GST Objectives and Main Provisions

The Goods and Services Tax (GST) is one of the most significant tax reforms in India, introduced to simplify and unify the indirect taxation system. It came into effect on 1st July 2017, replacing a complex structure of multiple taxes levied by the Centre and States.

Objectives of GST

1. One Nation, One Tax

GST integrates various indirect taxes into a single unified tax system applicable across the country.

2. Removal of Cascading Effect

Earlier, tax was levied on tax (called tax-on-tax). GST eliminates this cascading effect through input tax credit.

3. Increase Tax Compliance

The system aims to widen the tax base by encouraging formal transactions through digital records and compliance.

4. Boost to Ease of Doing Business

Uniform procedures and reduced tax barriers improve business efficiency, especially for inter-state trade.

5. Make in India Initiative

By reducing production costs and eliminating multiple taxes, GST promotes domestic manufacturing.

6. Revenue Generation for Government

GST improves tax administration and minimizes tax evasion using e-invoicing and real-time monitoring.

Structure of GST

GST is a dual model, meaning both Central and State Governments have the power to levy taxes.

1. CGST (Central GST)

Collected by the Central Government on intra-state transactions (within the same state).

2. SGST (State GST)

Collected by the State Government on intra-state transactions.

3. IGST (Integrated GST)

Collected by the Central Government on inter-state transactions and imports.

Example:
If a seller in Delhi sells goods to a buyer in Maharashtra, IGST is charged.
If the transaction is within Delhi, CGST + SGST applies.

Main Provisions of GST Law

1. GST Council (Article 279A of the Constitution)

• A constitutional body for recommendations on GST rates, exemptions, and policies.

• Comprises Union Finance Minister and State Finance Ministers.

• Decisions require a 3/4th majority.

2. Taxable Event

• In the GST regime, the “supply of goods or services” is the taxable event (not manufacturing or sale).

3. GST Registration

• Mandatory for businesses with aggregate turnover:

  • Above ₹20 lakh (₹10 lakh for NE and hill states) for services.

  • Above ₹40 lakh for goods (in some states).

• Voluntary registration is also allowed.

4. Input Tax Credit (ITC)

• Businesses can claim credit for the GST paid on inputs, thereby reducing tax liability.

• ITC can be availed only if the supplier has uploaded the invoice and paid GST.

5. GST Returns and Invoicing

• Regular returns are required (monthly/quarterly/annually) via the GST portal.

• A tax invoice must be issued as per prescribed format.

6. HSN and SAC Codes

• Classification codes for goods and services:

  • HSN (Harmonized System of Nomenclature) for goods.

  • SAC (Service Accounting Code) for services.

7. Composition Scheme

• For small businesses with turnover up to ₹1.5 crore.

• Pay tax at a reduced rate (1% for traders, 5% for restaurants) without ITC.

• File simplified quarterly returns.

8. Reverse Charge Mechanism (RCM)

• In certain cases, the recipient of goods/services pays the GST instead of the supplier.

• Common in dealings with unregistered suppliers or specified services.

9. E-Way Bill

• Mandatory for transporting goods worth over ₹50,000.

• Helps track movement of goods and prevent tax evasion.

10. Penalties and Offences

• Penalties for:

  • Not registering under GST.

  • Delayed or incorrect returns.

  • Issuing fake invoices or evading tax.

Advantages of GST

Conclusion

GST represents a major overhaul of India’s indirect tax system, aimed at simplification, uniformity, and improved compliance. By eliminating multiple taxes and enabling input credits, GST strengthens the tax framework and promotes economic integration.