Introduction to GST in India – Meaning, Types, Benefits & Concepts

Introduction of GST

Goods and Service tax, as name suggest, GST is paid on goods and services. When goods or services are supplied by registered person, GST is charged on that supply. 

The Goods and Services Tax (GST) is a landmark indirect tax reform in India. Enacted on 1st July 2017, it replaced a complex web of central and state indirect taxes with a single, unified tax system.

This shift aimed to create a more transparent, efficient, and streamlined taxation regime, fostering a common national market for goods and services.

There is one charging section in each act which tells that when the provisions of act will be applicable in given situation. In GST charging section is Section 7 of Central Goods and Services Act, 2017 provides that supply is charging section, which means that whenever supply of goods or services is made, GST is applicable on transaction and required to be paid.

  

Concept of GST Based On:

1. Value Added Tax
2. Continuous Chain of Credit
3. No Cascading (Tax on Tax)
4. Burden of Tax Borne by End User

Why GST?

1. In old taxation system, there are multiple taxes leading to multiple acts, multiple compliances and multiple tax events. So, to overcome with these problems, GST has been introduced.
2. In old taxation system, there was the problem of cascading (Tax on Tax) and double taxation (where one thing liable to taxes twice first by treating it as goods and second by treating it as a service). So, to overcome with these problems, Govt. introduced GST.
3. In old taxation system, Taxpayer was treated as Manufacturer / Trader / Service provider. But under GST, Taxpayer is treated as Supplier and Buyer is treated as Recipient.

Meaning of GST?

GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax, implemented in India on July 1, 2017, replacing multiple central and state taxes. It applies to the value addition at each stage of the supply chain, from manufacture to consumption, creating a unified "One Nation, One Tax" system.

1. Destination-based Tax: Tax is levied where goods or services are consumed, not where they originate in simple words, Taxes are collected by the state where goods/services are consumed, not where they are produced.
2. Multi-stage & Value-added: Applied at each stage of production and distribution, with tax paid only on the value added in simple terminology it will be levied at every point of sale, with taxes paid on inputs (Input Tax Credit) allowed to be deducted from taxes on final output, preventing tax-on-tax (cascading effect)
3. Replaces Many Taxes: Subsumes VAT, excise duty, service tax, and various cesses, simplifying compliance.

In Short GST Means

1. GST is a tax on Goods or Services.
2. It is levied on “Supply” of Goods or Services.
3. Supply may be Intra-State or Inter-State.

GST (Goods and Services Tax) is a single indirect tax applied on goods and services in India. 

1. Replaced multiple taxes like VAT, Service Tax, Excise Duty
2. One unified tax system
3. Consumers pay GST to the government

Taxes Merged into GST

Taxes Subsumed in GST	Taxes Not Subsumed in GST
17 types of taxes have been subsumed in GST which are as follows: Central Excise Duty VAT Central Sales Tax Entry Tax / Octroi Service Tax Tax on Betting, Gambling, Lottery etc.	Taxes which have not been subsumed in GST are as follows: Import Duty (Customs Duty) Export Duty (Customs Duty) Electricity Duty Road Tax & Passenger Tax Toll Tax etc.

GST replaced various indirect taxes of centre and state governments. Like-

• Central- Excise duty, Service tax, Central Sales tax
• State- VAT, Entertainment tax, Purchase tax, Luxury tax, etc.

GST is Not charged on every item there some item GST is not imposed these items is known as GST-exempt items or non-GST supplies

• GST exempt supplies include unbranded food items (like rice, pulses), education, healthcare services.
• Non-GST supplies include alcohol for human use, petrol, electricity.

Old Taxes & New Taxes Applicability:

1. Alcoholic Liquor for Human Consumption: [State Excise Duty & State VAT]
2. 5 Petroleum Products: [ Central Excise Duty & State VAT]
3. Tobacco: [Central Excise Duty & GST]
4. Rest of the Goods and Services: [ GST]

Types of GST in India – CGST, SGST and IGST

GST in India operates on a dual model, with taxes split between the Central and State governments, along with an integrated tax for inter-state transactions.

1. CGST (Central GST): Collected by the Central Government on intra-state (within the same state) sales of goods and services. Central GST or CGST that is collected by the Central Government.
2. SGST (State GST): Collected by the State Government on the same intra-state sales, complementing CGST. Collected by States on intra-state sales. State GST or SGST that is collected by the state government.
3. IGST (Integrated GST): Levied by the Centre on inter-state (between different states) sales and imports, later shared with states based on destination. Collected by the Centre on inter-state sales and imports. IGST or Integrated GST that is collected by the central Government.

