Goods & Services Tax - StudyNotesHub

GST Structure

GST is a destination-based, multi-stage tax levied on the supply of goods and services, collected at each stage of the value chain with input tax credit (ITC) to avoid cascading effects.

Types of GST:
- CGST: Central Goods and Services Tax, collected by the central government (e.g., 9% on a ₹100 item).
- SGST: State Goods and Services Tax, collected by state governments (e.g., 9% on a ₹100 item).
- IGST: Integrated Goods and Services Tax, collected by the center for inter-state transactions (e.g., 18% on a ₹100 item).
- UTGST: Union Territory Goods and Services Tax, for union territories.
Legal Basis: 101st Constitutional Amendment Act, 2016, introduced GST under Article 246A.
Input Tax Credit (ITC): Allows businesses to offset taxes paid on inputs against output tax liability, reducing tax burden.

Example: For a ₹100 product sold inter-state, 18% IGST (₹18) is collected by the center, split equally between CGST (₹9) and SGST (₹9) for the destination state.

GST Tax Slabs

GST rates are categorized into slabs to balance revenue and affordability, decided by the GST Council.

0%: Essential items like food grains, milk, and healthcare services (e.g., jowar, roti).
5%: Basic goods like apparel below ₹1,000, packaged food, and transport services.
12%: Processed foods, computers, and business-class air travel.
18%: Most goods and services, including electronics, restaurants, and telecom (largest revenue contributor).
28%: Luxury and demerit goods like cars, tobacco, and aerated drinks.
Special Rates: 3% for gold, 0.25% for rough precious stones.

Example: A smartphone priced at ₹20,000 attracts 18% GST (₹3,600), while a luxury car may face 28% GST plus cess, increasing its cost significantly.

GST Council

The GST Council, a constitutional body under Article 279A, is responsible for GST policy decisions, ensuring cooperative federalism.

Composition: Chaired by the Union Finance Minister, includes state finance ministers, and Union Minister of State for Finance.
Functions: Sets tax rates, exemptions, and rules; resolves disputes; oversees GST implementation.
Voting: 75% majority required for decisions; center has 1/3rd weight, states collectively have 2/3rd.
Meetings: Held regularly (e.g., 53rd meeting in June 2024 revised rates for milk cans).

Example: In 2022, the GST Council increased GST on packaged food items from 0% to 5%, aligning with revenue needs.

Benefits of GST

GST has transformed India’s indirect tax system, promoting economic integration.

Unified Market: Replaced multiple taxes (VAT, excise, service tax) with a single tax, easing inter-state trade.
Reduced Tax Cascading: ITC mechanism eliminates tax-on-tax, lowering costs (e.g., manufacturing costs dropped 10-15% post-GST).
Improved Compliance: Online GST portal and e-invoicing simplified tax filing; GST collections reached ₹2.1 lakh crore in April 2024.
Revenue Growth: GST contributed ₹10.61 lakh crore to revenue in 2024-25, per Union Budget.
Economic Efficiency: Streamlined logistics, reducing transit times by 20% due to e-way bills.

Example: GST’s e-way bill system eliminated state border checkpoints, reducing logistics costs for companies like Tata Motors.

Challenges of GST

Despite its benefits, GST faces implementation and structural challenges.

Complex Compliance: Multiple slabs and frequent rate changes burden small businesses (e.g., quarterly returns for MSMEs).
Revenue Shortfalls: States faced GST compensation cess shortfalls, requiring ₹2.7 lakh crore from 2020-22.
Technology Issues: GSTN portal glitches delayed filings, impacting businesses in initial years.
Rate Multiplicity: Five slabs plus cess create complexity, unlike single-rate GST in countries like Singapore.
Exclusion of Key Sectors: Petroleum, alcohol, and real estate (partially) remain outside GST, limiting its scope.

Example: Small traders faced difficulties with GST compliance in 2017-18 due to complex ITC rules and GSTN portal issues.

Key Concepts for Prelims

Understanding related terms is essential for UPSC Prelims.

Input Tax Credit (ITC): Mechanism to offset input taxes against output tax, preventing tax cascading.
GST Compensation Cess: Levied on luxury/demerit goods to compensate states for revenue losses (2017-22).
E-Way Bill: Electronic document for inter-state goods movement, mandatory for consignments above ₹50,000.
GSTN: Goods and Services Tax Network, a non-profit managing GST’s IT infrastructure.

Key Points for Prelims

GST, launched July 1, 2017, unified 17 indirect taxes and 23 cesses.
101st Constitutional Amendment Act, 2016, enabled GST under Article 246A.
GST Council, under Article 279A, is chaired by the Union Finance Minister.
GST collections crossed ₹2 lakh crore monthly in 2024, per CBIC data.
Petroleum and alcohol remain outside GST as of 2025.

Summary of GST

Aspect	Description	Examples
Structure	CGST, SGST, IGST, UTGST	18% IGST on inter-state sales
Tax Slabs	0%, 5%, 12%, 18%, 28%	5% on apparel, 28% on cars
GST Council	Sets rates, policies	Rate revision in 2024
Benefits	Unified market, reduced cascading	E-way bill efficiency
Challenges	Compliance, rate complexity	GSTN glitches in 2017

Frequently Asked Questions (FAQs)

Q1: How does GST eliminate the cascading effect of taxes?

Ans: Through Input Tax Credit, businesses offset taxes paid on inputs against output tax, preventing tax-on-tax, unlike the earlier VAT regime.

Q2: What is the role of the GST Council?

Ans: It sets GST rates, exemptions, and rules, ensuring cooperative federalism with a 75% majority voting system.

Q3: Why are petroleum products excluded from GST?

Ans: States rely heavily on petroleum taxes for revenue, and consensus on inclusion is pending, keeping them under VAT/excise as of 2025.

Practice Questions

Explain the structure of GST in India with examples of CGST, SGST, and IGST.
Discuss the role and composition of the GST Council.
What are the major challenges faced in GST implementation in India?

Goods & Services Tax (GST)