The fundamental point behind the Goods and Services Tax system in India is to try and create a simplified regime that gives both the center and states the ability to levy taxes.
If your business turnover is expected to exceed Rs 40 lakhs, or 10 lakhs if you are located in the hill or NE states, you will be required to undertake the GST registration process. It may also be the case that you have a business that requires mandatory registration regardless of your turnover, so it is wise to get guidance on your particular circumstances.
On the assumption that your business is required to register, here is a look at the four types of GST that may be applicable to you.
State Goods and Service Tax is levied by the state government in relation to service transactions and the movement of intra-state goods.
The revenue generated by this tax is earned by the relevant state government where the transaction originates.
This SGST was introduced as a direct replacement for taxes such as VAT, purchase tax, and various other taxes that are now encompassed by this simplified version.
Next up is the Central Goods and Service Tax, which is levied by the central government and covers intra-state government and service transactions.
It is important to remember that CGST is levied in conjunction with SGST and UGST and the revenues are distributed between the center and the state in question.
An example of how this works would be if you were selling to another business in the same state. This would mean that it qualifies as an intra-state sale and would, therefore, attract both CGST and SGST on the transaction.
Integrated Goods and Service Tax encompasses the tax levied on service transactions and inter-state goods, but it also applies to both imports and exports too.
These IGST taxes are shared by the state and the center, but the SGST aspect of the tax will be distributed to the appropriate state where the goods and services were actually consumed.
It is a useful aspect of the GST system as it enables you to be able to claim input tax credit because it is a facility that is designed to check cascading tax, which should be more tax-efficient throughout the supply chain process.
Union Territory Goods and Service Tax is a levy imposed on any transaction completed in the union territories of India.
There is a list of these territories to refer to if you are in any doubt, but you should also be aware that this tax operates under the same rules structure exactly as SGST.
The underlying essence of the GST structure is to promote the unification of a tax system that applies across the whole of India and supersedes all of the previous state and central indirect laws that existed previously.
It is intended to make it easier for business owners to understand and has also had the impact of increasing compliance at the same time.
GST should, in theory, make it easier to do business with anyone regardless of where they are in the country.