Goods and Services Tax – Benefits, Types, and More

The Goods and Services Tax (GST) has replaced a variety of taxes under the previous tax regime. These taxes include Central Excise, Service Tax, VAT, Luxury, and so forth. Considering the GST Act has been enforced, and you have to run your business under this regime, you need to know about the different types of tax and the ones you are liable to pay.

How do I know which tax to pay?

There are three types of taxes – Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST), and Integrated Goods & Services Tax (IGST). You will have to pay these taxes depending on the type of transaction that you conduct.

Intra-State supply of goods or services

This refers to transactions or supplies that take place within the same state. In Intra-State transactions, a seller needs to collect both CGST and SGST from the buyer. The CGST goes to the Central Government, and SGST goes to the State Government.

Inter-State supply of goods or services

This refers to a supply of goods and services between states. In the case of Inter-State transactions, you will have to pay IGST, which will go to the Central Government.

Why are there three types of GST – SGST, CGST, and IGST?

As you know, India is a federal country where the Central Government and the State Governments have the authority to impose and collect taxes.

Both the Governments are required by the constitution to fulfill specific responsibilities, for which they need to raise tax revenue.

The Center and States levy GST at the same time. This tax structure that has three types of GST is put in place to help taxpayers take the credit against each tax, thereby ensuring ‘One Nation, One Tax.’

What are the Benefits of the Goods and Services Tax?

GST has a ton of benefits to its credit. One main advantage is getting the consumer to pay one tax instead of several taxes by subsuming indirect taxes. Here are some of the most significant advantages of GST:

Regulating the Unorganized Sector

With the GST in place are rules and regulations to ensure the transparency of the unorganized and unregulated markets like construction and fabric.

Easy and Effective Administration

It is no secret that Indirect taxes are challenging to manage. However, we now have a unified tax and a consolidated GST network under the GST regime. This network provides easy data access that simplifies the management of tax payments and other data.

Running a business is now simplified

With the GST in effect, there are no indirect tax-related problems. Back in the day, companies would face the brunt of VAT licensing, following up with tax authorities, excise regulations, and a lot more. However, in the present system, companies find it easier to operate and go about their processes.

A Common Market For The Nation

The Goods and Services Tax has managed to increase the Gross Domestic Product (GDP) tax ratio, which fosters economic productivity and sustainable development in the long run. GST plays a vital role in eradicating economic distortions and creates a common market for the whole nation.

Eradication of Cascading Effect Of Taxes

The consumer has to pay the overall price of the products or services purchased. However, the GST Act does have provisions to claim Input Tax Credit (ITC) to make sure that revenues do not go down. Unlike the old system, there is no double taxation and no imposition of taxes at different stages of the supply. The GST is levied only on the value of the goods and services in question.

Goods and Services Identification Number

If you are running a business under the GST regime, you need to carry out the GST registration process and obtain a Goods and Services Tax Identification Number (GSTIN). In a nutshell, GSTIN or GST number is a unique and exclusive 15-digit number for identification that you receive after you complete your GST registration process. Depending on the kind of business you are involved in, your yearly business turnover, and your business location, you will have to pay GST.

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