What is the GST and How is it Calculated?

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What is the GST

The launch of Goods and Services Tax (GST) in July 2017 brought an end to the 11 years of heated conversation among many state and union finance ministers. Previously the states and centers charged taxes on services on their own will and profitability. Hence, there were multiple stages of tax implementation on one commodity. These taxes varied among the states and sometimes led to major confusion and double tax payments on goods and services. The motto behind the introduction of GST was to bring uniformity in the tax systems throughout the country. This helped in levying a uniform tax on a product or service in all parts of the country. The government passed four bills before implementing the goods and services tax in India, they are:

  • Goods and Services Tax Bill
  • Integrated GST Bill
  • Compensation GST Bill
  • Union Territory GST Bill

What are the Different Types of GST?

As per the Indian Government, GST is classified into four categories:

SGST (State GST)

The State Government collects SGST. This tax replaced the previously levied multiple taxes like VAT, Octroi, Sales, Purchase, Lottery, Entertainment, Entry, and Luxury taxes. This tax is not applicable on annual turnovers that are equal to below 20 lakh.

CGST (Central GST)

The Central Government collects CGST. It replaced the taxes imposed on countervailing duty, excise duty, additional excise duty, special additional duty, and all other indirect duties. Like SGST this tax is only applicable if the annual turnover exceeds 20 lakh.

IGST (Integrated GST)

The Central Government collects IGST. This tax has taken over the Central Sales Tax. The registration of any supply is mandatory if it is outside the states.

UTGST (Union Territory GST)

The Union Territory Government collects UTGST. It has replaced taxed like VAT, Octroi, purchase, entertainment, lottery, sales, and entry. Parallel to SGST and CGST, this tax is not applicable until the annual turnover outrun Rs 20 lakh.

Why was GST Necessary in India?

  • GST held significant importance in reforming the indirect tax system in India.  
  • It fused the different states and central taxes into one comprehensive tax.
  • It relieved the double taxation levied on goods and services.
  • It bought a uniform tax system among all the states of the country.

What Impact Did GST Create on Traders, Consumers, and the Indian Economy?

  • GST benefits the consumers, traders, as well as the country’s economy as the tax system was simplified to a larger extent. This helped in quick GST registration and in filing GST returns efficiently.
  • Cascading was eliminated resulting in the deduction of prices in goods and services
  • The entire tax system has become transparent to all the citizens of the country gaining trust over the government.
  • Uniform prices were levied for products and services all over the country eliminating partisanship.
  • GST aided in reducing multiple taxations levied on manufacturers while purchasing and selling goods.
  • Manufacturers got the boon to claim for the input tax credit.
  • The unified national tax market boosted foreign investment in the country.
  • GST enhanced the export and import of goods and services boosting the country’s economy.
  • GST also helped in offering more job opportunities minimizing poverty in India.

How to Calculate GST in India?

Every taxpayer must consider all the factors like reverse charge, interstate sales, exempted supplies, etc. before calculating the GST. If you do not pay the exact tax, you are liable to pay an 18% interest for tax deficit. You need not carry out hectic manual calculations. You can easily calculate your GST using the online GST calculator offered by leading financial provider, Bajaj Finserv. All you got to do is to follow three steps:

  • Enter the total prices of the goods or services
  • Select the GST slabs from 5%, 12%, 18%, and 28%.
  • And lastly, click on the calculate button, and you will get the exact GST applied.