The Goods and Services Tax (GST) is an expanded indirect tax structure which has led to efficient reform of the taxation in India. After the implementation of GST in 2017 which happened in India, this regime replaced other indirect taxes such as; VAT, service tax, excise duty, among others.
But, knowing GST as well as many other related terms would help appear rather complicated for many significant saddle new regime burdens business entities as well as individuals. In this article, we will demystify some basic GST terms that every taxpayer should know.
1. GSTIN (Goods and Services Tax Identification Number)
The GSTIN is a 15 digit numerical figure given to each business entity or a taxpayer who has registered under GST. Companies cannot execute any sort of transaction falling under the GST regime without this number. It assists the authorities in following the payments and returns of every particular taxpayer.
The first two digits of GSTIN represent state code, next is a 10 digit PAN, then one alphanumeric character and last is two characters of checksum. Any business entity that meets the prescribed turnover limit must apply for GSTIN.
2. CGST, SGST, and IGST
GST is divided into three components to ensure that both the central and state governments can collect their share of taxes:
1. CGST (Central Goods and Services Tax)
This is the tax charged on consumption, sales, or use of goods and services within the same state or within a specific area as the central government imposes the tax.
2. SGST (State Goods and Services Tax)
Known as use tax, the state government levies this on transactions occurring within the state. CGST and SGST are levied both when selling between two provinces or within the state itself.
3. IGST (Integrated Goods and Services Tax)
For the inter-state transactions – integrated goods and service tax abbreviated as IGST is charged and is collectible by the central government but is shared between the central and state authorities.
It is essential for correct GSTcompliance that you understand how these taxes operate and are assessed on your business transactions.
3. Taxable event
In the GST system, the taxable event is the point in time when the liability of tax payment is incurred. In GST, the tax base is formed by the supply of Goods & services which is new than the previous tax regime wherein tax can be levied at the time of production sale or supply of service. It implies that Goods and Services Tax is charged whenever there is an act of supply of goods and services either within sanctioned domestic areas or internationally.
4. Reverse Charge Mechanism (RCM)
In the system of the reverse charge mechanism, the responsibility for paying taxes lies not on the supplier but on the purchaser of goods or services. Generally this provision comes into force where the supplier is not registered under GST or where goods or services are availed from an unregistered person. The government has pointed out particular situations where RCM is implemented, and organisations must understand them adequately to be compliant.
5. Input Tax Credit (ITC)
Another advantage of GST is that the option of Input Tax Credit is also issued. ITC lets the establishment offset tax costs for inputs that were paid previously to manufacturers for use in business processes.
For instance, when you procured raw materials for manufacturing, then you can credit the GST charged on those raw materials as ITC against the GST leviable on finished product. But, to obtain ITC, the supplier needs to upload the invoice, & the taxes have to be paid by him.
6. HSN (Harmonized System of Nomenclature) Code
HSN code is an internationally adopted method of categorization of goods. HSN codes are compulsory to make a classification of the goods as GST has laid down one unified format for all its registered parties. Every business it is mandatory to correctly classify their products under HSN code while filing GST returns.
The number of digits that businesses use in the HSN code will depend on the turnover they make in their business. For example , any business having turnover below ₹ 1.5 crores are not required to affix HSN code, while others having higher turnovers are required to put either 2, 4 or 8 digit HSN code respectively.
7. Composition scheme
A basic Composition Scheme was created for small businesses to reduce compliance expenditures. This structure allows taxpayers earning up to ₹1.5 crore to pay a flat turnover tax instead of GST rates. These enterprises cannot claim Input Tax Credit (ITC) or transact between states. The strategy is especially beneficial to small enterprises with limited investment capital.
8. E-way bill
An E-Way Bill is an electronic generated document used for the transportation of goods which crosses the value of ₹50,000. Some of the information that can be found here includes the nature and descriptions of the commodity being transported together with other information on the supplier and the recipient of such goods. The E-Way Bill is required to be produced before the movement of goods and form part of both intrastate and interstate operations. Goods can also be seized if an E-Way Bill is not generated.
Conclusion
Businesses must understand these GST terms to avoid penalties and comply with the law. Know GSTIN, ITC, and GSTR to manage GST more efficiently, whether you run a small business or a huge organisation. Professional training is recommended for anyone seeking to expand their knowledge and skills.
Get GST training in Ahmedabad at Super 20 Training Institute. If you’re based in Ahmedabad and looking for high-quality training, consider joining Super 20 Training Institute. They offer comprehensive courses to help individuals and businesses understand GST laws, filing procedures, etc. With expert instructors and a practical approach, Super 20 Training Institute is your go-to resource for mastering GST compliance.
