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 Working of GST in India

The Goods and Services Tax (GST) is a destination-based, multi-stage, comprehensive tax system that integrates multiple indirect taxes into a unified framework. Its working mechanism ensures that tax is collected efficiently and equitably across the value chain while reducing inefficiencies in the taxation process.

Key Principles of GST Working

1. Dual GST Model:

   • India adopted a dual GST structure, with taxation powers divided between the Centre and the states:
     • Central GST (CGST): Collected by the central government on intra-state supplies.
     • State GST (SGST): Collected by the state government on intra-state supplies.
     • Integrated GST (IGST): Levied by the central government on inter-state supplies and imports.

2. Destination-Based Tax:

   • GST is levied at the point of consumption rather than the origin, ensuring that the revenue benefits the state where the goods or services are consumed.

Mechanism of GST Working

1. GST Registration:

   • Businesses meeting the turnover threshold must register under GST and obtain a GST Identification Number (GSTIN).

2. Tax Filing and Compliance:

   • Businesses file monthly, quarterly, and annual GST returns using the GST Network (GSTN), an online platform facilitating registration, tax payments, and return filing.

3. Input Tax Credit (ITC):

   • GST allows businesses to claim a credit for the taxes paid on inputs (goods or services used to make final products).
   • ITC ensures that tax is applied only on the value addition at each stage, preventing the cascading effect of taxes.

   Example:
   If a manufacturer pays ₹10 GST on raw materials and collects ₹15 GST on the final product, they remit only ₹5 (₹15 - ₹10) to the government.

4. Tax Levy Structure:

   • GST has multiple tax rates: 0%, 5%, 12%, 18%, and 28%, applied based on the nature of goods or services.
   • Essential goods (e.g., food items) have lower rates, while luxury items attract higher rates.

5. E-Way Bill System:

   • For transporting goods worth more than ₹50,000, businesses generate an e-way bill to track the movement and prevent tax evasion.

Benefits of GST Working:

• Eliminates the cascading effect of taxes.
• Simplifies compliance through a unified tax system.
• Promotes ease of doing business.
• Enhances revenue transparency and curbs tax evasion.
• Encourages economic integration across states.

Conclusion:

The GST system works efficiently by leveraging technology, promoting transparency, and streamlining tax administration. While it has revolutionized indirect taxation in India, its effective functioning requires continuous reforms and capacity building for businesses and authorities alike.

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