Features of GST: How It Works and Its Major Components

In July 2017, 28-year-old Faisal Khan, an electronics trader in Jaipur, was puzzled by the buzz around GST—India’s new tax reform.

He quickly learned that GST replaced 17 taxes and 23 cesses, merging VAT, Service Tax, Excise, and others into one system.

Now, when he sold a ₹30,000 washing machine in Jaipur, he charged:

• CGST @ 9% = ₹2,700
• SGST @ 9% = ₹2,700

For a Delhi sale, it was:

• IGST @ 18% = ₹5,400

Unlike before, he loved that the Input Tax Credit let him claim the full tax paid on purchases.

Faisal registered on the GSTN portal, received his 15-digit GSTIN, and filed monthly returns like GSTR-1 and GSTR-3B.

Within months, business became smoother, interstate sales grew, and compliance improved.

“GST,” he smiled, “turned tax chaos into clarity.”

Introduction to GST: One Nation, One Tax

The Goods and Services Tax (GST) is a comprehensive indirect tax introduced in India to streamline the taxation 

system. Launched on July 1, 2017, under the 101st Constitutional Amendment Act, GST replaced multiple indirect taxes previously levied by the Central and State Governments, such as excise duty, service tax, and value-added tax (VAT), thereby establishing the principle of "One Nation, One Tax."

GST operates under a dual structure:

• Central GST (CGST): Levied by the Central Government on intra-state transactions.
  
  
• State GST (SGST): Levied by State Governments on intra-state transactions.
  
  
• Integrated GST (IGST): Levied by the Central Government on inter-state transactions and imports, which is then apportioned to the destination state.

This unified tax system has simplified compliance, reduced the cascading effect of taxes, and promoted economic integration across India.

For more detailed information, visit the official GST Council website: https://gstcouncil.gov.in/.

Example of GST Calculation for Sale of Washing Machine (₹30,000):

Key Features of GST

The Goods and Services Tax (GST) is a comprehensive indirect tax system introduced in India to streamline the taxation process. Here are its key features:

• Dual GST Structure: GST operates under a dual structure comprising Central GST (CGST) and State GST (SGST) for intra-state transactions. For inter-state transactions, Integrated GST (IGST) is applicable. This ensures both the Centre and States have the authority to levy and collect taxes on goods and services.

• Destination-Based Taxation: GST is levied at each stage of the supply chain, from production to final consumption. It is a destination-based tax, meaning the tax is collected at the point of consumption, not at the origin.
  
  
• Input Tax Credit (ITC): Businesses can claim credit for taxes paid on inputs used in the production of goods or services. This mechanism helps avoid the cascading effect of taxes, reducing the overall tax burden.

• Multiple Tax Slabs: GST has a multi-tier tax structure with different tax rates for various goods and services. The tax slabs are 0%, 5%, 12%, 18%, and 28%, with higher rates applicable to luxury and sin goods.
  
  
• Composition Scheme: Small taxpayers with a turnover below a prescribed limit can opt for the Composition Scheme. Under this scheme, businesses pay a fixed percentage of their turnover as GST and have simplified compliance requirements.
  
  
• Threshold Exemption: Small businesses with an annual turnover below a specified threshold are exempt from GST. This exemption helps reduce the compliance burden on small-scale businesses.

• E-Way Bill System: The E-Way Bill is a document required for the movement of goods worth more than ₹50,000 within or outside a state. It ensures the seamless movement of goods and helps prevent tax evasion.
  
  
• Reverse Charge Mechanism (RCM): Under RCM, the recipient of goods or services is required to pay the tax instead of the supplier. This mechanism ensures that tax is collected even from unregistered suppliers.
  
  
• Online Compliance: GST introduced an online portal, the Goods and Services Tax Network (GSTN), for registration, filing of returns, payment of taxes, and other compliance-related activities. It streamlined the process and made it easier for taxpayers to fulfil their obligations.
  
  
• Anti-Profiteering Measures: To ensure that the benefits of GST are passed on to consumers, the government established the National Anti-Profiteering Authority (NAA). The NAA monitors and ensures that businesses do not engage in unfair pricing practices and profiteering due to the implementation of GST.

Types of GST: CGST, SGST, IGST, and UTGST

India's Goods and Services Tax (GST) system comprises four distinct types of taxes, each designed to address specific transaction scenarios:

1. Central Goods and Services Tax (CGST)

Levied by the Central Government on intra-state (within the same state) supply of goods and services. The revenue collected is retained by the central government. For example, if a business in Maharashtra sells goods worth ₹10,000 within Maharashtra, CGST is applicable. The applicable rate is determined by the GST Council.

2. State Goods and Services Tax (SGST)

Imposed by the State Government on intra-state supply of goods and services. The revenue collected is retained by the respective state government. For the same transaction in Maharashtra, SGST is also applicable. The rate matches the CGST rate for a specific good or service.

3. Integrated Goods and Services Tax (IGST)

Levied by the Central Government on inter-state (between different states or Union Territories) supply of goods and services, as well as on imports and exports. The revenue collected is shared between the central and destination state governments. For instance, if a business in Maharashtra sells goods to a customer in Delhi, IGST is applicable. The rate is typically the sum of CGST and SGST rates.

4. Union Territory Goods and Services Tax (UTGST)

Applicable in Union Territories without a legislature, such as Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep, and Andaman and Nicobar Islands. UTGST is levied alongside CGST on intra-Union Territory supply of goods and services. The revenue collected is retained by the respective Union Territory government.

These four types of GST ensure a comprehensive and structured taxation system across India, facilitating seamless inter-state trade and promoting uniformity in tax administration.

Conclusion

By combining various taxes into a single, clear, and effective structure, the GST has completely changed India's indirect tax system. Its destination-based framework, digital compliance, and input credit mechanism have made doing business easier and taxing simpler.

Faqs

Q. What is GST? 

GST is a unified tax on the supply of goods and services across India.

Q. What are the main components of GST?

CGST, SGST, IGST, and UTGST.

Q. Who needs to register for GST?

Businesses with annual turnover above the prescribed threshold (e.g., ₹40 lakh for goods).

Q. Can GST paid on inputs be claimed back?

Yes, through the Input Tax Credit (ITC) mechanism.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?