{"id":912,"date":"2025-05-20T12:26:29","date_gmt":"2025-05-20T06:56:29","guid":{"rendered":"https:\/\/rzplearn.com\/?p=912"},"modified":"2025-05-20T12:27:35","modified_gmt":"2025-05-20T06:57:35","slug":"gst-goods-and-services-tax-guide","status":"publish","type":"post","link":"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/","title":{"rendered":"What is GST in India: Goods and Services Tax Example, and How it Works"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69dec3d9abad7\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69dec3d9abad7\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#What-is-GST\" >What is GST?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Meaning-of-GST-Multi-Stage-Value-Addition-and-Destination-Based-Tax\" >Meaning of GST: Multi-Stage, Value Addition, and Destination-Based Tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#History-of-GST-in-India-A-Comprehensive-Timeline\" >History of GST in India: A Comprehensive Timeline<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Key-Objectives-of-GST-in-India\" >Key Objectives of GST in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Example-of-GST\" >Example of GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#How-Goods-and-Services-Tax-GST-Works\" >How Goods and Services Tax (GST) Works?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#What-are-the-Types-of-GST\" >What are the Types of GST?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Advantages-and-Disadvantages-of-GST\" >Advantages and Disadvantages of GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Key-Principles-of-Goods-and-Services-Tax-GST\" >Key Principles of Goods and Services Tax (GST)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#What-are-GST-Rates-and-Slabs\" >What are GST Rates and Slabs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#How-Has-GST-Helped-in-Price-Reduction\" >How Has GST Helped in Price Reduction?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Who-is-Eligible-for-GST\" >Who is Eligible for GST?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#How-to-Register-for-GST\" >How to Register for GST?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#What-is-the-GST-Registration-Fee\" >What is the GST Registration Fee?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#How-GST-Calculation-Works\" >How GST Calculation Works<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#What-Are-the-New-Compliances-Under-GST\" >What Are the New Compliances Under GST?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/razorpay.com\/learn\/gst-goods-and-services-tax-guide\/#Frequently-Asked-Questions-FAQs\" >Frequently Asked Questions (FAQs)<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What-is-GST\"><\/span><b>What is GST?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">GST stands for <\/span><b>Goods and Services Tax<\/b><span style=\"font-weight: 400;\">. It is a <\/span><b>comprehensive indirect tax<\/b><span style=\"font-weight: 400;\"> levied on the<\/span><b> supply of goods and services<\/b><span style=\"font-weight: 400;\"> across India. Introduced on<\/span><b> July 1, 2017<\/b><span style=\"font-weight: 400;\">, GST replaced multiple indirect taxes like <strong>e<\/strong><\/span><strong>xcise duty<\/strong><b>, VAT<\/b><span style=\"font-weight: 400;\">, <\/span><b>and service tax <\/b><span style=\"font-weight: 400;\">with a <\/span><b>single, unified tax structure.<\/b><\/p>\n<p><span style=\"font-weight: 400;\">GST is a<\/span><b> multi-stage, destination-based tax<\/b><span style=\"font-weight: 400;\"> that is applied at every step of value addition in the supply chain. It simplifies the tax system, improves compliance, and ensures <\/span><b>transparent and efficient tax collection.<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Passed by Parliament on <\/span><b>March 29, 2017<\/b><span style=\"font-weight: 400;\">, the GST Act has transformed India\u2019s taxation landscape by promoting <\/span><b>a common national market<\/b><span style=\"font-weight: 400;\"> and reducing the overall tax burden on businesses and consumers.<\/span><\/p>\n<p><b><\/b><em><b>Related Read: <\/b><a href=\"https:\/\/razorpay.com\/learn\/difference-between-gst-and-vat\/\"><b>Difference Between GST and VAT in India<\/b><\/a><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Meaning-of-GST-Multi-Stage-Value-Addition-and-Destination-Based-Tax\"><\/span><b>Meaning of GST: Multi-Stage, Value Addition, and Destination-Based Tax<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">GST is designed to simplify tax collection by applying tax at multiple stages, only on added value, and at the point of consumption. Below, we\u2019ll walk through these features to show how GST works across the supply chain, ensuring a fair and efficient tax process.<\/span><\/p>\n<h3><strong>1. Multi-Stage Taxation<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">In the definition of GST framework, tax is applied at each stage of the product&#8217;s journey through the supply chain, from production to final sale. Key stages include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Raw Material Purchase<\/b><span style=\"font-weight: 400;\">: The procurement of raw materials required for manufacturing.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Manufacturing<\/b><span style=\"font-weight: 400;\">: The process of creating the finished product from raw materials.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Warehousing<\/b><span style=\"font-weight: 400;\">: Storing finished goods before they are distributed.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Wholesale<\/b><span style=\"font-weight: 400;\">: Selling large quantities to retailers or distributors.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Retail Sale<\/b><span style=\"font-weight: 400;\">: The final sale to the consumer.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">GST is imposed at each of these stages, making it a \u201cmulti-stage\u201d tax.<\/span><\/p>\n<h3><strong>2. Value Addition Taxation<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">GST is applied to the added value at each stage, ensuring that only the incremental value is taxed. For example:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Manufacturing<\/b><span style=\"font-weight: 400;\">: When a biscuit manufacturer buys raw materials like flour and sugar, they mix and bake them, adding value.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Warehousing<\/b><span style=\"font-weight: 400;\">: The product is packed and labeled, increasing its worth.