What is the History and the Benefits of GST?

The Goods and Services Tax GST in India began in 2000, and four bills relevant to it became law in 2017. Goods and services taxes in India would be simplified under the GST Act. Read this article to know more about GST.

People in India first came up with the idea of using GST in India from 2000, when the Atal Bihari Vajpayee government was in charge of the country. Members of the Empowered Committee (EC) were chosen by the state finance ministers because they had already worked on State VAT. They were chosen because they had already worked on a structure for State VAT.GST History – What is GST, Tax Structure before GST, GST Act, GST Council, and Benefits of GST Implementation.

The History Behind GST in India

When the Goods and Services Tax (GST) went into effect, it was a significant change in how India taxed its goods and services. If a lot of tax rates are combined together into a single tax, it is expected to be a big help. One of the most important benefits of the move is that it will cut down on double taxation or the cascading effect of taxation.

The initiative is now paving the way for a single national market to emerge. GST meaning, in literal terms, that Indian goods will be more competitive in both international and domestic markets.

From the point of view of the consumer, there would be a big drop in the overall tax burden, which is now between 25% and 30%. There are fewer people who have to deal with the general administration of the GST because it is self-policing and transparent.

Salient Features of GST

The Goods and Services Tax (GST) is a comprehensive indirect tax that was introduced in India on July 1, 2017. It replaced multiple indirect taxes such as excise duty, service tax, and value-added tax (VAT), among others. Here’s a brief history of GST in India, along with its salient features, timeline, and changes after its introduction.

GST is a destination-based tax that is levied on the value-added at each stage of the supply chain. It has the following salient features:

1. Dual GST: GST is levied by both the central and state governments. The central GST (CGST) is levied by the central government, while the state GST (SGST) is levied by the state governments.
2. Input Tax Credit: GST allows businesses to claim input tax credit for taxes paid on inputs used in the production of goods or services.
3. Threshold Exemption: Small businesses engaged in selling goods with an annual turnover of up to Rs. 40 lakhs are exempt from GST. For businesses in special category states, the threshold limit is Rs. 20 lakhs. Composition Scheme: Small businesses with an annual turnover of up to Rs. 1.5 crores (Rs 75 lakh for special category States) can opt for the composition scheme, which allows them to pay a lower rate of tax.

Timeline and Evolution of GST

The idea of GST was first proposed in the 2006-07 budget by the then Finance Minister P. Chidambaram. It took several years of negotiations and discussions between the central and state governments before the GST was finally introduced in 2017. 

Here’s a timeline of the evolution of GST in India:

1. 2006-07: The idea of GST is first proposed in the budget.
2. 2009: The Empowered Committee of State Finance Ministers was formed to design the GST framework.
3. 2014: The Constitution Amendment Bill for GST is introduced in the Lok Sabha.
4. 2014: The new government led by Prime Minister Narendra Modi makes GST a priority.
5. 2015: The Constitution Amendment Bill is passed by both houses of Parliament.
6. 2017: GST was finally implemented on July 1, 2017.

Changes After GST introduction

The introduction of GST has led to several changes in the tax system in India. Some of the major changes are:

1. Simplification of Tax Structure: GST has simplified the tax structure by replacing multiple indirect taxes with a single tax.
2. Increased Compliance: GST has increased compliance by making it mandatory for businesses to file regular returns.
3. Boost to Manufacturing and Logistics: GST has led to a boost in the manufacturing and logistics sectors by removing the cascading effect of taxes.
4. Increased Revenue: GST has led to an increase in revenue for the government by widening the tax base.

When did the Goods and Services Tax (GST) begin?

The Goods and Services Tax has already been set up in a lot of countries. To replace the Federal Wholesale Tax, the system was put into place in 2000, and it worked well for a while.

In 1986, GST was put into place in New Zealand. Canada’s hidden Manufacturer’s Sales Tax was replaced by the GST in 1991, and it was a big change for the country. When the GST was first put in place in Singapore in 1994, it was a big deal. A value-added tax called GST was put into place in Malaysia in 2015.

History of GST in India

This section is a walkthrough for you to understand GST’s meaning and implementation of GST until today and how this has evolved.

