The Goods and Services Tax (GST) was implemented on July 1, 2017, enabled by the Constitution (One Hundred and First Amendment) Act, 2016 and enacted through the CGST, IGST, UTGST and Compensation Acts. This transformative reform unifies multiple central and state taxes into a single system. The Goods and Services Tax Law eliminates the cascading effect of taxes, where taxes were previously charged on top of other taxes, inflating costs for businesses and consumers. Defined under the Central Goods and Services Tax (CGST) Act, GST is a tax on the supply of goods, services or both, excluding alcoholic liquor for human consumption and currently petroleum products like crude oil, diesel, petrol, natural gas and ATF. By adopting a "one nation, one tax" framework, the Goods and Services Tax Law simplifies compliance and minimizes disputes between tax authorities.
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What is Goods and Service Tax Law?
The Goods and Services Tax Law establishes GST as an indirect tax levied on the supply of goods and services by replacing taxes such as central excise duty, service tax, value-added tax (VAT), octroi and entry tax. Before GST, the businesses navigated a complex web of tax authorities, leading to inefficiencies and disputes. Section 7 of the CGST Act broadly defines "supply" to include sales, transfers, barters, exchanges, licenses, rentals, leases and disposals for business purposes, ensuring most commercial transactions fall under the Goods and Services Tax Law, except for temporarily excluded items like petroleum products and alcohol.
Section 7 definition of “supply” has been amended by the Finance Act, 2021 (retrospectively from 1 July 2017). The amendment clarified that activities or transactions between persons, without consideration, are not treated as supply unless specifically listed in Schedule I.
GST is categorized into intra-state (within a state) and inter-state (between states) supplies. For intra-state transactions, the central government collects CGST and states or union territories collect SGST or UTGST at equal rates and for the inter-state supplies, the central government collects Integrated GST (IGST), sharing revenue with the consuming state. This structure under the Goods and Services Tax Law balances federal and state interests along with ensuring uniformity.
The Evolution of GST in India
The Goods and Services Tax Law took nearly two decades to develop, starting with the Empowered Committee of State Finance Ministers in 2000. The Constitution (115th Amendment) Bill in 2011 failed, but the 122nd Amendment Bill in 2014 succeeded, leading to the GST Council’s formation under Article 279A. In March 2017, Parliament passed the CGST, IGST, UTGST and Compensation Acts, launching GST on July 1, 2017. The GST (Amendment) Act, 2018 further refined returns and anti-evasion measures which solidified the Goods and Services Tax Law as an important regulation for India’s fiscal framework.
Advantages of GST
The Goods and Services Tax Law offers significant benefits like having no cascading effect, having digital compliance, uniform rules and higher revenues. Lets get into the detail:
No Cascading Effect: Input tax credits reduce production costs, lowering prices by 10-15% in many sectors.
Digital Compliance: The GST portal streamlines registration, returns (GSTR-1, GSTR-3B), payments and refunds, minimizing errors.
Uniform Rules: Consistent rates and laws reduce disputes, with the National Anti-Profiteering Authority ensuring consumer benefits.
Higher Revenue: By FY 2024–25, GST collections regularly crossed ₹1.6–1.7 lakh crore per month. Earlier, in April 2023, collections touched a record ₹1.87 lakh crore.
Initial challenges like technical glitches and compliance related issues for small businesses were addressed through the amendments.
Components of GST
The Goods and Services Tax Law comprises three components:
CGST: It is collected by the central government on intra-state supplies.
SGST/UTGST: It is collected by states or union territories on intra-state supplies.
IGST: It is collected by the central government on inter-state supplies, imports and zero-rated exports, with revenue shared with the consuming state.
For a ₹100 intra-state sale at 18% GST, ₹9 goes to CGST and ₹9 to SGST. For inter-state sales, ₹18 IGST is shared based on the destination.
Pre-GST Tax Laws
Before the Goods and Services Tax Law, India’s tax system was fragmented. The central government levied excise duty (Central Excise Act, 1944), service tax (Finance Act, 1994) and Central Sales Tax (1956), while states imposed VAT, luxury tax and entry tax. Without cross-credits, manufacturers faced cascading taxes, inflating costs. GST unified most taxes, except customs duty, petroleum taxes and alcohol duties.
How GST Reduces Prices?
