GST | Explainer on 4-tier GST Tax Structure in India

The GST Council has established a four-tier GST Tax structure with rates of 0%, 5%, 12%, 18%, and 28% in India

GST | Explainer on 4-tier GST Tax Structure in India

Structure of GST in India?

James Wilson first presented taxation legislation in 1870,which is when India's tax systems first began to exist. This was carried out in order to make up for all the losses incurred by the British during the suppression of the Sepoy Mutiny of 1857 in India.

India has since experienced a cascading of indirect taxes at several levels. The Goods and Services Tax (GST) was enacted by the Indian government in 2017 to harmonize all taxes and place them under the control of a single integrated tax system. The purpose of this action was to make it easier to control tax evasion and streamline the nation's tax collection process through the GST framework.

India did not experience an increase in inflation following the implementation of the GST, while other nations did.

What is Goods and Services Tax (GST)?

The Indian government implemented the Goods and Services Tax, or GST, an indirect tax, on July 1st, 2017. The numerous direct and indirect taxes, including Value Added Tax (VAT), excise taxes, services taxes etc., were intended to be replaced by it.

When goods and services are provided, GST is levied. The Goods and Services Tax Law in the Indian context is a comprehensive, multi-level, goal-oriented tax levied in accordance with the addition of value to goods and services. As a result, it is possible to describe the GST's structure as a single domestic indirect umbrella tax scheme for the entire nation.

Three taxes that are imposed under various circumstances make up the GST structure:

  1. Central Goods and Services Tax: The central government imposes the Central Goods and Services Tax (CGST) on intrastate supply of goods and services, or supply of goods and services within the same state.
  2. State Goods and Services Tax: Tax that the state governments impose on the provision of goods and services within their own borders.
  3. Integrated Goods and Services Tax: This tax is imposed by the central government on the supply of goods and services between states. The central government and the state government (state government of the state where the goods/services are consumed), however, split the IGST revenue equally.
  4. Union Territory Goods and Services Tax (UTGST): The UT governments impose the Union Territory Goods and Services Tax (UTGST) on the delivery of goods and services inside the UT.

What is the 4-tier GST Tax Structure?

In India, the GST is a 4-tiered tax structure. The way the GST tax structure is set up, all necessary items, services, and a few food items fall within the lowest GST tax category. The top GST tax category is reserved for high-value goods and services as well as devalued goods.

The four-tier structure of the Goods and Services Tax, or GST, has been determined by the GST Council to be 0%, 5%, 12%, 18%, and 28 percent.

The move of excluding basic products and items, which are the main food units, from the GST regime can be interpreted as an effort to control inflation. However, some common goods would still be subject to a 5 percent tax. On the other hand, the majority of common services would be subject to tax rates of 12 and 18 percent, respectively, while expensive items would be subject to a 28 percent tax.

GST Tier

India's Goods and Services Tax (GST) regime includes a 4-tier rate structure.

Zero Rate (0%)

A few fundamental goods won't be charged at all under this classification of the GST council structure, it has been agreed. The majority of Consumer Price Index (CPI) units fall under this rate category.

The following items have been placed under the zero rate GST tier structure:

  • Potatoes, tomatoes, and other raw veggies high in protein are examples.
  • Live animals include fish, lambs, goats, chickens, and shelled eggs from birds.
  • Corn, maize, wheat, cereal grains, and soybeans that are not packaged.
  • Various components of human blood as well as actual human blood.
  • Raw resources including unprocessed wool, khadi fabric and yarn, charcoal, raw silk, and its trash.
  • Tools and equipment like shovels, spades, and agricultural tools are equivalents.

Lower Rate (5%)

In this rate tier, the majority of ordinary items and services will be subject to a 5 percent tax. This would encompass the remaining CPI-compliant items as well as goods intended for mass consumption. For instance, frozen veggies, tea, coffee, rail tickets, and cheap airline or train tickets.

Standard Rate (12% and 18%)

The bulk of goods and services come under the aegis of this rate tier. The Government of India decided to maintain two standard rate slabs of 12 and 18 percent for this tier in order to control inflation.

Dairy products, accessories, telephones, business class airfare, and theatre tickets under ₹100. are all included in the 12percent rate slab.

Pasta, bakery goods, cleaning supplies, hair dryers, panels, electronics, and other items are among the commodities charged at the 18percent rate slab.

Higher Rate (28%)

More than 200 products are included in this 28 percent rate slab, most of which are items like paint, cement, automobiles, electrical devices, bathing products, soft beverages, etc. However, the Indian government levies an extra tax on select commodities that come under this slab category.

Objectives of Goods and Services Tax(GST)

To further clarify the GST's structure, the following list of goals for the Goods and Services Tax is provided:

1. To achieve the objective of a country-wide unified tax system

The Goods and Services Tax system has made it easier to combine different taxes under one inverted tax structure. The advantage of this one tax structure is that it would apply the same GST rates throughout all Indian states for identical goods and services. As a result, the Central Government can more easily decide on rates and policies while yet maintaining delicate control over tax rates.

2. To Include the Majority of Indian Tax Rates

For many years, India implemented a series of indirect taxes at different supply chain levels, including Central Excise, Value Added Tax(VAT), and others. In addition, the Center and the states shared control over taxation. GST was therefore adopted in place of a single, unionized tax structure.

3. Prevent Tax Evasion

Compared to the prior indirect taxes in use, India's Goods and Services Tax regulations are far tougher. Invoices submitted by their respective suppliers are the only ones on which taxpayers may mark out an input tax credit under the new GST tax system. The introduction of e-invoicing has strengthened this goal. Additionally, because GST is a taxing system that is applied nationally, it is simpler for the government to maintain surveillance and find defaulters more quickly and effectively.

4. To Widen the Taxpayer Base

The GST has made it easier for India's taxed population to grow. Previously, each registration had to be enrolled under each tax legislation, and each tax code had a distinct ending limit dependent on the total value of the business. However, the introduction of the GST, a single integrated tax system applied on both goods and services, has increased the number of companies that are registered under tax laws.

Conclusion

The Government of India has made an effort to streamline tax distribution and collection procedures through the GST structure, as well as to establish corporate setups with a formal economic tone.

Businesses can enjoy the advantages of a unified tax system and simple input credits when they are aware of and adhere to the GST framework effectively. Stakeholders and financial professionals applaud GST as a novel move since it gives the economy a boost. As a result, the Goods and Services Revenue can be considered as a very effective step in giving the Indian economy a formal structure that would aid in proper tax appropriation and distribution.

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FAQs

Q: What is the new GST structure rule?

Ans:

The Indian government made e-invoicing mandatory for all business-to-business (B2B) transactions with a turnover of above 100 crores as of January 1, 2021, under the new regulation of the GST law's framework.

Q: What exactly does the phrase "goal-oriented tax consumption" mean?

Ans:

Under the GST tax structure, the tax collected would be paid to the taxing authority, which controls the location of consumption, according to the notion of goal-oriented tax consumption.

Q: What does the GST structure's requirement for Dual GST entail?

Ans:

Due to the fact that taxes under the GST system are split between the federal government and state governments, a dual GST makes it easier to preserve the nation's federal structure in accordance with the Constitution's provisions.

Q: An integrated goods and services tax is what?

Ans:

An Integrated GST (IGST) would be levied against and appropriated by the Central Government for inter-State procurement of goods and services under the new inverted tax structure of the GST system.