Prathapan Bhaskaran explains the path-breaking GST regulations that have made sweeping changes to the nation’s commercial taxes regime

What is GST?

The acronym GST stands for Goods and Services Tax. GST is an indirect commercial tax that the federal government in India introduced across the 29 states and seven union territories effective July 1, 2017. It is a revolution of sorts in a country stuck in a morass of multiple taxes for ages. You can find here the GST explained in layman terms.

What is the purpose of GST?

Bringing the whole nation under one umbrella commercial levy is one of the salient features of the GST regime. It also avoids repeated taxation before a product reaches the consumer, thus avoiding cascading effect of taxes. Cascading of taxes occur when taxes are levied as multiple points for the same product or service. This cascading effect is one of the reasons economists cite as a cause of inflation. By replacing all these taxes that include excise duty, central sales tax, state sales taxes, value-added tax (VAT), and service taxes, the government hopes to ease the total tax burden on the consumers and simplify the taxation procedures for the traders. It is simple to understand how the GST works as this article on the GST explains.

Who administers the GST?

The GST Council that the President has constituted administers the GST. Its functions include fixing the rates of the GST applicable to different segments of trade.

Who are the members of the GST Council?

The federal finance minister chairs the GST Council. The federal minister of state for finance is a member representing the federal government. All ministers in charge of finance of the states are also members of the GST Council.

What are the GST rates?

There are seven broad schedules to which the authorities have categorized the goods.

Goods that do not attract any GST are grouped under Schedule I. They include livestock, meat and meat products, and fish and fish products as well as different kinds of seafood. This schedule also includes milk and dairy products. Honey, fruit, and vegetables, fresh or chilled will be taxed at nil percentage along with food grains, cereals, and nuts.

Schedule II includes goods taxed at a nominal 0.25 percent rate. They include uncut diamonds, precious stones, and semiprecious stones.

Schedule III attracting 3 percent rate included precious metals and finished precious stones and jewelry.

The Schedule IV attracting 5 percent rate brings up frozen products for consumption like fish, meat, and dairy products as well as fruit and vegetables. This is a big group which also covers many industrial products and raw materials.

Schedule V attracts 12 percent GST. It includes some frozen meat items, fats and butter, fish products, fruit and vegetable preserves, beverages, pharmaceutical products, photographic materials, and leather goods.

Schedule VI is the category that has been slapped 18 percent tax including machine tools and machinery.

Some beverages and other products like building materials and paints attract 28 percent tax and have been put on schedule VII.

How do consumers benefit from the GST?

As the GST removes the cascading taxation problem, the tax burden transferred to the consumer does not keep increasing at every transaction. Instead, the traders/dealers can claim the tax credit for the portion they paid and pass only the rest on to the next buyer.