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Retailing<\/b><span style=\"font-weight: 400;\">: Finally, the product is packaged for consumer sale and marketed, further adding value.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Each value addition results in GST being applied to the increased worth, ensuring only the incremental value is taxed at each step.<\/span><\/p>\n<h3><strong>3. Destination-Based Taxation<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">GST is levied at the point of consumption, not origin. For instance:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If a product is manufactured in Maharashtra and sold in Karnataka, the GST collected goes to Karnataka as the destination state, not Maharashtra.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This approach ensures the tax revenue benefits the state where the goods are consumed, promoting a fair distribution of tax revenue across states.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"History-of-GST-in-India-A-Comprehensive-Timeline\"><\/span><b>History of GST in India: A Comprehensive Timeline<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The journey of the Goods and Services Tax (GST) in India spans over a decade of efforts, discussions, and legislative actions. Here\u2019s a detailed timeline of key milestones that defined the GST in India:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2000<\/b><span style=\"font-weight: 400;\">: Prime Minister Atal Bihari Vajpayee sets up a committee to draft the GST law, marking the inception of the GST concept in India.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2004<\/b><span style=\"font-weight: 400;\">: A task force led by Vijay Kelkar recommends the introduction of GST to improve the indirect tax system.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2006<\/b><span style=\"font-weight: 400;\">: The Finance Minister announces the goal to implement GST by April 1, 2010, in his Budget speech.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2007<\/b><span style=\"font-weight: 400;\">: A decision is made to phase out the Central Sales Tax (CST) as a preparatory step, with CST rates reduced from 4% to 3%.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2008<\/b><span style=\"font-weight: 400;\">: The Empowered Committee (EC) finalizes a dual GST structure, proposing separate taxation powers for the Centre and states.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2010<\/b><span style=\"font-weight: 400;\">: Due to technical and structural challenges, GST\u2019s rollout is postponed. A project is initiated to computerize commercial taxes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2011<\/b><span style=\"font-weight: 400;\">: The Constitution Amendment Bill is introduced to enable GST, but the Lok Sabha dissolves before its passage.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2012<\/b><span style=\"font-weight: 400;\">: The Standing Committee discusses the GST Bill, but it stalls due to concerns regarding Clause 279B.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2013<\/b><span style=\"font-weight: 400;\">: The Standing Committee presents a report supporting GST but identifies necessary changes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2014<\/b><span style=\"font-weight: 400;\">: The Finance Minister reintroduces the GST Bill to Parliament.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2015<\/b><span style=\"font-weight: 400;\">: The Lok Sabha passes the GST Bill, though it faces delays in the Rajya Sabha.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2016<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Goods and Services Tax Network (GSTN) goes live, establishing a technology infrastructure to support GST.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Parliament passes the revised Constitution Amendment Bill, receiving the President&#8217;s approval.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>2017<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The GST Council finalizes tax rates, <\/span><a href=\"https:\/\/razorpay.com\/learn\/gst-rules-benefits-startups-india\/\"><span style=\"font-weight: 400;\">GST rules<\/span><\/a><span style=\"font-weight: 400;\">, and compliance guidelines.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Cabinet approves four supplementary GST bills, which pass in both the Lok Sabha and the Rajya Sabha.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>July 1, 2017<\/b><span style=\"font-weight: 400;\">: GST officially launches across India, replacing multiple indirect taxes with a unified \u201cOne Nation, One Tax\u201d system.<\/span><\/li>\n<\/ol>\n<h2 data-start=\"142\" data-end=\"176\"><span class=\"ez-toc-section\" id=\"Key-Objectives-of-GST-in-India\"><\/span>Key Objectives of GST in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3 data-start=\"178\" data-end=\"503\"><strong data-start=\"178\" data-end=\"214\">1. Achieve \u2018One Nation, One Tax\u2019<\/strong><\/h3>\n<p class=\"\" data-start=\"178\" data-end=\"503\">GST replaced many indirect taxes with a single, unified tax. This means all states follow the same rates for goods and services, making tax administration easier. Common rules like e-way bills and e-invoicing simplify compliance, reducing confusion and multiple deadlines for taxpayers.<\/p>\n<h3 data-start=\"505\" data-end=\"754\"><strong data-start=\"505\" data-end=\"549\">2. Combine Most Indirect Taxes Under One<\/strong><\/h3>\n<p class=\"\" data-start=\"505\" data-end=\"754\">Earlier, India had various taxes like service tax, VAT, and excise duty, managed separately by states and the Centre. GST merged these into one tax, easing the tax process for businesses and the government.<\/p>\n<h3 data-start=\"756\" data-end=\"990\"><strong data-start=\"756\" data-end=\"786\">3. Eliminate Tax Cascading<\/strong><\/h3>\n<p class=\"\" data-start=\"756\" data-end=\"990\">Before GST, taxes were charged on top of other taxes, causing a \u201ctax on tax\u201d effect. GST charges tax only on the value added at each stage, allowing seamless input tax credits and preventing cascading.<\/p>\n<h3 data-start=\"992\" data-end=\"1216\"><strong data-start=\"992\" data-end=\"1017\">4. Reduce Tax Evasion<\/strong><\/h3>\n<p class=\"\" data-start=\"992\" data-end=\"1216\">GST has stronger rules than earlier taxes. Input tax credits can only be claimed on valid invoices, reducing fake claims. The centralized system and e-invoicing also help catch tax evaders faster.