GST is value added tax

What you mean by value added tax it means GST is payable on the additional value creation made in value creation cycle.

GST as a Value Added Tax.

This means that GST is payable only on the value addition, not on the entire value again and again. This is possible because of ITC mechanism. Value addition made by a person in the supply chain.

Value Addition =Increase in value of goods or services at each stage of the supply chain (due to processing, manufacturing, trading, or service)

GST ensures that:

• Each person pays tax only on the value he adds
• Tax already paid at earlier stages is allowed as credit

Let's understand this with help of Example

Assume GST rate = 18%

Stage 1: Manufacturer purchase raw material

• Cost of raw material (excluding GST): ₹1,000
• Value added by manufacturer: ₹500
• Sale value: ₹1,500
• GST @18% on ₹1,500 = ₹270 (GST on sales and there is no input)
• So, the manufacturer pays ₹270 to the Government as there was no ITC available to him.

Stage 2: Wholesaler purchase goods from manufacturer

• Purchase value (excluding GST): ₹1,500
• GST paid on purchase (ITC): ₹270
• Value added by wholesaler: ₹500
• Sale value: ₹2,000
• GST @18% on ₹2,000 = ₹360
• Net GST payable by wholesaler: ₹ 360 (output tax calculated on sale price) − ₹270 (ITC, input of tax paid on purchase) = ₹90
• Wholesaler effectively pays tax only on ₹500 value added

Alternative method to calculate

• GST@18%of ₹500= ₹90
• The value addition is ₹500.

1. Intra-State Supply: Where origin and destination of supply fall within the same state/UT, then it will be called as Intra- State. On Intra-State Supplies, CGST + SGST/ UTGST will be charged and payable to Central Government, and State Government in CGST Fund + SGST Fund/ UTGST Fund.
2. Inter-State Supply: Where origin and destination of supply falls in 2 different States/UTs/Countries, one in State and another in UT (i.e. a border exist in between), than the supply will be Inter-State Supply. On inter-State supplies, “IGST” will be charged, which is a sum total of CGST + SGST / UTGST and payable to Central Government.

After that Central Government will transfer 50% to CGST Fund and balance 50% to Destination SGST/ UTGST Fund.

Utilisation of ITC:

ITC shall be utilised in the following sequence:

1. Credit of IGST will be utilised for: (a) IGST (b) CGST/SGST (Any Ratio/Any Sequence)
2. Credit of CGST will be utilised for: (a) CGST (b) IGST
3. Credit of SGST will be utilised for: (a) SGST (b) IGST
4. Credit of UTGST will be utilised for: (a) UTGST (b) IGST

Why Timely GST Filing is Important

1. Avoids penalties and interest - Helps avoid penalties and interest on delayed payments, protecting the business's profitability and financial standing.
2. Smooth business operations - Enables the government to accurately track economic activity, supporting informed policy decisions and infrastructure development that benefit all.\
3. Claim Input Tax Credit - Ensures smooth Input Tax Credit (ITC) claims, which is crucial for businesses to offset their output tax liability and maintain healthy cash flow.
4. Builds trust and credibility - Maintains a good compliance record, which simplifies future audits, eases interactions with government authorities, and builds credibility.

Benefits of GST

1. Eliminates the cascading effect of taxes, meaning tax is only paid on value addition, leading to reduced overall costs for consumers and businesses.
2. Fosters ease of doing business by integrating various taxes into one, simplifying tax administration and compliance.
3. Promotes transparency and reduces tax evasion through a robust, technology-driven compliance system.
4. Supports the 'Make in India' initiative by making Indian goods more competitive in both domestic and international markets.
5. Enhances India's global trade position by zero-rating exports, providing a boost to export-oriented industries.
6. Contributes to national integration by creating a single common market, facilitating seamless movement of goods and services across states.

Accounting Treatment of GST on Inter and Intra State Purchase and Sale

Intra State For goods purchased 

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
	Purchase A/c                  Dr.
	Input CGST A/c             Dr.
	Input SGST A/c             Dr.
	To Bank / Creditors / Cash A/c

Intra State for goods sales

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
	Bank / Debtor / Cash A/c       Dr.
	To Output CGST A/c
	To Output SGST A/c
	To Sales A/c

Inter State for goods purchased

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
	Purchase A/c               Dr.
	Input IGST A/c             Dr.
	To Bank / Creditors / Cash A/c

 

Inter State For goods sales

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
	Bank / Debtor / Cash A/c       Dr.
	To Output IGST A/c
	To Sales A/c

Conclusion

GST builds a transparent, strong, and unified Indian economy. GST is more than a tax — it’s a tool for building efficient, transparent businesses. Know it. Master it. Use it.