GST in India: Basics, Benefits, & Impact

The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It was introduced in 2017 to simplify the tax structure and create a common market by removing inter-state tax barriers. In this blog post, we’ll discuss the basics of GST in India, its benefits and disadvantages, and the impact it has had on businesses.

Basics of GST in India

  • GSTIN: The Goods and Services Tax Identification Number is a unique identification number assigned to each taxpayer registered under GST.

  • CGST, SGST, and IGST: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST) are the three types of taxes levied under GST in India.

  • HSN code: The Harmonized system nomenclature code is a standardized system of names and numbers used to classify goods and services for GST purposes.

Difference between CGST, SGST, and IGST:

Component Definition Applicable on
CGST (Central Goods and Services Tax) A tax levied by the Central Government on intra-state supply of goods and services. Intra-state supply of goods and services within a state.
SGST (State Goods and Services Tax) A tax levied by the State Government on intra-state supply of goods and services. Intra-state supply of goods and services within a state.
IGST (Integrated Goods and Services Tax) A tax levied by the Central Government on inter-state supply of goods and services. Inter-state supply of goods and services between different states.

HSN Code in GST Invoices

HSN code stands for harmonized system nomenclature code, a standardized system of names and numbers used to classify goods and services for GST purposes.

  • Mandatory: In India, If a business’s annual turnover exceeds Rs. 1.5 crores, it is mandatory for them to mention the HSN code in their GST invoices for all taxable supplies.
  • Not Mandatory: In India, If a business’s annual turnover does not exceed Rs. 1.5 crores, then it is not mandatory for them to mention the HSN code in their GST invoices. However, it is recommended for all businesses to mention the HSN code in their invoices to promote transparency and uniform classification of goods and services.
  • Benefits: The HSN code helps in uniform classification of goods and services, reduces the possibility of tax evasion, and promotes transparency in the GST system.
  • Recommendations: Although it is not mandatory for businesses with a turnover below Rs. 1.5 crores to mention the HSN code in their invoices, it is still recommended for all businesses to do so.

HSN Code don’t know?

If you don’t know the HSN code of a product, you can follow these steps:

  • Visit the GST portal: The GST portal has a search function for HSN codes. You can search for the HSN code of a product based on its name or description.
  • Check with the supplier: If the product is being purchased from a supplier, you can ask them for the HSN code.
  • Consult a trade association: Trade associations for specific industries often maintain a database of HSN codes for products within that industry.
  • Use online resources: There are various online resources available that can help you find the HSN code for a product. You can use websites such as the Central Board of Indirect Taxes and Customs (CBIC) or the Ministry of Finance.

In case of any difficulties or confusion, it is always advisable to consult with a tax professional or a GST practitioner.

Benefits of GST:

  • Simplification of the tax structure leading to reduced compliance costs and administrative burden.
  • Access to a larger market as inter-state tax barriers are removed.
    Improved competitiveness due to a reduction in the overall tax burden on goods and services.
  • Possibility of availing input tax credit, which can reduce the overall tax burden on businesses.

Disadvantages of GST:

  • Complexity in compliance for small businesses due to multiple tax slabs and paperwork.
  • Possibility of inflation as the cost of goods and services may increase due to GST.
  • Short-term disruption in the economic activities due to the implementation of GST.
  • Increased cost of compliance for businesses due to the need for new systems and processes.
  • Possibility of revenue loss for the government due to inadequate GST collection and enforcement mechanisms.

Impact on businesses:

GST has both advantages and disadvantages for small businesses and large businesses. Small businesses benefit from the simplification of the tax structure and access to a larger market. Large businesses benefit from the creation of a common market and improved transparency. The impact of GST on businesses may vary depending on various factors such as their size, sector, and tax compliance history.

Benefits for small businesses:

  • Simplification of the tax structure leading to reduced compliance costs and administrative burden.
  • Access to a larger market as inter-state tax barriers are removed.
  • Improved competitiveness due to a reduction in the overall tax burden on goods and services.
  • Possibility of availing input tax credit, which can reduce the overall tax burden on their business.

Benefits for large businesses:

  • Creation of a common market leading to increased efficiency and reduced costs due to economies of scale.
  • Improved transparency and reduced corruption due to a transparent online system for tax collection and administration.
  • Increased competitiveness due to a reduction in the overall tax burden on goods and services.
  • Possibility of availing input tax credit, which can reduce the overall tax burden on their business.

Conclusion:

GST has significantly impacted the indirect tax system in India, simplifying the tax structure and removing inter-state tax barriers. While it has its benefits, it also has its disadvantages that businesses need to be aware of. Overall, GST has been a positive development for the Indian economy and has had a positive impact on businesses.

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