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What is GST?
The Goods and Services Tax, or GST. In India, it is an indirect tax that has mostly superseded other indirect taxes, including the excise duty, VAT, and services tax. The Parliament approved the Goods and Service Tax Act on March 29, 2017, and it became effective on July 1.
What is a GST Invoice?
A GST-compliant purchase invoice lists all the goods and services sold and their prices and includes information about the parties engaged in the transaction. In addition to other news, this invoice shows the taxes and discount percentages applied to each item.
Under GST, there are various sorts of invoices for the supply of goods and services. Here is a complete list of them:
How does GST Work?
Before reaching the final consumer, a product must pass through multiple phases, and various taxes may be due throughout this time. The GST regime will, however, alter this circumstance. To see how to consider the following example:
Manufacturer
Consider clothing production as an example and the 10% GST that is applied. The firm purchases raw materials for INR 550, inclusive of INR 50 (10% of 500) in GST. During the production process, he then adds his own value of INR 50 to the raw ingredients. With GST excluded, the product's gross value increases to INR 550. Now, the total tax paid on the production of the clothing equals INR 55 (10% of 550). The manufacturer would be forced to pay a tax of INR 55 under the present tax system, but under GST he can set off some of his tax because he already paid it when he bought the raw materials. Therefore, the ultimate GST that the producer will pay will be INR 5 (total tax amount up to now less the tax he has already paid), or INR 5 (55-50).
Wholesale
The clothing is transferred from the producer to the wholesaler in this instance at a gross value of INR 550, exclusive of GST, which amounts to INR 55 (10% of 550). The wholesaler adds his value (margin) of INR 50, bringing the total to INR 600 (550 + 50). As a result, the ultimate tax amount is now INR 60 (10% of 600). The wholesaler, like the manufacturer, may deduct this tax amount from the tax he has previously paid when buying the items from the manufacturer. As a result, the wholesaler's total GST would be INR 5 (60 - 55).
Retailer
The retailer purchases the clothing from the wholesaler in the final phase for a gross value of INR 600, exclusive of GST of INR 60 (10% of 600). The final cost of the products is INR 650 after he adds his value, or margin, of INR 50. The GST that applies in this case is INR 65 (10% of 650), however, the retailer can offset it because he already paid a tax when he bought the products. As a result, the retailer's final GST incidence would be INR 5 (65 - 60). The final GST payment made by the buyer would be INR 65 (or 10% of 650), as the shop will sell the product for INR 650. If we had kept the tax code as it is now, this figure would have been significantly higher. As a result, GST has the potential to be a win-win situation that will help businesses and consumers and benefit the entire value chain.
How Has GST Helped in Price Reduction?
Before the introduction of GST, all buyers, including the final consumer, paid tax on tax. This tax-on-tax circumstance is called the "cascading effect of taxes."
The cascading impact is gone, thanks to GST. At each stage of the transfer of ownership, tax is only calculated on value addition. Comparison of New & Old GST Regime with an Illustration
| Transaction | New Regime | Old Regime | Revenue Distribution |
|---|---|---|---|
| Sale within the State | CGST + SGST | VAT + Central Excise/Service tax | The State and the Center will share the revenue equally |
| Sale within the State | CGST + SGST | VAT + Central Excise/Service tax | The State and the Center will share the revenue equally |
Assume a dealer in Gujarat sells products for Rs. 50,000 to a dealer in Punjab. The single type of tax, the IGST, is included as part of the 18% tax rate. The merchant is required to pay an IGST of Rs. 9,000 in this situation. However, this revenue will go to The central government.
The same dealer again sells goods to a consumer in Gujarat worth Rs. 50,000. The GST rate for products is 12%. This rate consists of CGST at 6% and SGST at 6%.
Since the sale took place within Gujarat, the dealer was required to collect Rs. 6,000 in Goods and Service Tax, of which Rs. 3,000 would go to the federal government and Rs. 3,000 to the state of Gujarat.
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FAQs
1. What is the difference between a credit note and a GST Invoice?
A credit note is issued by the seller or supplier of goods/ services if they raised an invoice charging the customer more than the actual amount. After issuing a credit note, the customer may not need to pay the total amount mentioned in the invoice. It is primarily a corrigendum for any mistakes in billing made by the seller.
On the other hand, the supplier raises a GST invoice for a successful transaction of goods or services. The recipient of the service or interests shall pay the entire amount if the amount is correct.
2. What are the GST rates?
GST rates vary based on the type of goods and services. There are four main GST rates: 5%, 12%, 18%, and 28%. Some goods and services are exempt from GST, while others might attract a special rate.
3. Who needs to register for GST?
Businesses with an annual turnover exceeding the prescribed threshold limit (currently Rs. 40 lakhs for most states) must register for GST. For certain special category states and specific businesses, the threshold is Rs. 20 lakhs.
4. How does GST impact e-commerce businesses?
E-commerce operators and sellers on e-commerce platforms need to comply with GST regulations. The e-commerce operator is required to collect and remit TCS (Tax Collected at Source), and sellers need to ensure proper invoicing and compliance.
5. How to register for GST?
GST registration can be done online through the GST portal by providing necessary details and documents. The process involves obtaining a unique GSTIN (Goods and Services Tax Identification Number).
6. What is Input Tax Credit (ITC)?
Input Tax Credit allows businesses to claim credit for the GST paid on purchases against the GST liability on sales. It prevents the cascading effect of taxes and reduces the overall tax burden.
7. When should GST returns be filed?
GST returns are fgstin-banner.webpiled monthly, quarterly, or annually based on the business's turnover. GSTR-3B is a monthly return, while GSTR-1 and GSTR-9 are filed quarterly and annually.
8. Are there any penalties for non-compliance?
Yes, there are penalties for late filing of GST returns, incorrect filings, or non-compliance. Penalties can include fines and interest on outstanding tax liability.
9. Is it mandatory to maintain the invoice serial number?
The GST regulations require that invoice serial numbers be kept up to date for a whole year.
10. What is a GST Invoice Badge?
A GST Invoice Badge ensures that the item complies with GST. It denotes that for the sale of that product, the vendor will generate a GST invoice.
