Explore the key GST terms you need to know for FY 2025-26, including GSTIN, reverse charge, and compliance ratings. Stay informed to ensure your business remains compliant.
What is Goods and Services Tax (GST)?
Indirect Taxes Replaced by GST
GST Framework
Benefits of GST
Taxable Persons under GST
Understanding GSTIN
Reverse Charge Mechanism
Mixed and Composite Supply
Continuous Supply
GST Compliance Rating
FAQs on GST Terms
Introduction to GST
GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
Introduced in India on 1st July 2017.
Replaces multiple indirect taxes previously levied by the Centre and States.
Applies to both goods and services uniformly.
GST Structure
India follows a dual GST model, which is divided into CGST, SGST, and IGST.
CGST: Central Goods and Services Tax.
SGST: State Goods and Services Tax.
IGST: Integrated Goods and Services Tax for inter-state transactions.
GST Rates
GST is levied at multiple rates depending on the type of goods and services.
Common rates are 5%, 12%, 18%, and 28%.
Essential goods like food grains are taxed at 0%.
Luxury items and sin goods attract higher rates.
GST Council
The GST Council is responsible for making recommendations on GST laws.
Chaired by the Union Finance Minister.
Includes State Finance Ministers.
Decides on tax rates, exemptions, and thresholds.
Central Taxes Replaced
GST subsumes several central taxes.
Central Excise Duty.
Service Tax.
Additional Duties of Customs (CVD and SAD).
State Taxes Replaced
GST also replaces various state-level taxes.
State VAT.
Entertainment Tax (except by local bodies).
Taxes on lotteries, betting, and gambling.
Benefits of Replacement
Replacing multiple taxes with GST has streamlined the tax system.
Reduces compliance burden.
Eliminates cascading effect of taxes.
Facilitates ease of doing business.
Worked Example
Example of tax savings due to GST.
Pre-GST: Excise Duty (12.5%) + VAT (14.5%) = 27%.
Post-GST: Single tax rate of 18%.
Savings: 9% reduction in tax rate.
Dual GST Model
India's GST is a dual model.
Intra-state sales: CGST + SGST.
Inter-state sales: IGST.
Imports: IGST + Basic Customs Duty.
Zero-Rated Supplies
Certain supplies are zero-rated under GST.
Exports are zero-rated.
Supplies to SEZs are zero-rated.
No tax on zero-rated supplies, but input tax credit is available.
Composition Scheme
Simplified scheme for small taxpayers.
Available for businesses with turnover up to ₹1.5 crore.
Tax rates: 1% for manufacturers, 5% for restaurants, 6% for service providers.
No input tax credit available under this scheme.
Input Tax Credit
Mechanism to avoid cascading of taxes.
Credit available for taxes paid on inputs.
Can be utilized to pay output tax liability.
Ensures tax is paid only on value addition.
Economic Integration
GST creates a unified national market.
Eliminates state boundaries for taxation.
Facilitates seamless movement of goods.
Promotes ease of doing business.
Reduction in Tax Burden
GST reduces the overall tax burden on consumers.
Eliminates cascading effect of taxes.
Input tax credit available on both goods and services.
Lower tax rates for essential goods.
Increased Revenue
GST broadens the tax base and increases compliance.
Higher tax compliance due to input tax credit.
Reduction in tax evasion.
Increased revenue for both Centre and States.
Simplified Tax Structure
GST simplifies the indirect tax structure.
Single tax system for goods and services.
Reduces multiplicity of taxes.
Streamlines tax administration.
Mandatory Registration
Certain businesses must register under GST.
Turnover exceeds ₹20 lakh (₹10 lakh for special category states).
E-commerce operators and aggregators.
Input service distributors.
Voluntary Registration
Businesses can opt for voluntary registration.
Even if turnover is below threshold.
Allows claiming of input tax credit.
Enhances business credibility.
Casual Taxable Persons
Persons occasionally supplying goods/services.
Must register irrespective of turnover.
Registration valid for 90 days, extendable.
Advance tax payment required.
Non-Resident Taxable Persons
Non-residents supplying goods/services in India.
Must register irrespective of turnover.
Registration valid for 90 days, extendable.
Advance tax payment required.
What is GSTIN?
GSTIN is a unique identifier for GST taxpayers.
15-digit PAN-based number.
State-specific identification.
Mandatory for all registered taxpayers.
Structure of GSTIN
GSTIN structure explained.
First 2 digits: State code.
Next 10 digits: PAN of the taxpayer.
Last 3 digits: Unique code for the taxpayer.
Importance of GSTIN
GSTIN is crucial for compliance and transactions.
Required for filing GST returns.
Used for availing input tax credit.
Essential for inter-state transactions.
How to Obtain GSTIN
Steps to obtain GSTIN.
Apply online through GST portal.
Submit required documents.
Receive GSTIN upon verification.
