What Is GST?


GST stands for Goods and Services tax which applied from July 01, 2017 in India and April 1, 2015 in Malaysia. GST is a one stop replacement of all multiple taxes with a single national tax to value addition inspite of total value of the product or services at each and every step of the supply cycle.
This method gives back credit for the input tax paid on the purchase of goods and services by the company, which can be adjusted with the tax to be paid for the supply of goods and services. This significantly reduces the overall manufacturing cost which is then transferred to consumer as a savings.


Let’s take an example to understand GST:


farmer everyday sells unprocessed milk to an ice cream manufacturing company, who then started processing the milk to make ice cream and distributes it to various outlets.
The farmer sells the unprocessed milk at Rs.10. If the GST rate is 10% on mild (Actually in India there is no GST on Milk and this is just for an easy example), then the added 10% tax will be Rs.1, so the ice cream company will buy unprocessed milk at Rs.11 (10 + GST 10%).
After processing the milk and manufacturing Ice Cream from it, the company adds Rs. 10 as margin, so it's total price for Ice Cream will be Rs. Rs. 20. Here we have considered the cost of goods sold as Rs.10 (Rs.1 of GST less from the Purchase price Rs.11 as the company will take input credit).
So, the company sells the Ice Cream to a retailer for Rs. 22 including GST i.e. Rs.20 + 10% GST (Rs.2).
The retailer then add ons additional margin of Rs. 10 to his cost of purchase.
As a result the retailer will be selling the Ice Cream at Rs. 33 i.e. Rs.30 + 10% GST.


How GST works in India?


A nationwide tax reform can't function without following strict guidelines and provisions set by government. India's GST Council has smartly divided GST into three categories. Wondering how this will work? Let's check it in details.

When Goods and Services Tax (GST) in India is implemented, there will be total 3 kinds of applicable Goods and Services Taxes on specific products and services:
1. CGST: CGST revenue will go to central government.
2. SGST: SGST revenue will go to state governments for intra-state sales.
3. IGST: IGST revenue will go to central government for inter-state sales.

Mostly, the GST structure under the new tax lay will be as follows:

Transaction New Regime Old Regime Comments
Sale within the state CGST + SGST VAT + Central Excise/Service tax Centre and the State will share revenue
Sale to another State IGST Central Sales Tax + Excise/Service Tax From now onward only one type of tax will apply on interstate sales.
Example
A dealer of Punjab sells goods to a consumer in Punjab worth Rs. 20,000. The Goods and Services Tax (GST) rate is 18% on that product comprising CGST rate of 9% and SGST rate of 9%. In such scenarios the dealer collects total Rs. 3600 and from this central government will get Rs. 1800 and state government will get Rs. 1800.
Now, if the same dealer in Punjab had sold goods to a dealer in Haryana worth Rs.20,000. Here as it's a interstate sale, only IGST will apply. There will be no CGST and SGST applicable. In such scenarios the dealer has to charge Rs. 3600 as IGST. This collected IGST will go to central government.


Who need to register for GST?


Every business with turnover exceeding the threshold limit of Rs. 20 lakh/ 10 Lakh as applicable depending on their state will have to register for GST. This registration process is called as GST registration.


Why is GST registration very important for businesse in India ?


GST registration is very important as it allows you to avail various tax benefits made available under the GST rule. Seamless input credit is one of these benefits. Now multiple taxes are brought under a one GST tax and cascading of taxes will no longer happen.
Moreover, on time GST registration will definitely help your business having problems with tax authorities.


How to register for GST in India?


Since GST is implemented, India is having millions of traders regestering for GST to follow the government norms for businesses in India. Let's check how to apply for GST.


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Whether you’re new in business or a veteran on the market, it’s impossible not to have heard of the new tax system that will be rolled out this year in India, called Goods and Services tax, for short GST.

With the promise of streamlining the current tax structure, the government will integrate all current indirect taxes into a single GST tax, making tax collection more transparent.



Let’s have a look at a short summary of GST’s impact on small businesses in India:



Disadvantages

All invoices from B2B transactions have to be captured and compared to the corresponding party’s records. If there are any discorcondances, input tax credit cannot be claimed.

Implementation will be tough on businesses as they will have to learn on the go. Returns need to be made more often and cash flow might have suffer. GST software will be the key in their day to day operations.

While logistics will get easier for companies that sell goods, businesses in the service sector will suffer more. Currently, service providers need to register once at the central level while GST will require registration in every state such a business operates.

Advantages

No more tax cascading and applying tax at the total value of the product on each stage of the supply chain. Tax will be applied to value addition at each stage and businesses will be able to claim input tax credit.

Taxes for both Centre and State will be collected at the point of sale and charged only on the manufacturing cost. As prices are likely to come down, consumption will increase, resulting in more production and helping businesses grow.

Interstate movement of goods will get easier. All businesses that need to move goods around the country currently need to keep multiple warehouses in order to reduce tax prices. This won’t be necessary as GST will remove entry state taxes.

GST Explained