GST Laws - All You Need to Know

By integrating a technological layer into the taxation system, GST makes it easier for taxpayers to use taxpayer services. Knowing the right facts about GST will make it easy for you to perform GST registration, returns and payments. Here’s all that you need to know-

What is GST? An Overview of the GST Tax Policy Reform

GST or Goods and Services Tax is a Tax Policy Reform that came into effect in India on July 1, 2017. The NDA Government headed by Narendra Modi Introduced GST as part of their vision of ‘One Nation- One Tax’.

So what is GST and how is it different from the preceding tax regime?

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Pre-GST Tax Regime in India: A Quick Retrospective Glance

The Indirect taxation system in India before GST was a confusing, cascading mess.

Here are some of the Indirect Taxes from the Pre-GST era –

• Central Excise Duty and Duties of Excise
• State VAT and Central Sales Tax
• Purchase Tax
• Luxury Tax, Entertainment Tax and Entry Tax
• Taxes on advertisements, lotteries, betting, and gambling

These taxes were charged on products and services purchased and consumed in India. They were collected by both the Central and State Governments. States mostly collected VATs (Value Added Taxes). The laws for these taxes were different for each state. Taxes like entertainment tax and local taxes were levied by both the State and Central Governments. On top of all this, an Inter-State tax would be levied by the Central Government for the Interstate sale of Goods. The GST system has replaced all of these taxes with either CGST, SGST or IGST, depending on whether the transaction is intra-state or interstate.

What are CGST, SGST and IGST: Explained

Why is GST Split into 3 Components?

Transaction of Goods and Services in India is broadly categorised into

1. INTRA State Transactions – transactions that happen within a single state, and
2. INTER-State Transactions – transactions that happen between two or more states

CGST, SGST and IGST stand for Central GST, State GST and Integrated GST respectively. These three taxes replace all the indirect taxes that are collected in India. Here’s how they work together to streamline the tax regime –

GST for Intra-State Transactions: Transactions Within a Single State

For any transaction that takes place within the state, both the Central and State GSTs are collected (CGST + SGST). Since the GST is a destination-based tax, the tax is collected by the State in which the goods are consumed, and not the one in which it is manufactured.

When the Goods and Services are consumed in one of the Union Territories of India, a UTGST (Union Territory GST) is collected by the destination Union Territory. 

GST for Inter-State Transactions: Transaction Between States or Union Territories

For the transactions that happen between states, only the Integrated GST (IGST) is collected. Since the GST is a destination-based tax, the tax is collected by the State in which the goods are consumed, and not the one in which it is manufactured.

The GSTIN: GST Number Explained

The Goods and Services Tax Identification Number also known as the GST number, can be considered the backbone of the GST tax regime. It is a unique 15-digit identification number that will be assigned to you if you are a dealer, supplier or any other business entity. 

Every business entity in India registered under GST will be given a unique identification number known as the GSTIN. The GSTIN replaces the TIN which used to be issued by the Tax authorities of the state. You can obtain the GSTIN and register yourself for GST for free.

Input Tax Credit Adjustments

If you are running a small business, the GST regime offers you a lot of advantages. The input tax credit is one of the most significant advantages of the GST.

What is Input Tax Credit?

The GST is a destination-based tax. This means that the tax is collected from the buyer of the transaction. If you are a business person, the GST is way more advantageous than the previous tax regime. GST differs in that businesses can reduce their tax liability by claiming credit for GST paid on purchases.

Conditions for Availing of Input Tax Credit

To avail of the Input Tax Credit,

• You must produce Tax Paying Documents like Tax invoices, Debit Notes etc.
• Goods and Services should have been received by the person who is taxable
• A tax that is charged on the invoice should have been paid to the Government.
• You as the taxpayer should furnish the tax returns.
• In the case of ITC for invoices received in instalments, you can only credit against the last instalment.
• Your entitlement for ITC against a particular invoice will lapse, one year from the date of issue of the credit.

How Input Tax Credit Works

Imagine you purchased some goods for your business from a seller. In this case, the invoices show that the seller can claim the input tax credit on the purchases. By doing so, you can offset your GST liability.

You can use the input tax credit of one GST type to recover the tax liability of another type.

But you have to follow a certain order of priority

For this, the seller will have to upload details of all the tax invoices in the GSTR 1 Return Form.

The GSTR-1 return is a summary of all sales a taxpayer makes. If you are a GST taxpayer, you have to file GSTR-1 monthly or quarterly. The GSTR-1 will contain details of all sales classified systematically. Meanwhile, GSTR-9 is a mandatory annual return form that all GST taxpayers have to file.

Adjustment of Input Tax Credits under GST

Before adjusting your Input tax credits, you need to ensure that All three GST filings have been completed, namely

1. GSTR-1
2. GSTR-3B
3. GSTR-9

GSTR-9 is the annual return form. You must fill out GSTR-1 and GSTR-3B before filing GSTR-9. If you identify that there is some correction needed in the data of GSTR-1 and GSTR-3B, you cannot correct it in GSTR-9, as GSTR-9 is intended as a data aggregation.

How Can NoBroker Help

For a lot of people, GST can come across as confusing. Filing GST and paying taxes doesn't have to be a stressful affair. This is where the NoBroker Legal Services Team can help you. Our experts can guide you through the GST process and help streamline the payment process for your business.

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