<\/p>\n<h3 data-start=\"1218\" data-end=\"1424\"><strong data-start=\"1218\" data-end=\"1249\">5. Expand the Taxpayer Base<\/strong><\/h3>\n<p class=\"\" data-start=\"1218\" data-end=\"1424\">With a unified tax and stricter rules, more businesses, including previously unregistered ones like in construction, now come under the tax net, increasing tax registrations.<\/p>\n<h3 data-start=\"1426\" data-end=\"1646\"><strong data-start=\"1426\" data-end=\"1472\">6. Simplify Procedures with Online Systems<\/strong><\/h3>\n<p class=\"\" data-start=\"1426\" data-end=\"1646\">GST processes like registration, return filing, refunds, and e-way bill generation are mostly online, making compliance faster and easier, boosting the ease of doing business.<\/p>\n<h3 data-start=\"1648\" data-end=\"1828\"><strong data-start=\"1648\" data-end=\"1689\">7. Improve Logistics and Distribution<\/strong><\/h3>\n<p class=\"\" data-start=\"1648\" data-end=\"1828\">A single tax system reduces paperwork, cuts transit times, and removes interstate checkpoints, lowering logistics and warehousing costs.<\/p>\n<h3 data-start=\"1830\" data-end=\"2067\"><strong data-start=\"1830\" data-end=\"1877\">8. Encourage Competitive Pricing and Growth<\/strong><\/h3>\n<p class=\"\" data-start=\"1830\" data-end=\"2067\">Uniform GST rates have reduced price differences across states and lowered overall costs compared to the old tax system. This encourages more consumption and increases government revenue.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Example-of-GST\"><\/span><b>Example of GST<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">To understand the meaning of GST with an example, and how it works, let\u2019s look at a simple example of the supply chain of a product, such as a piece of furniture.<\/span><\/p>\n<h3><strong>Step-by-Step Example of GST Application:<\/strong><\/h3>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Manufacturer<\/b><span style=\"font-weight: 400;\">: A furniture manufacturer buys wood, fabric, and nails worth \u20b91,000. Suppose the GST rate is 18%. The manufacturer pays \u20b9180 as GST, resulting in a total cost of \u20b91,180.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Wholesaler<\/b><span style=\"font-weight: 400;\">: The manufacturer sells the finished furniture to a wholesaler at \u20b92,000 plus 18% GST (\u20b9360). Since the manufacturer already paid \u20b9180 in GST on inputs, they can claim it as Input Tax Credit (ITC). They remit only \u20b9180 (\u20b9360 &#8211; \u20b9180) to the government.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Retailer<\/b><span style=\"font-weight: 400;\">: The wholesaler sells the furniture to a retailer at \u20b93,000 plus 18% GST (\u20b9540). After adjusting the ITC of \u20b9360 (from the manufacturer), the wholesaler pays \u20b9180 (\u20b9540 &#8211; \u20b9360) in GST.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Consumer<\/b><span style=\"font-weight: 400;\">: Finally, the retailer sells the furniture to the consumer at \u20b94,000 plus 18% GST (\u20b9720). The retailer uses their ITC of \u20b9540 and remits \u20b9180 (\u20b9720 &#8211; \u20b9540) as GST.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">In this example, GST is collected at each stage based on value addition, with input tax credits passed along the supply chain. This system ensures tax efficiency and transparency, reducing the overall tax burden for each participant in the process.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How-Goods-and-Services-Tax-GST-Works\"><\/span><b>How Goods and Services Tax (GST) Works?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Now that you know GST operates as a multi-stage tax levied at various points in the production and distribution process, it\u2019s essential to understand how it works in practical scenarios. Below, we\u2019ll break down the roles of different participants in the supply chain and the application of GST in both intra-state and inter-state transactions.<\/span><\/p>\n<h3><strong>1. Manufacturer\u2019s Perspective<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">A manufacturer must pay GST on the raw materials they purchase and the value they add to the product. <\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>For example<\/strong>, if a manufacturer purchases raw materials costing \u20b9100 and pays 5% GST, the total cost becomes \u20b9105. Upon adding \u20b950 in value to the product, he sells it for \u20b9155. The GST on \u20b9155 is \u20b97.75, but he can claim an input tax credit of \u20b95 for the GST paid on raw materials. Therefore, the net GST liability of the manufacturer is \u20b92.75 (\u20b97.75 \u2013 \u20b95).<\/span><\/p>\n<h3><strong>2. Service Provider\u2019s Role<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">A service provider is liable to pay GST on the purchased products and the value they contribute. <\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>For instance<\/strong>, if a service provider buys a product for \u20b9200 and pays 5% GST, the product cost becomes \u20b9210. After adding \u20b9100 in value, he charges \u20b9310 for the service. The GST liability of \u20b9310 is \u20b915.5, and with an input tax credit of \u20b910 (the GST paid on the product), the net GST liability is \u20b95.5 (\u20b915.5 \u2013 \u20b910).<\/span><\/p>\n<h3><strong>3. Retailer\u2019s Involvement<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">A retailer must pay GST on the products acquired from distributors and the margin they add. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If a retailer buys a product for \u20b9250 and pays 5% GST, the total cost is \u20b9262.5. Adding a margin of \u20b925, the retailer sells the product for \u20b9287.5. The GST liability on this sale is \u20b914.37, and with an input tax credit of \u20b912.5 (the GST paid on the product), the net GST liability is \u20b91.87 (\u20b914.37 \u2013 \u20b912.5).<\/span><\/p>\n<h3><strong>4. Consumer\u2019s Perspective<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">As the final contributor to the GST system, a consumer pays GST on the purchased product. If a consumer buys a product for \u20b9300 and pays 5% GST, the total cost becomes \u20b9315. The consumer cannot claim any input tax credit since they are the end user, thus bearing the entire GST burden of \u20b915.<\/span><\/p>\n<h3><strong>GST for Transactions Within a State<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">For transactions within a state, GST comprises two components: CGST (Central GST) and SGST (State GST), both applied to the same taxable value of the product or service. The GST Council decides the rates for CGST and SGST.