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Understand What Is GST and Its Benefits with Example

Nowadays, a term mostly used by plenty of people is GST because it affects a lots of people from upper class to lower class. Economic experts say GST is highly beneficial for overall revenue and growth of the country. However, people feel that GST makes them pay more tax on even daily essential items. There are many positive and negative aspects revolving around GST. If you want to know clearly about what is GST and its associated benefits through examples, then continue to read the article.

What is GST?

GST means Goods and Service Tax and its aim is to create a single & unified market, which will be beneficial for both the economy and corporate. GST is an indirect tax, which will abort all other taxes like excise duty, central sales tax, service tax, state-level sales tax, and VAT (value added tax). The main objective of the GST is to consolidate all indirect taxes into a single tax. Both central and state government imposes Goods and Services Tax on all goods and services that either produced inside the country or imported to outside of the country.
GST is being glorified as the taxation system by which the country economy will take upward and it will ease the industry and trade to the country’s indirect tax system as well. Thus, trade and industry need to pay only one indirect tax and all other indirect taxes will subsume on Goods and Services Tax. A direct tax such as corporate tax, capital gain tax, and income tax will not influence the GST. Instead of crude petroleum, turbine fuel, diesel, and natural gas, GST would apply for all goods and services.

Salient features of GST:

1. Consolidate all the indirect taxes under one tax
Here is the list of indirect taxes subsumed under the GST.

State indirect taxes and levies:
  • VAT Tax
  • Purchase Tax
  • Taxes on Lottery
  • Betting and Gambling
  • Entertainment tax
  • Central Sales Tax
  • Luxury Tax
  • State Surcharges and Cesses
Central indirect taxes and levies:
  • Central Excise Duty
  • Service Tax
  • Special Additional Duty of Customs
  • Excise Duty levied
  • Additional Excise Duties
  • Additional Customs Duty
  • Central Surcharge and Cess

2. GST has two major components
GST has become the worldwide standard due to the enhancement of international trade in services. Currently, the proposed tax system will take as the dual GST that is charged concurrently by the state and central government. This dual GST comprises of the following aspects.
CGST (Central Goods and Services Tax) – It will be charged by the central government
SGST (State Goods and Services Tax) – It will be charged by the State Government
IGST (Integrated Goods and Services Tax) – It will be charged by central government on the inter-supply of goods and services

3. GST charge all goods and services except
  • Electricity – comes under electricity duty
  • Alcohol – state excise + VAT
  • Real estate – Stamp duty + property taxes
  • Petroleum products
4. It removes cascading of the taxation effects
5. Codification is applicable to all goods and services in the proposed GST structure. A new HSN code can be used for sorting of goods and previous accounting code can access for categorization of services
6. Goods and Services tax will be applicable at each phase of the value added in a chain

Understand the benefits of GST:

GST offers plenty of advantages for the people as well as the country economy. Below-mentioned is some of the benefits that you can reap from Goods and Services Tax.
  • One of the biggest advantages of GST is the elimination of the multiple indirect taxes. Currently, not all the indirect taxes will be on the ground due to the establishment of GST. That means current indirect taxes such as sales tax, excise, service tax, and much more will not be valid. It is because all the indirect taxes fall under one common tax, which is called as GST
  • For the common people, GST actually means the elimination of double charging in the taxation system. This will eventually minimize the cost of the goods and services. Therefore, it helps the common person for saving more money in their daily expenses. You can expect the cost reduction in the items like expensive cars, electrical products, etc.
  • Goods and Service tax will bring the concept of one country one tax. Thus, in turn, it prevent unhealthy competition among the states across the country and it is very beneficial to do inter-state business
  • Concerning the businesspeople, GST will be surely a boon because it does not have multiple taxes. This means there is no difficulty in compliance and documentation.  You will do easy and hassle-free tax payment, return filing, and refund process
  • GST is applicable to all stages of the goods right from manufacturing to the consumption. This will render tax credit advantages at each phase in the chain. Therefore, it will reduce the cascading effect of the tax by minimizing the product cost
  • By replacing all 17 indirect taxes with one, it increases the product demand and so there will be increased tax revenue for both central and state government
  • GST makes a huge increase in GDP and provides more employment opportunities. In addition to, you can see reduction in tax evasion

Example of GST:

You may refer to this example for a clear understanding of GST process.
A product or item original cost is ₹ 1000 and after charging excise duty at 12.5%, the product price is ₹ 1125. On sales of the goods VAT/ sales tax is charged at 12.5%, now the product value to the consumer is ₹ 1356.62. However, in the proposed GST taxation system, the consumer can purchase base rate of ₹ 1000 product as ₹ 1200 including both CGST and SGST levies. Therefore, the industry can compete well in the worldwide environment. Thus, GST is a single comprehensive tax charged on the goods and services consumed in the country.
READ MORE GST Tax Rate