Skip to main content

GST – What Is It and How It Affects You


GST is a concept that every common man thinks they know about, and some even try to advise the professionals on it.

But, what is GST?

As I said in my second post, GST is an indirect tax. You are paying taxes to the government irrespective of your income. It is levied as a percentage on product/service value.

How is GST different from previous taxes?

GST was introduced to achieve the objective of “One Nation, One Tax”. The primary taxes that GST replaced are Value Added Tax (VAT), Excise Duty, Customs Duty, Central Sales Tax (CST) and Service Tax. Other secondary taxes like entertainment tax, luxury tax, tax on gambling, betting, and lottery, etc.

Contrary to popular belief, GST was not introduced by the current government. In 2000, the then PM Sri Vajpayee set up the committee to draft the GST law. In 2006, the then Finance Minister P Chidambaram proposed the introduction of GST in the budget. So, in reality, neither political party can claim GST as their baby.

And also, contrary to another belief, GST doesn’t make things more complicated, neither does it increase the tax we pay. During the VAT era, sometimes there were multiple taxes on the same product. This is called the cascading effect of taxes. Taxes were levied on taxes. This used to lead to an increase in taxes.

Input Tax Credit

“Input” here means any purchases you have made that you are going to use in the business, be it sales or manufacturing of other goods. And “Input Tax” is the tax you have already paid on those purchases. Hence, “Input Tax Credit” means the credit you have for the payment of taxes on sales. Does this affect final consumers? Not directly. The following charts show you how GST has helped to diminish the cascading effect of taxes:


 

 The difference in the examples we are looking is small (Rs. 0.36). But, on a larger scale, the amount gets bigger and bigger. So, as we can see, the concept of input tax credit is not a new introduction in GST, just that GST made it more efficient.

Is GST mandatory for businesses?

No, it is mandatory only if it satisfies the following conditions:

  1. If you are making interstate supplies.
  2. Gross turnover of Rs. 40 lakhs for supplier of goods, Rs. 20 lakhs for others, and Rs. 10 lakhs for special category states has crossed.
  3. Casual taxable person / Input Service Distributor (ISD).
  4. Non-resident taxable person.
  5. Supplier of goods through an e-commerce portal.
  6. Liable to pay tax under the reverse charge mechanism (RCM).
  7. GST TDS/TCS deductor.
  8. Online data access or retrieval service provider.

These could be the GST doubts you may have had. But, for a business, there is a lot more to cover. In this post, I have only barely touched the cold waters of the ocean called GST. If I have missed anything, or you have any doubt, do reach out to me. Thank you for reading!

 

Comments

Post a Comment

Popular posts from this blog

Money Matters Made Easy: Your Guide to Financial Ratio

Embarking on a journey into the world of finances is like setting sail on a quest for hidden treasures. In this adventure, numbers become storytellers, and ratios whisper the secrets of financial well-being. Picture it as your personal roadmap to making savvy choices and securing lasting prosperity. Together, let's unravel the mysteries of financial ratios – not as daunting formulas, but as friendly guides to empower both individuals and businesses. We're here to make finance relatable, accessible, and maybe even a bit fun. So, grab your compass, and let's navigate this financial landscape together, uncovering the wisdom that transforms complexities into opportunities. Welcome to a journey where financial know-how meets human simplicity, shaping a path to your fiscal success. Table of Contents: Liquidity Ratios Current Ratio Quick Ratio Profitability Ratios Gross Profit Margin Net Pro...
Post a Comment
Read more

The Investments that are available for deduction under Income Tax

  In my last post, I talked about investments that you can make in order to avail deduction from your income. These investments can be made by all individuals regardless of their nature of income. The deductions are covered under Chapter VI of the Income Tax Act. Among those, we will be specifically talking about section 80C and its subsections. Table of Contents When should I invest? Investment proof for IT Return List of eligible investments Limit on deduction availability Conclusion When should I invest? Let me first explain the concept of Financial Year and Assessment Year. In Income Tax, you come across the term “Assessment Year” more than “Financial Year”. A Financial Year (or Previous Year) that starts in April and ends in March, is the one in which you have actually earned money or incurred expenses. The current financial year is 2022-23. An Assessment Year is the one i...
Post a Comment
Read more

House Rent Allowance (HRA) – How to Claim Maximum Exemption?

“Can I claim HRA if I am living with my parents?” is one of the most frequent questions that I get. In this post, I’m going to clarify that along with many other doubts you may have had or will have. I will tell you how to save as much tax as possible. All the things here will, of course, be legal ways to save tax. Table of Contents What is HRA? How HRA is taxed How much of HRA can be claimed as an exemption? Can I claim the exemption if I’m living with my parents? Is it possible to claim both HRA exemption and housing loan interest and principal deduction? Why is my employer asking for the landlord’s PAN? Can I claim just rent paid as a deduction? What is HRA? HRA or House Rent Allowance is a part of the salary provided by employers in order to help their employees in regard to their rent payments. Normally your CTC consists of different components like:     1. Basic salary. ...
Post a Comment
Read more