<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>For example<\/strong>, if a product sells for \u20b91,000 with an 18% GST rate, the total GST amount will be \u20b9180, split equally into CGST and SGST, i.e., \u20b990 each. The seller collects \u20b91,080 from the buyer, pays \u20b990 to the Central Government, and \u20b990 to the State Government. The seller can also claim input tax credit for the GST paid on purchases made within the state.<\/span><\/p>\n<h3><strong>GST for Inter-State Transactions<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Inter-state transactions utilize Integrated GST (IGST), which combines CGST and SGST and is levied by the Central Government on goods and services supplied across state lines.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">IGST ensures that taxes paid on inter-state supplies are credited to the importing state while the exporting state collects the tax. <\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>For instance<\/strong>, when goods are sold from Maharashtra to Gujarat, IGST is applied, and the credit is transferred to Gujarat, where the goods are received and consumed.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What-are-the-Types-of-GST\"><\/span><b>What are the Types of GST?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>India&#8217;s Goods and Services Tax (GST) framework comprises four main types: <strong>Central GST (CGST)<\/strong>, <strong>State GST (SGST)<\/strong>, <strong>Integrated GST (IGST)<\/strong>, and <strong>Union Territory GST (UTGST)<\/strong>. Each type serves a specific purpose in the taxation system.<\/p>\n<h3>1. Central GST (CGST) and State GST (SGST)<\/h3>\n<p><strong>Central GST (CGST)<\/strong> is levied by the central government on transactions occurring within a single state. In contrast, <strong>State GST (SGST)<\/strong> is imposed by state governments on the same intra-state transactions. Typically, the rates of CGST and SGST are equal, making the total GST rate a combination of both. This dual structure ensures that both the central and state governments receive their share of revenue from goods and services sold within a state.<\/p>\n<h3>2. Integrated GST (IGST)<\/h3>\n<p><strong>Integrated GST (IGST)<\/strong> is crucial for inter-state transactions. It is collected by the central government and applies not only to sales across state lines but also to imports and exports of goods and services. The IGST rate is equivalent to the total GST rate applicable to the product or service. This integration of CGST and SGST into IGST facilitates a seamless tax credit mechanism, allowing businesses to claim input tax credit (ITC) for taxes paid at each stage of the supply chain, regardless of whether the transaction is intra-state or inter-state.<\/p>\n<h3>3. Union Territory GST (UTGST)<\/h3>\n<p><strong>Union Territory GST (UTGST)<\/strong> is the tax collected on intra-Union Territory transactions. It functions similarly to SGST but is specific to union territories without a legislative assembly, such as Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, and Chandigarh. Notably, UTGST does not apply to Delhi and Puducherry, as these union territories have their own legislatures.<\/p>\n<p><em><strong>Read More About: <a href=\"https:\/\/razorpay.com\/learn\/what-is-cgst-sgst-igst\/\">What is CGST, SGST, IGST and UTGST<\/a><\/strong><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Advantages-and-Disadvantages-of-GST\"><\/span><b>Advantages and Disadvantages of GST<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><b>Advantages of GST<\/b><\/h3>\n<h4><b>1. Removal of cascading effect<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">It has eliminated the cascading effect of tax, logistics cost, inter-state tax, and a unified market. The cascading effect is an impact of tax on tax, and its removal has impacted the cost of goods. Goods have become cheaper for the end consumers after the introduction of GST.<\/span><\/p>\n<h4><b>2. Simplification of taxes<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">It has replaced 17 indirect taxes which has automatically eliminated the compliance cost for the businesses.<\/span><\/p>\n<h4><b>3. Digitisation under GST<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">All activities related to GST, such as registration, return filing, tax payment, application for refund, and response to notice, are required to be done online through the GST portal. Digitisation of GST compliances has accelerated the processes and reduced manual work<\/span><\/p>\n<h4><b>4. Uniformity in the market<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">The past fragmented market across state lines has been unified with a huge decline in the cost of the goods.<\/span><\/p>\n<h3><b>Disadvantages of GST<\/b><\/h3>\n<h4><b>1. Increased Costs<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">Businesses may incur additional expenses from purchasing and maintaining GST-compliant software.<\/span><\/p>\n<h4><b>2. Higher Tax Liability for SMEs<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">Under GST for online businesses, small and medium-sized enterprises (SMEs) may face a higher tax burden.<\/span><\/p>\n<h4><b>3. Penalties and Fines<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">Non-compliance with GST regulations can result in penalties and fines. The possibility of GST registration cancellation is also there.<\/span><\/p>\n<h4><b>4. Impact on the Unorganised Sector<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">The unorganised sector may experience challenges while adapting to the new tax structure.<\/span><\/p>\n<p><b>Related Read: <\/b><a href=\"https:\/\/razorpay.com\/learn\/gst-on-cars\/\"><b>GST on Cars in India: GST Rates for New, Used and Electric Cars<\/b><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Key-Principles-of-Goods-and-Services-Tax-GST\"><\/span><b>Key Principles of Goods and Services Tax (GST)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Now that you have an idea of what is goods and service tax, let&#8217;s discuss its principles:<\/span><\/p>\n<h3><b>1. Destination-Based Taxation Model<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">This concept implies that the tax revenue goes to the state where the goods are consumed, not produced, to ensure fair distribution of tax revenue among states and eliminate the cascading effect of taxation. Earlier, the state collected the tax revenue where the goods or services were manufactured or sold.