What is GST in India - Understanding Its Objectives and Purpose

Goods and Services Tax (GST) is a tax levied on the consumption, manufacture or sale of goods and services in India. It is a direct tax system that has replaced most other indirect taxes in the country. The Indian government has introduced this tax on 1 July 2017. GST is levied whenever there is an addition of value to a product or service. It is also levied at each stage of the sale.

Types of GST

There are four different types of GST levied on goods and services in India, let us see what they are:

Central Goods and Services Tax (CGST) - The central government levies CGST on intra-state transactions of goods and services.
State Goods and Services Tax (SGST) - State governments in India levy SGST on intra-state transactions of goods and services. It is levied along with CGST.
Union Goods and Services Tax (UGST) - Union Territories in India levy UGST on transactions of goods and services within their borders. It is levied along with CGST.
Integrated Goods and Services Tax (IGST) - If the transaction of goods and services is between two states, the government levies an integrated GST. It is applicable on both imports and exports. The taxes levied under IGST are shared by the Centre and the state.

The main objectives of GST are:

Simplification of tax structure: One of the primary objectives of GST in India was to simplify the complex indirect tax structure that existed before its implementation. GST replaced multiple indirect taxes levied by the Centre and the state governments with a single tax, thereby reducing tax cascading (tax on tax) and making it easier for taxpayers to comply with the law.
Inter-State Consolidation: GST aims to create a unified tax system across the country by integrating various central and state taxes such as excise duty, service tax, and VAT. This consolidation of taxes promotes seamless inter-state trade and commerce and reduces administrative hurdles and costs for businesses.
Broadens tax base: GST seeks to broaden the tax base by bringing more entities into the formal economy. By making GST registration mandatory for turnover above a certain threshold, the tax base expands, capturing previously unaccounted transactions and increasing tax collection.
Boosting economic growth: GST aims to promote economic growth by rationalizing supply chains, reducing transaction costs, and improving overall efficiency in the movement of goods and services across the country. It removes barriers to inter-state trade and fosters a common market within India.
Increasing transparency and compliance: GST aims to increase transparency in tax administration and reduce tax evasion through improved monitoring and data analysis. The digital platform for GST registration, return filing and payment enables real-time reporting and compliance verification, which reduces the risk of tax evasion.