What is Goods and Service Tax (GST)?
GST was launched on July 1, 2017 by the Government of India and it applies to all Indian service providers including freelancers, traders as well as manufacturers. The GST is actually a centralised tax which has amalgamated various taxes like service tax, CST, excise duty and the state taxes such as the entertainment tax, luxury tax, octroi and VAT.
In India, all businesses having sale of goods with an annual turnover of Rs 40 lakhs, or service with an annual turnover of Rs 20 lakhs have to mandatorily be registered for GST and have a valid GST number.
Each and every product goes through multiple stages all along the supply chain, be it purchasing raw materials, manufacturing, sale to the wholesaler, selling to the retailer and then finally the sale to the consumer. GST is levied on all the stages. So, if a product is produced in Assam, but is consumed in Rajasthan, the entire revenue will be received by Rajasthan. Additionally, consumers/t taxpayers with an annual turnover of less than Rs. 1.5 crore can choose a composition scheme and start paying GST at a fixed rate of turnover, doing away with all the hassles of GST.
Components of GST
GST has 3 components:
- Central Component – Central Goods and Services Tax (CGST)
- State Component – State Goods and Services Tax (SGTC), where centre and state levy GST on all entities if the transaction occurs in the state.
- Inter State Component – Integrated Goods and Services Tax (IGST), charged by the centre when a transaction happens between two states.
Eligibility Criteria for GST Registration
- All businesses and corporations involved in buying and selling of goods and services can and should register for GST.
- Companies with an annual turnover of Rs 40 lakhs, or service with an annual turnover of Rs 20 lakhs have to mandatorily be registered for GST and have a valid GST number.
- Businesses that make outward supply of goods also should register for GST.
- E commerce retailers do not have to register for GST if total sales is of less than Rs 20 lakhs.
GST Tax Rates
- Essential household items and life saving drugs are taxed at 5%.
- Products such as processed food or computers are charged as 12%
- Products like hair oil, soaps, sanitary napkins, industrial intermediaries and services are taxed at 18%.
- Luxury goods are taxed at 28%.
- Basic necessity goods come under the exempt list, which means they are not taxed.
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