What is Reverse Charge?
Reverse charge shifts tax liability from supplier to recipient.
Applicable in specified cases.
Recipient pays tax directly to government.
Ensures tax compliance in unorganized sectors.
When is Reverse Charge Applicable?
Situations where reverse charge applies.
Supply from unregistered to registered dealer.
Specified goods and services notified by government.
Services received from non-resident service providers.
Impact on Businesses
Reverse charge affects cash flow and compliance.
Increases compliance burden.
Requires careful tracking of transactions.
Affects working capital due to upfront tax payment.
Example of Reverse Charge
Illustrative example of reverse charge.
Service received from a non-resident consultant.
Recipient pays 18% GST under reverse charge.
Recipient claims input tax credit on tax paid.
Definition of Mixed Supply
Mixed supply involves two or more independent supplies.
Supplies not naturally bundled.
Taxed at the highest rate applicable to any supply.
Example: Gift hampers with chocolates and toys.
Definition of Composite Supply
Composite supply involves naturally bundled supplies.
Principal supply determines tax rate.
Example: Travel package including airfare and hotel stay.
Taxed at the rate of principal supply.
Tax Implications
Different tax treatment for mixed and composite supplies.
Mixed supply: Higher tax rate applies.
Composite supply: Principal supply tax rate applies.
Important for accurate tax calculation.
Examples and Scenarios
Illustrative examples of mixed and composite supplies.
Mixed: Diwali gift pack with sweets and electronics.
Composite: Hotel stay with complimentary breakfast.
Correct classification ensures compliance.
What is Continuous Supply?
Continuous supply involves ongoing provision of goods/services.
Supply over a period of time.
Invoices issued periodically.
Examples: Electricity, water supply.
Tax Invoicing for Continuous Supply
Invoicing rules for continuous supply.
Invoice issued at regular intervals.
Due date for payment determines tax point.
Ensures timely tax collection.
Examples of Continuous Supply
Common examples of continuous supply.
Telecom services billed monthly.
Annual maintenance contracts.
Construction services with milestone payments.
Impact on Tax Compliance
Continuous supply affects tax compliance.
Requires regular invoicing and payment tracking.
Affects cash flow management.
Ensures timely tax payment and credit availing.
What is GST Compliance Rating?
Compliance rating reflects a taxpayer's GST compliance.
Rating based on timely return filing.
Considers payment of taxes and compliance with regulations.
Encourages better compliance practices.
Factors Affecting Compliance Rating
Various factors influence compliance rating.
Timeliness of return filing.
Accuracy of tax payments.
Adherence to GST laws and rules.
Benefits of High Compliance Rating
High compliance rating offers several advantages.
Enhances business reputation.
Facilitates faster refunds.
May lead to lower scrutiny by tax authorities.
Improving Compliance Rating
Steps to improve GST compliance rating.
Ensure timely filing of returns.
Maintain accurate records and documentation.
Regularly review compliance practices.
What is the GST registration threshold for businesses?
Businesses with an annual turnover exceeding ₹20 lakh (₹10 lakh for special category states) must register for GST. This threshold applies to the aggregate turnover across all states.
How is GSTIN structured?
GSTIN is a 15-digit number where the first two digits represent the state code, the next ten digits are the PAN of the taxpayer, and the last three digits are unique identifiers for the taxpayer.
What are the GST rates for different goods and services?
GST rates are categorized into 0%, 5%, 12%, 18%, and 28%. Essential items like food grains are taxed at 0%, while luxury goods and services fall under the 28% slab.
Can businesses opt for voluntary GST registration?
Yes, businesses can voluntarily register for GST even if their turnover is below the threshold. Voluntary registration allows them to avail input tax credit and enhances their business credibility.
What is the reverse charge mechanism in GST?
Under the reverse charge mechanism, the recipient of goods or services is liable to pay GST instead of the supplier. This is applicable in specified cases such as supplies from unregistered dealers to registered ones.
How does GST benefit the economy?
GST unifies the tax structure, reduces the cascading effect of taxes, broadens the tax base, and increases compliance, leading to higher revenue and a more streamlined economy.
What is a composite supply under GST?
A composite supply involves two or more goods or services naturally bundled and supplied together. The tax rate is determined by the principal supply within the bundle.
How can businesses improve their GST compliance rating?
Businesses can improve their GST compliance rating by ensuring timely filing of returns, maintaining accurate records, and adhering strictly to GST laws and regulations.
What are zero-rated supplies in GST?
Zero-rated supplies include exports and supplies to SEZs, where no GST is charged, but input tax credit can be claimed, ensuring no tax burden on the supply chain.
What is the composition scheme under GST?
The composition scheme is designed for small taxpayers with a turnover of up to ₹1.5 crore, allowing them to pay GST at a lower rate with reduced compliance, but without the benefit of input tax credit.