<\/span><\/p>\n<h3><b>2. Value Added Tax (VAT) in GST<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">VAT in Goods and Services Tax (GST) means the tax is imposed only on the value added at each stage of the supply chain. This ensures that the tax is not charged on the same value more than once and that the final customer bears the tax obligation.<\/span><\/p>\n<h3><b>3. Input Tax Credit (ITC) Mechanism<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">It lets taxpayers claim credit for the tax paid on inputs employed in producing or supplying goods\/services. This reduces tax costs, prevents tax cascading, and ensures efficient taxation. For example, manufacturers offset taxes paid on raw materials against taxes collected on finished goods.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To claim ITC, businesses must fulfil certain conditions, including registration under GST, possession of valid <a href=\"https:\/\/razorpay.com\/blog\/tax-invoice\/\">tax invoices<\/a>, and utilisation of eligible inputs for business purposes.<\/span><\/p>\n<h3><b>4. Uniformity in Tax Rates<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The Goods And Service Tax has brought uniformity in the tax rates across the country by replacing the multiple indirect taxes imposed by the central and state governments. The <\/span><span style=\"font-weight: 400;\">online GST verification <\/span><span style=\"font-weight: 400;\">process is simple. It has four standardised tax slabs: 5%, 12%, 18%, and 28%. Goods and services are classified under these tax brackets based on their nature, necessity, and luxury.<\/span><\/p>\n<h3><b>5. Transparency and Fairness in Taxation<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">GST has made the tax system more visible and accountable. The taxpayers can easily track the tax paid at each stage of the supply chain and claim the input tax credit. It has also reduced the scope for tax evasion. GST has also ensured tax equity.<\/span><\/p>\n<p><em><strong>Related Read: <a href=\"https:\/\/razorpay.com\/learn\/input-tax-credit-under-gst\/\">An In-depth Look at Input Tax Credit under GST<\/a><\/strong><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What-are-GST-Rates-and-Slabs\"><\/span><strong>What are GST Rates and Slabs?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">GST rates are divided into four main slabs: 5%, 12%, 18%, and 28%. There are also some special rates, such as 0%, 0.25%, 3%, and cess, for certain items. The GST Council periodically revises the <a href=\"https:\/\/razorpay.com\/learn\/gst-rates-goods-and-service-tax-rates-slabs\/\">GST Rates<\/a> based on various factors, such as revenue collection, economic growth, inflation, and industry demands.<\/span><\/p>\n<p><strong>The following table shows examples of goods and services falling under each tax bracket:<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td><b>GST Rate in India<\/b><\/td>\n<td><b>Goods<\/b><\/td>\n<td><b>Services<\/b><\/td>\n<\/tr>\n<tr>\n<td><b>0%<\/b><\/td>\n<td><span style=\"font-weight: 400;\"><a href=\"https:\/\/razorpay.com\/learn\/gst-on-milk-paneer-curd-dairy-products\/\">Milk<\/a>, eggs, fresh vegetables, salt, unbranded food grains, etc.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\"><a href=\"https:\/\/razorpay.com\/learn\/gst-on-education\/\">Education<\/a>, health, public transport, etc.<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>5%<\/b><\/td>\n<td><span style=\"font-weight: 400;\">Sugar, tea, edible oils, domestic LPG, footwear (&lt; \u20b9500), apparel (&lt; \u20b91000), etc.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Railways, air travel, <a href=\"https:\/\/razorpay.com\/learn\/gst-on-food-and-restaurants\/\">restaurants<\/a> (without AC or liquor licence), etc.<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>12%<\/b><\/td>\n<td><span style=\"font-weight: 400;\">Textiles, garments, butter, cheese, ghee, etc.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Non-AC hotels, business class air travel, state-run lotteries, etc.<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>18%<\/b><\/td>\n<td><span style=\"font-weight: 400;\"><a href=\"https:\/\/razorpay.com\/learn\/gst-on-mobile-phones\/\">Mobile phones<\/a>, Biscuits, cakes, pastries, footwear (&gt; \u20b9500), apparel (&gt; \u20b91000), steel, cement, etc.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">AC hotels, restaurants (with an AC or liquor licence), IT services, telecom services, etc.\u00a0<\/span><\/td>\n<\/tr>\n<tr>\n<td><b>28%<\/b><\/td>\n<td><span style=\"font-weight: 400;\"><a href=\"https:\/\/razorpay.com\/learn\/gst-on-cars\/\">Luxury cars<\/a>, motorcycles, aerated drinks, tobacco products, cinema tickets, etc.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Five-star hotels, <a href=\"https:\/\/razorpay.com\/learn\/gst-on-online-gaming\/\">online gaming and\u00a0 club betting<\/a>, amusement parks, etc.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><b>Tax Laws Before GST<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">In the indirect tax regime before GST, the indirect taxes were levied by the states and the centre.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Each state collected Value Added Tax (VAT) for the sale of goods within the same state. For the inter-state sale of goods, CST (Central State Tax) was levied by the centre. And, on the sale of services, service tax is applicable.<\/span><\/p>\n<p><strong>Here\u2019s the list of indirect taxes applicable before GST<\/strong><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Central Sales Tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">State VAT<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Service Tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Luxury Tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Entertainment Tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Entry Tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Taxes on advertisements<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Taxes on lotteries, betting, and gambling<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"How-Has-GST-Helped-in-Price-Reduction\"><\/span><b>How Has GST Helped in Price Reduction?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let\u2019s understand how the introduction of GST reduced costs for end consumers through an example.