GST Full Form: Understanding The Tax Regime
GST is a single tax that subsumes various indirect taxes that were being previously levied on the supply of goods and services. These include taxes such as Central Excise Duty, Service Tax, State VAT, Entry Tax, Entertainment Tax amongst other taxes.
GST is a multi-stage, destination-based and comprehensive tax that has completely transformed the taxation system in India. This single tax replaced several of indirect taxes previously imposed by the state and central governments. Let us learn about GST full form, its importance and its comparison with VAT in detail.
Table of Contents
- What is GST Full Form?
- Why was GST introduced?
- Taxes Levied Under GST
- GST vs VAT
- Implications of GST on the Taxation System
Before GST, Central Excise Duty was levied on the manufacture of goods. With the introduction of GST, Central Excise Duty has been subsumed under GST, except for a few items like tobacco and petroleum products.
GST was introduced on March 29, 2017, to simplify the complex tax structure in India. It was designed to create a single, unified market that would benefit both businesses and consumers. The introduction of GST marked a significant shift in the country’s tax system, impacting the economy and how business is conducted.
What is GST Full Form?
GST full form stands for Goods and Services Tax. The GST system classifies taxes into five categories: Central GST (CGST), State GST (SGST), Integrated GST (IGST), Union Territory GST (UTGST), and the GST Compensation Cess. The government has categorized 1211 items under various tax slabs. GST has four broad tax slabs: 5%, 12%, 18%, and 28%. The GST Council decides the tax rates for various goods and services. Certain essential items are exempted from GST. Here is a brief overview of the tax slabs and some of the goods and services they include:
| GST Rate | Goods Categories | Services Categories |
| 0% | Fresh food items, Unbranded essentials, Printed books, Newspapers, Handloom, etc. | Hotels and lodges having tariff under Rs 1,000. Rough precious and semi-precious stones (0.25% tax). |
| 5% | Packaged food items, Apparel below Rs 1000, Footwear below Rs 500, Essential medicines, Basic household items, etc. | Transport services (Railways, air transport), Small restaurants, Textile job work. |
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Why was GST introduced?
GST was introduced to simplify the complex tax structure in India. It replaced almost 17 existing state and central indirect taxes, including central excise duty, additional customs duty, VAT, entertainment tax, service tax, etc. It applies to the supply of goods and services, making it a significant part of the Indian taxation system.
The introduction of GST brought about a significant change in the tax system. The single tax system under GST has eliminated the cascading effect of tax on tax, making taxation simpler and more transparent. It has also led to a significant reduction in the multiplicity of taxes.
Before we delve into the details of GST, let us clear up the difference between direct and indirect taxes. Direct taxes are imposed on an individual or organization’s income and vary based on the income earned. On the other hand, indirect taxes are imposed on goods and services, which increases their cost. GST falls into the category of indirect taxes, replacing multiple indirect taxes levied by the state and central governments.
Taxes Levied Under GST
The following taxes are levied under GST (GST full form is Goods and Services Taxes):
- Territory Goods and Services Tax (TGST): It is a part of the GST system. It is levied on supply of goods and services in the Union Territories. This tax replaced the earlier taxes levied by Union Territories.
- State Goods and Services Tax (SGST): It is imposed on intra-state supplies of goods and services. It is governed by the SGST Act 2017. The revenue collected under SGST goes to state government.
- Integrated Goods and Services Tax (IGST): This is charged on all inter-state supplies of goods and services and imports. The revenue collected under IGST is shared between the central as well as state governments.
- Central Goods and Services Tax (CGST): It is imposed on intra-state supply of goods as well as services by the Central Government under the CGST Act. The revenue collected under CGST goes to the central government.
- Union Territory Goods and Services Tax (UTGST): This is similar to SGST and is levied on the supply of goods and services in the Union Territories. It replaced the taxes levied by the Union Territories.
GST vs Traditional Tax VAT
The following table highlights the difference between GST and VAT:
| Parameter | GST | VAT |
| Meaning | A value-added tax collected at every stage of the supply chain, based on consumption. | A consumption tax imposed on a product at each level of the production chain. |
| Nature | A comprehensive indirect tax that eliminates the cascading effects of tax. | A consumption tax imposed at each level of the production chain. |
| Tax Evasion | GST has helped address societal issues such as tax evasion and corruption. | The VAT system could have been susceptible to tax evasion. |
| Cascading Effect | GST has effectively eliminated the cascading effect of taxes. | VAT was adopted to prevent the cascading effect of taxes in the previous tax system. |
| Levied On | Supply of goods and services. | Levied on the total value of the commodity. |
| Rate of Taxation | Varies based on the type of goods and services (0%, 5%, 12%, 18%, and 28%). | Typically higher than GST. |
| Exempt/Tax-Free Items | Some goods, as well as services, are exempted from GST. | Some goods exempted from VAT may not be exempted from GST, and vice versa. |
| Registration Requirements | Mandatory for businesses exceeding a certain turnover threshold. | The registration requirements for VAT and GST differ from country to country. |
| Area of Application | Applies to the whole country. | Applies within the jurisdiction of the state. |
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Implications of GST on the Taxation System
GST has had a significant impact on indirect taxes. It has replaced multiple indirect taxes with a single tax, leading to a more efficient and transparent tax system. It has also helped reduce the cost of doing business and promote ease of doing business. Its implications on the taxation system have been transformative for the Indian economy. By replacing multiple indirect taxes with a single tax, GST has simplified the tax system, making it more efficient and transparent.
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FAQs
What are the different types of GST?
GST is categorized into different types based on its application and the nature of transactions. The major types of GST are Integrated Goods and Services Tax, Union Territory Goods and Services Tax, State Goods and Services Tax and Central Goods and Services Tax.
Why are there different types of GST?
These types of GST together ensure that flow of goods and services across state borders is seamless without any cascading effect of taxes. The GST system ensures that taxes are levied only at the final consumption point and are shared between the Central Government and the respective State/UT Governments, depending on the nature of the transaction.
How does GST work?
GST is a destination-based tax that is levied at each stage of the supply chain. It replaces multiple indirect taxes and is based on the value addition at each stage.
What are the benefits of GST implementation?
The implementation of GST has led to benefits such as the elimination of cascading taxes, simplification of the tax structure, increased tax compliance, and the creation of a unified national market.
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