What is GST? The Goods and Services Tax Law

1. What is GST?

Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.

In simple words, GST is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India.

Under the GST regime, tax will be levied at every point of sale.

Now let us try to understand “GST is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.”

Multi-stage

There are multiple change-of-hands an item goes through along its supply chain : from manufacture to final sale to consumer.

Let us consider the following case:

• Purchase of raw materials
• Production or manufacture
• Warehousing of finished goods
• Sale of the product to the retailer
• Sale to the end consumer

Goods and Services Tax will be levied on each of these stages, which makes it a multi-stage tax.

2. What are the components of GST?

There are 3 applicable taxes under GST: CGST, SGST & IGST.

• CGST: Collected by the Central Government on an intra-state sale (Eg: Within Karnataka)
• SGST: Collected by the State Government on an intra-state sale (Eg: Within Karnataka)
• IGST: Collected by the Central Government for inter-state sale (Eg: Karnataka to Tamil Nadu)

In most cases, the tax structure under the new regime will be as follows:

Transaction	New Regime	Old Regime
Sale within the State	CGST + SGST	VAT + Central Excise/Service tax	Revenue will be shared equally between the Centre and the State
Sale to another State	IGST	Central Sales Tax + Excise/Service Tax	There will only be one type of tax (central) in case of inter-state sales. The Center will then share the IGST revenue based on the destination of goods.

Illustration: 

A dealer in Maharashtra sells goods to a consumer in Maharashtra worth Rs. 10,000. The GST rate is 18% : comprising CGST of 9% and SGST of 9%.

In such cases, the dealer collects Rs. 1800 and of this amount, Rs. 900 will go to the Central Government and Rs. 900 will go to the Maharashtra government.

Now, let us assume the dealer in Maharashtra had sold the goods to a dealer in Gujarat worth Rs. 10,000.

The GST rate is 18% comprising of only IGST. In such case, the dealer has to charge Rs. 1800 as IGST. This IGST revenue will go to the Central Government.