Legal Guide

What is GST and how does it work?

by Saloni Chak · 5 min read

How does GST work

In India Goods and Services Tax (GST) was introduced in 2017 to simplify indirect tax and also eliminate tax on tax. The Goods and Services Tax (GST) is a Tax charged on goods and services sold within the domestic boundaries of the country. The tax is included in the final price and paid by consumers at the point of sale and passed to the government by the seller. GST is taxed at a single rate across the nation. GST is a common Indirect Tax used by the majority of developed economies globally.

 GST is an “Indirect Federal Sales Tax”, this tax is not directly paid by customers to the government but is rather levied on the manufacturer or seller of goods and the providers of services. The Sellers adds the tax expense into the Selling Price, and the customer pays the Seller an amount that is inclusive of GST.  

Types of GST-

  • Central Goods and Services Tax: CGST is charged on the intrastate supply of products and services.
  • State Goods and Services Tax:   SGST, like CGST, is charged on the sale of products or services within a state.
  • Integrated Goods and Services Tax:  IGST is charged on inter-state transactions of products and services.
  • Union Territory Goods and Services Tax:  UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is levied along with CGST.

GST Tax Slab-2021

The GST tax is divided into four slabs-

No Tax

Goods – No taxes will be levied on goods like sanitary napkins, deities made of stone, marbles or wood, Rakhis without any precious metals like gold, silver, raw material used in brooms, Saal leaves and fortified milk, fruits, vegetables, bread, salt, bindi, curd, sindoor, natural honey, bangles, handloom, besan, flour, eggs, stamps, printed books, judicial papers, newspapers

Services – All hotels and lodges that carry a tariff below INR 1,000 are exempted from taxes under GST. The list also includes IMM courses and bank charges on the savings account, Jan Dhan Yojana

GST Tax Slab of 5%

Goods – The tax of 5% under GST include skimmed milk powder, fish fillet, frozen vegetables, coffee, coal, fertilizers, tea, spices, pizza bread, kerosene,  ayurvedic medicines, agarbatti, sliced dry mango, insulin, cashew nuts, unbranded namkeen, lifeboats, Ethanol- Solid biofuel pellets- Handmade carpets and other handmade textile floor coverings (including namda/gabba) – Hand-made braids and ornamental trimming in the piece

Services – Small restaurants along with transport services like railways and airways, Standalone ACs non-ACs Restaurants, and those which serve liquor, Takeaway Food, Restaurants in hotels with a room tariff less than INR 7,500 (no input credit for these restaurants), will come under this category. Special flights for pilgrims (Economy Class) come under 5% 

GST Tax Slab of 12%

Goods – Items under tax slab of 12% include frozen meat products, butter, cheese, ghee, pickles, sausage, fruit juices, namkeen, tooth powder, medicine, umbrella, instant food mix, cell phones, sewing machine, man-made yarn, -Handbags including pouches and purses; jewelry box, Wooden frames for painting, photographs, mirrors, etc, Ornamental framed mirrors, Brass Kerosene Pressure Stove, Art ware of iron, etc.

Services – Business class air tickets will attract a tax of 12% under GST. The slab also includes movie tickets priced under INR 100 

GST Tax Slab of 18%

Goods –most of the items are included in this tax slab. Some of the items are flavored refined sugar, cornflakes, pasta, pastries and cakes, detergents, washing and cleaning preparations, safety glass, mirror, glassware, sheets, pumps, compressors, fans, light fitting, chocolate, preserved vegetables, tractors, ice cream, sauces, soups, mineral water, deodorants, suitcase, brief case, vanity case, oil powder, chewing gum, hair shampoo, preparation for facial make-up, shaving and after-shave items, washing powder,Refrigerators, Water Heaters, Washing Machines, Televisions (up to 68 cm), Vacuum Cleaners, Paints, Hair Shavers, Hair Curlers, Hair Dryers, Scent Sprays, Lithium-ion batteries, detergent, stones used in flooring, marble & granite, sanitaryware, leather clothing, wrist watches, cookers, stoves, cutlery, telescope, goggles, binoculars, oil powder, cocoa butter, fat, artificial fruits, artificial flowers, follage, physical exercise equipment, musical instruments and their parts, stationery items like clips, some diesel engine parts, some parts of pumps, electrical boards, panels, wires, razor and razor blades, furniture, mattress, cartridges, multi-functional printers, door, windows, aluminium frames, monitors and television screens, tyres, power banks for lithium ion batteries, video games, carriage accessories for disabled, etc

Services – Restaurants located inside hotels with tariffs of INR 7,500 and above, outdoor catering(input tax credit to be available), movie tickets priced above INR 100, actual bill of hotel stay below INR 7,500, IT and Telecom services, and financial services along with branded garments will be part of this tax slab. 

GST Tax Slab of 28%

Goods –The goods include sunscreen, pan masala, dishwasher, weighing machine, paint, cement, vacuum cleaner,  automobiles, hair clippers, motorcycles.

Services –  Five-star hotels, whose actual bill of hotel stay above INR 7,500, racing, movie tickets, and betting on casinos.

What items are not covered under GST?

  • Alcohol: The state has the power to collect tax on alcohol;
  • Petroleum: GST does not apply to— crude oil, diesel, petrol, natural gas, and ATF.
  • Tobacco: The Central Government has the power to levy excise duty on tobacco products in addition to GST.
  • Entertainment Tax: The power remains with the state to charge entertainment tax.

Conclusion

GST was introduced to eliminate corruption and it brings transparency to the taxation system. The consumer is aware of the reason and the amount of tax he is paying to the government. The GST helps in reducing inflation and increasing the efficiency of the taxation process. It improves economic growth and brings the whole nation to one national market.

Your dream of building your own company is now a reality. But are you struggling with GST registration for your company? Consult a lawyer today.

Saloni Chak

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Saloni Chak

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