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A manufacturer produces goods (10% tax rate applicable) worth \u20b91,000 and sends it to a warehouse for labelling &amp; packaging. The warehouse adds \u20b9250 to the existing value of the goods. Then, sell it to the retailer. The retailer adds its advertisement cost of \u20b9300. <\/span><\/p>\n<p><strong>Here\u2019s how the value of the goods &amp; tax on it changes, and the final effect on the price under old tax laws.<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td><b>Particulars<\/b><\/td>\n<td><b>Cost\u00a0<\/b><\/td>\n<td><b>Tax @ 10%<\/b><\/td>\n<td><b>Total cost<\/b><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Manufacturer<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,000<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9100<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Rs. 1,100<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Warehouse adds \u20b9250 for labelling &amp; packaging<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,350<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9135<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,485<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Advertisement cost of \u20b9300 added by the retailer<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,785<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9178<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,963<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Total<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,550<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9413<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,963<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The tax liability was passed on to every next stage, and the final price effect comes on the end consumer. This condition is known as the cascading effect.<\/span><\/p>\n<p><strong>Here are the tax calculations under GST.<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td><b>Particulars<\/b><\/td>\n<td><b>Cost<\/b><\/td>\n<td><b>Tax @ 10%.<\/b><\/td>\n<td><b>Tax liability to be deposited to the government<\/b><\/td>\n<td><b>Invoice total<\/b><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Manufacturer<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,000<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9100<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9100<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,100<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Warehouse adds \u20b9250 for labelling &amp; packaging<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,250<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9125<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b925<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,375<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Advertisement cost of \u20b9300 added by the retailer<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,550<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9155<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b930<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,705<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Total<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,550<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u2013<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u2013<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,705<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Under GST, taxes claimed in the previous stages can be adjusted to the later-stage tax liability while filing GST returns. This is called an input tax credit.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The effect of input tax credit reduces the final value of the goods from \u20b91,963 to \u20b91,705. And, the tax burden on the end consumer is reduced.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Who-is-Eligible-for-GST\"><\/span><b>Who is Eligible for GST?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">All the businesses supplying goods whose turnover exceeds \u20b940 lakh in a financial year are required to register as normal taxable persons. However, the threshold limit is \u20b910 lakh if you have a business in the northeastern states, J&amp;K, Himachal Pradesh, and Uttarakhand.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The turnover limit is \u20b920 lakh, and in the case of special category states, \u20b910 lakh for the service providers.<\/span><\/p>\n<p><strong>Also, here is the list of certain businesses for which GST registration is mandatory, irrespective of their turnover:<\/strong><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Casual taxable person \/ Input Service Distributor (ISD)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Non-resident taxable person<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Inter-state supplier of goods and services<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Supplier of goods through an e-commerce portal<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Any service provider<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Liable to pay tax under the <a href=\"https:\/\/razorpay.com\/learn\/reverse-charge-mechanism-gst\/\">reverse charge mechanism<\/a><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">TDS\/TCS deductor<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Online data access or retrieval service provider<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><em><strong>Related Read: <a href=\"https:\/\/razorpay.com\/learn\/taxable-person-under-gst\/\">Taxable Person Under GST \u2013 Who Qualifies As A Taxable Person?<\/a><\/strong><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How-to-Register-for-GST\"><\/span><b>How to Register for GST?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">If you are looking for what is the GST Registration Process, here is your answer:<\/span><\/p>\n<h3><b>Registration Process<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Go to the <a href=\"https:\/\/www.gst.gov.in\/\" target=\"_blank\" rel=\"noopener\">GST portal<\/a> and tap &#8216;Services&#8217; &gt; &#8216;Registration&#8217; &gt; &#8216;New Registration.&#8217;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Select the type of taxpayer, state\/UT, district, legal name, PAN, email, and mobile number. Then click on &#8216;Proceed.&#8217;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Verify the OTP sent to the email and mobile number. You will get a temporary reference number (TRN).