Goods and Services Tax (GST)

The Goods and Services Tax (GST) regime, in effect from 1 July 2017, has evolved over the years. The regime has streamlined tax administration, enhanced transparency, and eliminated the cascading effect of taxes.

Furthermore, unlike the erstwhile indirect tax regime, the decisions in the GST regime are taken by a centralized body, i.e., the GST Council, which consists of Union and State Finance Ministers.

The key concepts under the GST legislation have been outlined below:

• Supply :GST is levied on the ‘supply’ of goods or services. The scope of supply is wide and includes sale, transfer, barter, exchange, license, rental, lease, etc. and certain activities which are undertaken even without consideration.
• Administration :The GST Law is administered by the Center and the respective States/Union Territories. Accordingly, there are three types of taxes under GST:
  • Central Goods and Service Tax (CGST)
  • State Goods and Service Tax (SGST)/Union Territory Goods and Service Tax (UTGST)
  • Integrated Goods and Service Tax (IGST)
• Inter-state versus intra-state supply: CGST and SGST/UTGST are levied on all intra-state supply of goods or services, and IGST is levied on inter- state supply of goods or services. The location of the supplier and POS for the goods/services determines whether the transaction is an inter-state or intra-state supply.
• Place of Supply (POS): As GST is a destination- based tax, POS provisions have been formed in a manner to determine the territory of a supply transaction where the goods/services will be consumed and accordingly, determine its taxability.
• Time of supply: The time of supply provisions determine when GST must be paid for the supply of goods and services so that a certain alignment is achieved for the collection of taxes.
• Registration: A person exceeding the prescribed threshold limit i.e. aggregate turnover of supply of goods of INR 4 Million and / or INR 2 Million of supply of services (INR 2 Million and INR 1 Million respectively for a taxable person conducting business in north-eastern states) is required to undertake registration under GST, including specified persons irrespective of their turnover. Registration can also be obtained voluntarily under the facility provided.
• Composition levy: Composition levy is an alternative method for levying tax designed for small taxpayers. It is a subsidized rate of GST eligible to taxpayers with an aggregate turnover in a financial year of up to INR 15 Million (INR 5 Million for service providers).
• Reverse Charge Mechanism (RCM): Typically, a supplier of goods/services is liable to pay GST on the supply. However, for the import of services and other notified goods/services, a mechanism has been prescribed wherein the liability to pay GST falls upon the recipient of supply.
• Rate of tax: The GST legislation provides for the classification of goods and services and applicable tax rates are determined based on the said classification.
  • Services Accounting Code (SAC) is used for the classification of services. Each kind of service offered has a unified code for measurement, recognition, and taxation.
  • Harmonized System Nomenclature (HSN) code is used for the classification of goods. (HSN is a globally-adopted product description and coding system)

  The commodities and services subject to GST are predominantly categorized under three tax slabs, viz. 5%, 18%, and 40% w.e.f. 22 September 2025. GST is not applicable to essentia commodities such as fish, eggs, fresh meat, milk, curd, fresh fruits, buttermilk, vegetables,jute, etc. Most of the goods are covered under the 5% and 18% tax slabs, while services are generally taxable at 18%.

  The erstwhile slab of 28% with Compensation Cess is now applicable to specified products such as tobacco, pan masala, etc. The new 40% tax slab mostly covers luxury and sin goods, and specific services such as admission to IPL matches, etc.¹.

• Input Tax Credit (ITC): The recipient of goods or services would be eligible to claim ITC subject to certain restrictions. The ITC availed is eligible to be utilized as a set-off against the payment of taxes, subject to prescribed restrictions².
• ITC reconciliation: A stringent mechanism³ has been put in place to ensure that ITC availed by the recipient matches with the corresponding GST disclosed and paid by the supplier(s). This is intended to encourage companies to source their inputs, input services, and capital goods only from GST-compliant businesses, which in turn would help detect and minimize tax frauds.
  The Government has introduced an Invoice Management System (IMS) to automate and streamline the process of claiming ITC.
• Digitization: Procedures for different processes such as registration, tax payments, refunds, returns, etc. have been automated and simplified under a unified platform - GSTN (Goods and Services Tax Network). This has facilitated the creation of a platform for swift processing since the interface between the taxpayer and the tax authorities has reduced.
• E-invoicing: Businesses having turnover above INR 50 Million⁴ Million4 in a financial year are required to comply with e-invoicing provisions. Accordingly, they are required to incorporate a unique Invoice Reference Number (IRN) and QR Code generated online on their B2B and export invoices. While e-invoicing is not applicable to B2C supplies, taxpayers having turnover more than INR 5 Billion are required to generate a dynamic QR Code for enabling digital payments. E-invoicing is currently prevalent in Brazil, China, South Korea, etc.
• Compliances: Compliances have been simplified through the harmonization of tax rates, procedures, and allied laws. A taxpayer is required to file monthly/quarterly GST returns disclosing their outward supplies, availment of ITC, and discharge of applicable tax liability. Furthermore, companies having an aggregate turnover of more than INR 20 Million are required to comply with annual filings, while those with turnover more than INR 50 Million should additionally reconcile their books of accounts with GST returns.
  Additionally, E-way bill is required for movement of goods, subject to thresholds prescribed by each State
• Valuation: Valuation plays a paramount role in GST. The GST Law accepts the transaction value where price is the sole consideration, and the supplier and recipient are unrelated. However, in case of related party transactions, or where price is not the sole consideration, certain methods have been prescribed to derive the value of supplies. Certain additions (such as delayed payment interest) and deductions (such as discounts) have been prescribed under the GST Law.
• Refunds: Companies engaged in zero-rated supplies (exports out of India and supplies to SEZs for authorized operations) are eligible to claim a refund of GST paid thereon, or of unutilized accumulated ITC, subject to certain conditions and restrictions.
• Anti-profiteering: The anti-profiteering measure ensures that the benefits of GST rate changes and / or availability of ITC are passed on to the end consumers, by way of commensurate reduction in prices of goods /services.

The GST regime has largely stabilized since its implementation in 2017. The GST Council has been receptive to industry representations, bringing in suitable amendments, clarifications and various trade facilitation measures, to allay the concerns and reduce disputes. At the same time, the administration is focused on plugging revenue leakages and tax frauds through special drives to weed out fake/suspicious GSTINs from the GST eco-system.

• 1.The extensive list of GST rates for products and services can be found at the CBIC Portal, https://cbic-gst.gov.in/gst-goods-services-rates.html
• 2. Applicable w.e.f. 1 January 2021
• 3. Vide Finance Act, 2022 w.e.f. 1 October 2022