Goods and Services Tax (GST)

GST is a value-added tax levied on goods and services at every stage of the supply chain. It is a consumption-based tax, meaning the final consumer bears the cost. Businesses can claim an input tax credit for the GST they pay, reducing their overall tax liability. This prevents double taxation and lowers costs.

For example, if a manufacturer pays ₹1,000 as GST on raw materials, they can deduct this amount from their final GST liability, ensuring tax is paid only on the value added.

Types of GST in India

GST is divided into four categories:

• CGST (Central GST): Collected by the central government on sales within a state.

• SGST (State GST): Collected by the state government on the same transaction.

• IGST (Integrated GST): Collected by the central government on interstate transactions and imports.

• UTGST (Union Territory GST): Applied in union territories such as Delhi and Chandigarh.

For intrastate sales, GST is split between CGST and SGST. For interstate transactions, IGST is charged, and the revenue is shared between the centre and the consuming state.

Why is GST Important?

GST has made India’s tax system simpler. It helps businesses comply easily and boosts tax collection. Before GST, different states had different tax rules, making interstate trade complicated. Now, businesses operate under a single tax system, reducing costs and encouraging growth.

Benefits of GST

GST reduces tax complexity by replacing multiple indirect taxes with one unified system. It eliminates double taxation, as businesses can claim input tax credit, ensuring tax is only paid on the final value added. It also standardises tax rates across India, bringing price consistency.

The online GST system promotes transparency and reduces corruption. All transactions are recorded digitally. This means businesses must keep proper documentation, which helps reduce tax evasion. Also, GST has improved interstate trade. Companies no longer deal with multiple state taxes and entry barriers.

Challenges of GST

Small businesses deal with higher compliance costs. This is because GST filing needs good record-keeping and regular returns. The multiple tax slabs—5%, 12%, 18%, and 28%—also create confusion. Also, GST filing is done online. This can be tough for businesses that aren't used to digital processes.

How to Stay GST-Compliant?

Businesses must register for GST if their turnover exceeds ₹20 lakh (₹40 lakh for certain goods). Maintaining accurate records of sales, purchases, and tax credits is essential to avoid compliance issues. Investing in GST-compliant software can simplify tax calculations and filings.

Claiming input tax credits often lowers tax bills. Also, keeping up with GST rule changes helps businesses stay compliant. Consulting a tax expert can further help in optimising GST-related decisions.

Final Thoughts

GST has made taxation simpler and more transparent. At first, businesses had some challenges. But now, the system has improved compliance. It has also boosted trade and removed inefficiencies in the tax structure. Understanding GST is essential for business owners to maximise tax benefits and avoid penalties.