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Log in with the TRN and fill in the details in the application form, such as business details, promoter details, authorised signatory details, principal place of business, additional place of business, goods and services details, bank account details, etc.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Upload the required documents as per the type of business.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Verify your request using a digital signature certificate (DSC) or an Aadhaar-based e-signature or EVC.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You will receive an acknowledgement number (ARN) when you successfully apply.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The GST officer will assess the application and approve the GST registration within three working days. If any discrepancy is found, the officer will issue a notice, and the applicant must respond within seven working days.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Once the <a href=\"https:\/\/razorpay.com\/learn\/gst-registration-eligibility-process-documents-and-penalties\/\">GST registration<\/a> is approved, the applicant will receive a <a href=\"https:\/\/razorpay.com\/learn\/what-is-gstin-all-you-know-about-your-15-digits-gstin\/\">GSTIN (GST identification number)<\/a>, a unique 15-digit number based on the PAN and state code.<\/span><\/li>\n<\/ul>\n<p><em><strong>Read More: <a href=\"https:\/\/razorpay.com\/learn\/how-to-register-for-gst\/\">How to Register for GST Online?<\/a><\/strong><\/em><\/p>\n<h3><b>Documents Required:<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Applicant&#8217;s or business entity&#8217;s PAN card<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Applicant&#8217;s or authorised signatory&#8217;s Aadhaar card\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Proof of business registration or incorporation certificate<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Identity and address proof of top management with a photograph<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bank account statement or <a href=\"https:\/\/razorpay.com\/learn\/cancelled-cheque\/\">cancelled cheque<\/a><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Proof of principal place of business, such as electricity bill, rent agreement, property tax receipt, etc.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Digital signature certificate (DSC), Aadhaar-based e-signature, or EVC<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Letter of authorisation or board resolution for authorised signatory<\/span><\/li>\n<\/ul>\n<p><em><strong>Read More About: <a href=\"https:\/\/razorpay.com\/learn\/documents-required-for-gst-registration\/\">What are the documents required for GST registration?<\/a><\/strong><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What-is-the-GST-Registration-Fee\"><\/span><b>What is the GST Registration Fee?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The government does not impose a fee for GST registration. However, if you get your registration processes done by a third party, such as a Chartered Accountant, they may charge a fee for their services, which may vary depending on the size and type of your business.\u00a0<\/span><\/p>\n<h2 data-start=\"147\" data-end=\"176\"><span class=\"ez-toc-section\" id=\"How-GST-Calculation-Works\"><\/span>How GST Calculation Works<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"\" data-start=\"178\" data-end=\"437\">GST collected from customers must be deposited with the government by filing monthly GST returns on time. The amount to be paid is calculated after adjusting the <strong data-start=\"340\" data-end=\"366\">Input Tax Credit (ITC)<\/strong>, which is the GST already paid by the supplier on business purchases.<\/p>\n<p class=\"\" data-start=\"439\" data-end=\"483\">Taxpayers must also consider factors like:<\/p>\n<ul>\n<li data-start=\"486\" data-end=\"512\">Reverse charge mechanism<\/li>\n<li data-start=\"515\" data-end=\"564\">Whether supplies are inter-state or intra-state<\/li>\n<li data-start=\"567\" data-end=\"600\">Exempted or zero-rated supplies<\/li>\n<li data-start=\"603\" data-end=\"679\">Inward transactions (purchases) to determine eligible and non-eligible ITC<\/li>\n<\/ul>\n<p class=\"\" data-start=\"681\" data-end=\"993\">To make this easier, the online GST portal automatically calculates your tax liability based on the data you provide during return filing. However, this system-generated calculation is for reference only. You must ensure all information is accurate and complete according to GST laws when submitting your return.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What-Are-the-New-Compliances-Under-GST\"><\/span><b>What Are the New Compliances Under GST?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The GST regime in India is constantly evolving. In addition to filing this return online, the government has introduced many new systems that make tax compliance easier. Businesses need to stay updated on evolving GST systems to ensure compliance and avoid penalties.<\/span><\/p>\n<h3><b>1. E-way Bills<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">It is an electronic document containing the details of the goods being transported. It is mandatory for inter-state movement of goods worth more than \u20b950,000 and intra-state movement of goods in some states. This system was launched on 1st April 2018 for inter-state movement and was gradually implemented for intra-state movement by June 2018.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The <a href=\"https:\/\/razorpay.com\/learn\/gst-e-way-bill\/\">e-way bill system<\/a> has several benefits for traders, manufacturers, and transporters, such as ease of generation, tracking, and verification of e-way bills, elimination of physical documents, and faster movement of goods. It has also helped tax authorities with time reduction at check-posts at the time of verification and a decrease in tax evasion.<\/span><\/p>\n<h3><b>2. E-invoicing<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">E-invoicing generates and validates invoices electronically through a common portal. It will apply to businesses with an annual turnover of over \u20b950 crore from 1 April 2021. E-invoicing involves obtaining a unique invoice reference number (IRN) from the Invoice Registration Portal (IRP) for each invoice and uploading the details to the IRP. The IRP then validates the invoice and returns a digitally signed invoice with a QR code.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It integrates with GST portal and e-way bill portal and reduces data entry errors and interoperability of invoices.