 2017. It replaced a host of earlier indirect taxes like VAT, Service Tax, Excise Duty, and Octroi with a single unified tax structure, making the tax system simpler and more transparent.

GST is a destination-based tax, which means it is collected in the state where the goods or services are consumed, not where they are produced.

Example: If a manufacturer in Gujarat sells goods to a retailer in Maharashtra, the tax revenue goes to Maharashtra because that’s where the goods are consumed.

Why Was GST Introduced?

Before GST, India’s indirect tax system was highly complicated with multiple overlapping taxes levied by both the Central and State Governments. This led to:

• Tax on tax (cascading effect)

• High compliance burden on businesses

• Increased costs for consumers

• GST was introduced to create a “One Nation, One Tax” system, reduce tax complexities, and boost economic efficiency.

History of GST in India

The idea of implementing a unified tax system in India was first proposed almost two decades before its actual launch. Here’s a brief timeline of how GST evolved:

2000: The concept of GST was first introduced by the Atal Bihari Vajpayee government. A committee was formed to draft the GST law.

2004: The Vijay Kelkar Task Force recommended the implementation of GST to simplify India’s indirect tax structure.

2006: The Finance Minister announced the target date of 1st April 2010 for GST implementation, but it was delayed due to lack of consensus.

2011: The Constitution (115th Amendment) Bill was introduced in Parliament to enable GST, but it lapsed.

2014: The Constitution (122nd Amendment) Bill was introduced and later passed in 2016.

1st July 2017: GST was finally launched across India, replacing multiple indirect taxes with a single, unified tax system.

Why Was It Delayed?

• Differences between the Centre and States on revenue-sharing.

• Need for strong IT infrastructure to manage the new tax regime.

• Extensive legislative procedures and amendments.

Today, GST is considered one of the most significant tax reforms in India, bringing uniformity and transparency to the indirect tax system.

Types of GST in India

1. SGST (State Goods and Services Tax)

SGST is charged on intra-state transactions, i.e., when goods or services are sold within the same state. It is levied by the State Government. Important Point: SGST is always charged along with CGST on such transactions.

2. CGST (Central Goods and Services Tax)

CGST is also charged on intra-state transactions (within the same state).It is levied by the Central Government. CGST is charged together with SGST or UTGST in equal proportion.

3. UTGST (Union Territory Goods and Services Tax)

UTGST is similar to SGST but applicable in Union Territories (UTs) instead of states. It is charged when the consumption of goods or services happens in a Union Territory. Like SGST, UTGST is also charged together with CGST.

4. IGST (Integrated Goods and Services Tax)

IGST is charged on inter-state transactions, i.e., when goods or services are sold from one state/UT to another state/UT. It is levied by the Central Government and later shared with the destination state. IGST is also applicable on imports and exports.

Benefits of GST

• The implementation of GST brought several advantages for businesses, consumers, and the economy:

• Elimination of Cascading Effect: Removes “tax on tax” by allowing input tax credit.

• Simplified Tax Structure: Replaces multiple indirect taxes with a single tax.

• One Nation, One Tax: Creates a unified national market and reduces state border delays.

• Ease of Doing Business: Single tax authority and user-friendly online portal.

• Reduction in Prices: Lower production costs can lead to cheaper goods and services.

• Increased Government Revenue: Broader tax base and improved compliance.

• Encourages Formal Economy: Businesses maintain proper records to claim input tax credit.

Who Needs to Register for GST?

GST registration is mandatory for:

• Businesses with annual turnover exceeding ₹40 lakh (₹20 lakh for services and ₹10 lakh in special category states).

• Anyone making inter-state taxable supplies.

• E-commerce operators and those selling through e-commerce platforms.

• Casual taxable persons or non-resident taxable persons.

• Agents of suppliers and input service distributors.

Note: Even if turnover is below the threshold, you can voluntarily register for GST to avail input tax credit.

How to Register for GST Online?

• Visit the GST Portal: https://www.gst.gov.in

• Click on “New Registration”:

• Choose taxpayer type and enter details (PAN, mobile number, email).

• Verify OTP: Receive OTPs on email and mobile to complete Part A of registration.

• Fill Part B of Application:

• Upload required documents (PAN, proof of business address, bank details, photos).

• Submit Using DSC or EVC: Sign the application using Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

• ARN Generation: You’ll get an Application Reference Number (ARN) for tracking.

• GSTIN Issued: Once approved, you’ll receive your GST Identification Number (GSTIN) on email and SMS.

Conclusion

GST has simplified India’s indirect tax system by replacing multiple taxes with a single, unified tax structure. It has brought transparency, reduced costs, and created a nationwide market.

Whether you are a business owner or a consumer, understanding GST helps you manage compliance and appreciate how taxes impact your daily transactions.

Author : R.K Jamdagni