Tax is a medium for the redistribution of the national income. Government levies tax on higher income people or entities and distribute it to weaker sections of society through welfare schemes and subsidies and much more. There is two type of taxes, one is the direct tax and another one is the indirect tax. GST i.e. Goods and Services Tax is a type of indirect tax.
The purpose to introduce the GST was to replace all the existing indirect taxes with a single unified tax throughout the country, while the direct taxes will remain in the same structure. It is also called as a consumption tax, which is levied on goods and services at each stage of the production process, while it is refunded at the intermediate stages except to the consumer which is at the final stage of the production process.
The GST is basically divided into three sub-components, named as Central GST (CGST), State GST (SGST) and Integrated GST (IGST). Their explanation is as below:
- It has replaced the central excise duty and service tax.
- It covers all the sales transactions.
- It is administrated by the central government.
- It is levied on all intra-state (within the state) sales/supplies of goods and services.
- It has replaced state VAT (Value added tax), Entry tax, Entertainment tax, state service tax.
- It is administrated by respective state governments.
- SGST rates can be a bit higher than the CGST rate.
- It is levied on all intra-state sale/supply of goods and services.
- When goods are transferred from one state to the another, then IGST is levied.
- Applicable to the import and export of goods and services within the states.
- It will be levied by the central government.
The function of the GST council is to decide about what tax rate should be applicable to which item. It also decides which type of items will be exempted from the GST. The Finance minister of India is chairman of GST council, currently, the post lies with Mr Piyush Goyal. Ministers nominated by all the state governments and union territories are also members of GST council. While 2/3 of the total voting rights lies with states and union territories collectively and the remaining 1/3 lies with the central government. To make any decision minimum 75 per cent of votes are required. Each state, whether big or small has equal voting rights.
As India is a diverse country with multiple languages and cultures, the same goes for the GST rate. We have five slabs under Goods and Services Tax: 0, 5, 12, 18 and 28 per cent tax slabs. An addition cess is also levied on some luxury goods and goods which are harmful to health.
NOTE: Alcohol and petroleum products are not under GST.