One of the greatest Indian Tax body achievements is the introduction of GST. Before we discuss GST concept, let’s first understand the Indian taxation framework before the introduction of GST.
Primarily, the Indian tax structure consisted of indirect and direct taxes. When we talk of direct tax that is the tax levied directly on your wealth, profession or income. While indirect tax is the tax levied indirectly on the services and goods purchased by the consumer. During those times the indirect tax structure was governed by separate state and central laws which made the tax system more complex and increased the cost of goods.
What is GST?
GST is a single tax system that was introduced by the Indian tax body on July 1st 2017. GST replaced all the indirect taxes you used to pay. In fact, its main motto is ‘One Countrty, One Tax’. GST is divided into two State GST and Central GST. The Central Goods and Services Tax (CGST) include customs duty tax, service tax, central exercise duty tax, among other taxes. On the other hand, State Goods and Services Tax include luxury tax, sales tax, VT, among other taxes.
GST is levied on value added to services and goods at each stage of the procurement (supply chain). Previously, multiple taxes were levied into a single tax. GST was introduced to consolidate such multiple indirect tax levies. Not only does the GST improve efficiency in the tax administration, but it also overcomes the limitations of the previous tax structure.
The GST is defined by two principles: Value Added Priniple and Destination Principle. The destination principle underlines that the supply of services and goods should be taxed at the consumption point. While the VAP principle states that Value Added Tax should be collected at each stage of the supply chain of goods and services.