<\/span><\/p>\n<h3><b>3. HSN Code Requirements<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The <a href=\"https:\/\/razorpay.com\/learn\/what-is-the-gst-hsn-code\/\">Harmonized System of Nomenclature (HSN) code<\/a> is a six-digit code that classifies goods and services for taxation purposes. The Service Accounting Code (SAC) is a similar code for services. From 1 April 2021, businesses must mention the <a href=\"https:\/\/razorpay.com\/learn\/hsn-sac-code-full-form-meaning-explained\/\">SAC\/HSN code<\/a> on their invoices. The requirement varies for different entities based on their turnover.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For entities with a turnover of up to \u20b95 crore, mentioning the first two digits of the SAC\/HSN code is sufficient. For those with a turnover of over \u20b95 crore, mentioning the first four digits of the SAC\/HSN code is required. Additionally, businesses need to report the changes in the SAC\/HSN code in their GSTR-1 form, which is a monthly or quarterly statement of outward supplies.<\/span><\/p>\n<p><em><b>Related Read: <\/b><a href=\"https:\/\/razorpay.com\/learn\/gst-exemption\/\"><b>GST Exemption: List of Goods and Services Exempt Under GST<\/b><\/a><\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Frequently-Asked-Questions-FAQs\"><\/span><b>Frequently Asked Questions (FAQs)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><strong>1. Define GST in Simple Terms<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Simple definition of GST: GST, or Goods and Services Tax, is a single tax system in India that applies to the supply of goods and services. It was introduced to simplify the tax structure and make it easier for businesses and consumers.<\/span><\/p>\n<h3><b>2. Why do we need GST?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The main objective of utilising GST is to eliminate tax on tax, or double taxation, which cascades from the manufacturing level to the consumption level.<\/span><\/p>\n<h3><b>3. What type of tax is GST?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The goods and services tax (GST) is an indirect, value-added tax levied on most goods and services sold for domestic consumption in India.<\/span><\/p>\n<h3><b>4. How is GST charged?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Under the GST regime, tax is levied at every point of sale. So in the case of intra-state sales, Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.<\/span><\/p>\n<h3><b>5. What are the 3 types of GST?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The 3 types of GST are CGST (Central Goods and Services Tax), SGST (State Goods and Services Tax), IGST (Integrated Goods and Services Tax)<\/span><\/p>\n<h3><b>6. Can I apply for GST myself?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Yes, you can register yourself for GST online through the government website (gst.gov.in.).<\/span><\/p>\n<h3><b>7. Where does GST money go?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">GST paid by individuals goes to the central and state governments and acts as a vital source of revenue to operate the country.<\/span><\/p>\n<h3><b>8. How is GST calculated?\u00a0<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">To <\/span><span style=\"font-weight: 400;\"><a href=\"https:\/\/razorpay.com\/gst-calculator\/\">calculate GST<\/a>, <\/span><span style=\"font-weight: 400;\">apply the applicable tax rate to the taxable value of the supply. The taxable value is the transaction value of the supply minus any discounts or abatements.<\/span><\/p>\n<h3><b>9. What are Dual Goods and Services Tax Structures?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Dual GST is a system where both the central and state governments levy GST on a common tax base. The central GST (CGST) and state GST (SGST) are charged on intra-state supplies, while the integrated GST (IGST) is charged on inter-state supplies. The IGST is apportioned between the centre and the states.<\/span><\/p>\n<h3><b>10. What are the Goods Exempted from GST?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Some goods exempted from GST are fresh fruits and vegetables, milk, eggs, meat, fish, bread, salt, jaggery, and cereals.<\/span><\/p>\n<h3><b>11. What is the limit imposed on GST?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The limit imposed on GST is the threshold turnover for registration. A person engaged in an exclusive supply of goods and whose aggregate turnover in the financial year does not exceed \u20b940 lakhs is not required to register under GST. However, this limit is \u20b920 lakhs for special category states and \u20b910 lakhs for hilly states and Jammu and Kashmir.<\/span><\/p>\n<h3><b>12. Is it necessary for all traders to register under the GST?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">No, not all traders need to register under GST. Only those traders whose aggregate turnover exceeds the threshold limit, or who are engaged in inter-state supplies, who are required to pay tax under reverse charge, or who are liable to deduct tax at source, or who are involved in e-commerce, or who are supplying certain notified goods or services, are required to register under GST.<\/span><\/p>\n<p><em><b>Related Read: <\/b><a href=\"https:\/\/razorpay.com\/learn\/how-to-cancel-e-way-bills\/\"><b>How to Cancel E-Way Bill?<\/b><\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>GST has replaced most other indirect taxes like service tax, VAT, central excise duty, additional customs duty, surcharges and octroi.<\/p>\n","protected":false},"author":151156469,"featured_media":913,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3435],"tags":[3821,2039],"class_list":{"0":"post-912","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-gst-tax-government","8":"tag-goods-and-services-tax","9":"tag-gst"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/912","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156469"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=912"}],"version-history":[{"count":47,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/912\/revisions"}],"predecessor-version":[{"id":17395,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/912\/revisions\/17395"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/913"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=912"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=912"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=912"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}