How GST works in India?

GST is a Destination-based tax. GST follows a Multi-Stage collection mechanism. The Goods and Services Tax (GST) will be collected at each stage (from the product manufacturing stage to the delivery to the final consumer) and the tax credit paid in the previous stage is available as a set-off at the next stage of the transaction. This helps eliminate the system of “Indirect tax on taxes”.

Indirect tax structures in India can be clearly understood from the following chart:

GST Work in India

Now GST (Goods and Services Tax) replaces all of these indirect taxes collected by the Central and State Governments.
When the Goods and Services Tax is applied, there will be 3 types of applicable Goods and Services Taxes, namely CGST, SGST & IGST.

GST Model

CGST – Central Goods and Services Tax: Revenue will be collected by the central government

SGST – State Goods and Services Tax:  Revenue will be collected by the state government for intra-country sales (that is, sales in certain states in India)

IGST – Integrated Goods and Services Tax: Revenue will be collected by the central government for sales between countries (that is, sales between various states in India)

The CGST, SGST & IGST can be understood better than the following diagram:

GST Types

Transaction of goods New Regime Old Regime Points to Note
Sale within the particular state CGST + SGST VAT + Central Excise/ Service tax Revenue will now be shared between the Centre and the State
Sale to another State IGST Central Sales Tax + Excise/ Service Tax There will only be one type of tax (central) now in case of inter-state sales.

 

Benefits of GST-2018. Latest Updates, Notifications..?

The First Country in the world to implement the GST Law was France (in 1954). More than 160 countries have implemented this GST system. Following are the great benefits of GST in India.

Consumer Side Benefits:

  • Uniform prices for goods and services throughout India.
  •  GST definitely reduces the tax burden of Indian citizens by removing some of the indirect taxes collected by the Center and the State, because the cost of most goods and services in India is currently loaded with a lot of hidden taxes.
  • This means that consumers will now only bear the GST charged at the previous point of the supply chain and not from the manufacturing stage. This reduces the tax burden for end consumers.
  • The final cost of goods is expected to be lower because of the smooth flow of tax credit input between producers, retailers and service suppliers.
  •  The overall tax for some commodities and services will decrease. This will benefit more consumers.

Benefits for the Central Government and State:

  • GST replaces some indirect taxes at the Central and State levels, which leads to the administration of the tax system Simple and easy across India.
  • GST will also make Indian products competitive in the domestic and international markets, which benefit greatly from the Central and State Governments. GST will have an impact that drives India’s economic growth.
  • Increase the overall investment climate in India which will naturally benefit development in the Indian state.

Benefits for Business and Industry:

  • Free Flow of Goods and Services – No Checkpoint.
  • Tax diversity reduction: – There will be a public market without CST (Central Sales Tax – indirect taxes imposed only on goods sold from one country to another) and entry tax.
  • A simpler invoice: – At present, invoices are more detailed because the goods and services tax are written separately for one transaction. With GST implementation, only one level will be written.
  • GST replaces the entrance tax: – Elimination of entry tax is a big advantage for the movement of goods through land transportation.
  • With the implementation of GST, zero rating is more comprehensive.
  • Company with turnover Rs. 20 lakhs (Rs. 10 lakh for special categories) are excluded each year from GST.
  • More efficient tax determination, especially for exports.

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Invoice Matching Under GST??

Every month suppliers will be asked to upload their invoices to the GSTN portal and they will be matched with purchases from customers. So, matching invoices will be a monthly affair for businesses.

The use of IT systems for bookeeping and tax compliance work will be seen even in many small and medium-sized businesses from now on.

A well integrated IT system will also help suppliers and buyers to match their invoices effectively. Invoice matching is a very important part when it comes to trading.

What Is Matching Invoice?

Matching all supplies taxable, bought by a buyer and supplied by a supplier is known as Invoice Matching.

According to finance minister, “It is through the invoice matching and automated return mechanism that the government can guarantee eligible input tax credit is accurately transferred between the states”.

GSTN is working towards the GST web application which is hosted on the common portal to make invoice matching easy.

How do Invoice Matching work?

Invoice matching is very important because, based on the GST law, tax credits for input from services and items purchased will only be available when the supply details submitted in the buyer’s GSTR-2 return match the inventory details outside that submitted in the GSTR-1 supplier.

Which items from invoices are matched?

During the submission of the GSTR-2 form, the GSTN portal matches the following fields:

  • GSTN from supplier
  •  GSTN recipient
  • Invoice Number / Debit Note
  • Invoice / Debit Date Note
  • Taxable value
  • Tax amount

Are there rules for matching invoices?

Businesses need to upload invoices and bills in a certain format. The government has issued a list of mandatory elements that must be fulfilled by each GST invoice. For example, it is mandatory to mention the customer GSTN and the place of supply of goods or services.

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