• First, India’s government came up with the idea of adopting the GST in 2000. Members of the Empowered Committee (EC) were chosen by the state finance ministers because they had already worked on State VAT. They were chosen because they had already worked on a structure for State VAT
• When Vijay L. Kelkar, an advisor to the finance ministry, led a task force in 2004, they said that the current tax system had a lot of problems that would be fixed by the new GST system
• During a meeting with the finance minister in February 2005, P. Chidambaram said that the government’s long-term goal was to set up a single tax system for all of the country’s businesses
• In February 2006 the finance minister set 1 April 2010, as the date when the GST would start
• People in the Congress-led government put forward the Constitution (115th Amendment) Bill in March 2011. This bill would allow the introduction of GST. Following a complaint from the opposition party, the Bill was sent to a standing committee for a more in-depth look at it
• There was a meeting in June 2012, and they started talking about the Bill. Opposition parties are worried about the 279B clause, which gives the government more power over the GST dispute authority
• When P. Chidambaram and the finance ministers of each state met in November 2012, they agreed on a date by which all issues should be resolved
• In February 2013, the finance minister said that the government would pay out ₹9,000 million in compensation to the states. Also, he wants the state finance ministers to work with the government to make the indirect tax reform happen, and he wants them to help
• The report from the standing committee was sent to the parliament in August 2013. The regulation is approved by the panel with a few changes to the tax structure and the way it will be resolved
• It’s October 2013. The state of Gujarat says it doesn’t like the Bill because it would lose $14,000 million a year because of the destination-based taxation rule.
• During a meeting in November 2006, Parthasarthy Shome, an advisor to P. Chidambaram, said that states would have to prepare and make changes for the new GST regime
• As of August 2016, the opposition led by the Congress party finally agreed to the government’s plan for four broad changes to the Bill. When the Rajya Sabha passed the bill, it was done
• As a result, the Constitution Amendment Bill can become law in September 2016
• Several bills relating to taxes were passed by parliament and signed by the President in 2017. They became law in 2017
• In the Central GST Bill, there is a separate tax called “integrated GST.”  That states, If you want to pay the state back, you should pass the Union Territory GST Bill.

Tax Structure before GST

In this section, we have discussed the taxation structure in India before onboarding GST.

• Before the introduction of the GST new registration, tax laws between the federal government and the states were apparent. There were no financial powers that overlapped with each other at all. Goods that are made by the government would be taxed by the government, except for alcohol for consumption, narcotics, opium, and more
• It was up to the states to tax the sale of goods
• The originating states would have to pay the Central Sales Tax that the Center would have to pay
• All kinds of services were also taxed by the government
• In addition, the Center charged and collected extra customs duties on goods that came into or left India. This tax was added on top of the basic customs duty that was already there. It’s called Countervailing Duty (CVD) and Special Additional Duty (SAD), and it’s meant to counter excise duties, state VAT, sales tax, and other taxes. This extra duty is called Countervailing Duty (CVD).

It changed the Constitution so that the federal government and the states could both levy and collect GST at the same time. This joint power of the states and the federal government also needs a way to make sure that joint decisions are made about the structure and operation of the GST.

You can use our GST calculator to calculate your outstanding GST prior to registration.

Goods and Services Tax Network

The Government established the Goods and Services Tax Network (GSTN) as a private company in 2013 under Section 25 of the Companies Act, 1956. GSTN’s role is to provide front-end services such as registration, payment, and returns to taxpayers, as well as to create back-end technical modules for the 25 states that have opted in.

In addition, GSTN has designated 34 IT and financial technology companies as GST Suvidha Providers (GSPs). These entities will develop applications that taxpayers will use to interact with GSTN.

FAQs:

1. What was the tax system in India before the introduction of GST?

Before the introduction of GST, India had a complex tax system with multiple indirect taxes such as excise duty, service tax, and value-added tax (VAT) among others.

2. How are inter-state transactions handled under GST?

Under GST, inter-state transactions are taxed through the Integrated GST (IGST), which is levied by the central government.

3. What sectors have benefited the most from the introduction of GST?

The manufacturing and logistics sectors have benefited the most from the introduction of GST, as it has led to a reduction in the cost of production and logistics.

4. How does GST compare with other tax systems around the world?

GST is similar to value-added tax (VAT) systems that are used in several countries around the world. However, the specific features of GST may vary from country to country.

Conclusion

This was in brief about the installation of GST in India: https://www.gst.gov.in/. The step taken by the government was radical as it brought about drastic changes in the tax structures of the country. GST’s meaning has come to its true worth due to its successful implementation. The openness in the tax system and bringing all kinds of tax arenas under one roof really turned out to be a gamechanger for a populous and diverse nation like India.