By taxing only value added and allowing input tax credits, the Goods and Services Tax Law lowers prices. In Pre-GST, a ₹100 product could incur ₹30 in taxes due to cascading effect but under GST, the tax may be ₹18 after credits. For example, in biscuit manufacturing: raw materials cost ₹50 plus ₹9 GST; production adds ₹30 value, with ₹5.4 GST after credit; retail sale at ₹100 incurs ₹18 total GST, boosting demand through lower prices.
Learn about Income Tax Rules.
Features of the Goods and Services Tax Law
The Goods and Services Tax Law features multi-stage taxation, value-added taxation and destination-based taxation which allows input tax credits to prevent tax-on-tax and ensure revenue goes to the consuming state. It simplifies compliance through uniform rates and digital processes via the GST Network. Let’s find out in detail:
Multi-Stage Taxation
GST applies at every stage of the supply chain i.e. from raw material procurement to final product sales. For example, in smartphone production, the Goods and Services Tax Law imposes tax during component purchase, assembly, wholesale and retail stages. Businesses can claim input tax credits (ITC) under Sections 16-18 of the CGST Act to offset taxes paid on inputs, preventing double taxation.
Value Addition
Under the Goods and Services Tax Law, only the value added at each stage is taxed and not the entire product value. For example, a furniture maker buys wood for ₹10,000 by paying ₹1,800 GST (18%) and sells a table for ₹15,000. The tax applies only to the ₹5,000 value added, resulting in ₹900 GST after claiming input tax credit. This mechanism reduces costs and enhances economic efficiency.
Destination-Based Taxation
Unlike origin-based taxes like VAT, the Goods and Services Tax Law allocates revenue to the state where goods or services are consumed. Section 9 of IGST Act determines whether a supply is intra-state or inter-state. For goods, the place of supply is the delivery location; for services, it’s the recipient’s location. For example, goods shipped from Gujarat to Tamil Nadu generate IGST revenue shared with Tamil Nadu, resolving inter-state disputes.
Also, Learn about Deductions under Section 80C of Income Tax Act, 1961.
Objectives of the Goods and Services Tax Law
The Goods and Services Tax Law aims to modernize the taxation system of India with the following goals. These objectives align with economic policies and so they helps in reducing disputes through advance rulings:
Unified Tax System: Establishes "One Nation, One Tax" by standardizing rates and rules, reducing compliance costs.
Merge Taxes: Integrates central taxes (excise duty & service tax) and state taxes (VAT & entertainment tax) into GST as per Schedule VII.
Eliminate Cascading: Allows input tax credits to prevent tax-on-tax, curbing inflation.
Reduce Evasion: Implements e-way bills (Rule 138, CGST Rules) and e-invoicing (mandatory for businesses above ₹5 crore turnover since 2023).
Wider Tax Base: Sets registration thresholds at ₹20 lakh (₹10 lakh in some states) in order to include more businesses.
Simplify Business: Digitizes processes via the GST Network (GSTN), a non-profit managing the IT backbone.
Boost Economy: Removes inter-state barriers, lowering prices to drive consumption and revenue.
Summary
Goods and Services Tax Law was established on July 1, 2017, unifies multiple taxes into a single system, taxing goods and services supplies while replacing excise, VAT and service tax. Its multi-stage, value-added, destination-based approach allows input tax credits to eliminate tax-on-tax effects. With rates from 0% to 28%, the GST Council ensures consistency. By streamlining digital compliance, curbing evasion and reducing prices, the Goods and Services Tax Law fosters economic growth and simplifies taxation for businesses and consumers across India.
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Goods and Services Tax Law: FAQs
Q1. What is Goods and Services Tax in taxation law?
Goods and Services Tax (GST) is a single indirect tax in India that replaces multiple taxes on the supply of goods and services, simplifying taxation and reducing costs.
Q2. What are the GST laws?
GST laws include the CGST Act, SGST/UTGST Act and IGST Act, which govern intra-state and inter-state supplies, ensuring a unified tax system.
Q3. What is GST and its types?
GST is a tax on goods and services, with three types: CGST (central), SGST/UTGST (state/union territory) and IGST (inter-state).
Q4. Who is the father of GST?
Atal Bihari Vajpayee is known as the father of GST in India, as he initiated the idea in 2000 during his tenure as Prime Minister and set up the committee to develop it.
