Goods & Services Tax On Indian Economy

GST, also referred to as the products and Services Tax, is defined because of the giant tax structure designed to support and enhance the economic process of a country . Quite 150 countries have implemented GST thus far. However, the thought of GST in India was mooted by Vajpayee government in 2000 and therefore the constitutional amendment for an equivalent was passed by the Lok sabha on 6th May 2015 but was yet to be ratified by the Rajya sabha. It might be interesting to know why this proposed GST regime may hamper the expansion and development of the country.

The Goods and Services Tax (GST) may be a vast concept that simplifies the enormous tax structure by supporting and enhancing the economic process of a country . GST may be a comprehensive tax levy on manufacturing, sale and consumption of products and services at a national level. the products and Services bill or GST Bill, also mentioned because the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, initiates a worth added Tax to be implemented on a national level in India. GST is going to be a tax within the stages of production to cause uniformity in the system.

In the present scenario, Country is struggling thanks to Covid-19. Economy went down, factories are temporarily shut down, some businesses are closed and unemployment is increasing day by day. This has been caused thanks to lower collection of GST. GST collection is a good source of state revenue but if there’s no consumption then there’s no GST collection and it shows more than expenditure over income from the purpose of the state . Again, Economy will suffer.

Apart from the current situation i.e., impact of covid-19, tax regime has become convenient reducing duplication and multiplicity of tax filings creating simple doing business. The Ministry of Statistics and Programme Implementation has declared India’s GDP growth to be 7.7% in 2017–18 compared to 7.1% in 2016–17. After the initial phase of GST implementation, marginal improvement was expected given the size of changes in business and tax administration that it got along.

The Indian Taxation System — Scenario before GST

Tax policies play an important role in any country’s progress and have an immediate impact on any Country’s economy in terms of efficiency and equity. An honest taxation policy is that which takes care of the whole income distribution and also generates tax revenues in such a fashion for central and State governments, which may cause overall benefit within the nation’s infrastructure, defense, public amenities, people security, and a country’s exports. The whole framework to impose indirect taxes comes under constitutional provisions of India. Article 246, seventh schedule gives the right to central and state governments to levy taxes and collect indirect taxes on the idea of products and services transactions. The taxation system varies from manufacturer to manufacturer on point of sale or level of imports or exports. Indirect taxation based collection systems are supported in origin, and are designed to impose tax and collect an equivalent at the event of any taxable activity.

The Journey of GST in India

The GST journey began within the year 2000 when a committee was found to draft the law. It took 17 years from then for the Law to evolve. In 2017, the GST Bill was passed within the Lok Sabha and Rajya Sabha. On 1st July 2017, the GST Law came into force.

Year 2000 — PM Vajpayee found out a committee to draft the GST law.

Year 2004 — A task force concludes GST must be implemented to enhance the present legal system .

  • Year 2006 — minister of finance proposes GST introduction from 1st April 2010.

Objectives Of GST

1. To realize the ideology of ‘One Nation, One Tax’

GST has replaced multiple indirect taxes, which were existing under the previous tax regime. The advantage of getting one tax means every state follows an equivalent rate for a specific product or service. Tax administration is simpler with the Central Government deciding the rates and policies. Common laws are often introduced, like e-way bills for goods transport and e-invoicing for transaction reporting. Tax compliance is additionally better as taxpayers aren’t caught up with multiple return forms and deadlines. Overall, it’s a unified system of tax compliance.

2. To subsume a majority of the indirect taxes in India

India had several erstwhile indirect taxes like service tax, Value Added Tax (VAT), Central Excise etc, which want to be levied at multiple supply chain stages. Some taxes were governed by the states and a few by the Centre. There was no unified and centralized tax on both goods and services. Hence, GST was introduced. Under GST, all the main indirect taxes were subsumed into one. it’s greatly reduced the compliance burden on taxpayers and eased tax administration for the government .

3. To eliminate the cascading effect of taxes

One of the first objectives of GST was to get rid of the cascading effect of taxes. Previously, thanks to different tax laws, taxpayers couldn’t deduct the tax credits of 1 tax against the opposite.For instance , the excise duties paid during manufacture couldn’t be deducted against the VAT payable during the sale. This led to a cascading effect of taxes. Under GST, the tax levy is merely on internet value added at each stage of the availability chain. This has helped eliminate the cascading effect of taxes and contributed to the seamless flow of input tax credits across both goods and services.

4. To curb evasion

GST laws in India are much more stringent compared to any of the erstwhile tax laws. Under GST, taxpayers can claim an input decrease only on invoices uploaded by their respective suppliers. This way, the probabilities of claiming input tax credits on fake invoices are minimal. The introduction of e-invoicing has further reinforced this objective. Also, thanks to GST being a nationwide tax and having a centralized closed-circuit television , the clampdown on defaulters is quicker and much more efficient. Hence, GST has curbed evasion and minimized tax fraud from happening to an outsized extent.

5. To extend the taxpayer base

GST has helped in widening the assets in India. Previously, each of the tax laws had a special threshold limit for registration supported turnover. As GST may be a consolidated tax levied on both goods and services both, it’s increased tax-registered businesses. Besides, the stricter laws surrounding input tax credits have helped bring certain unorganized sectors under the tax net. for instance , the development industry in India.

6. Online procedures for simple doing business

Previously, taxpayers faced tons of hardships handling different tax authorities under each law . Besides, while return filing was online, most of the assessment and refund procedures happened offline. Now, GST procedures are administered almost entirely online. Everything is completed with a click of a button, from registration to return filing to refunds to e-way bill generation. it’s contributed to the general simple doing business in India and simplified taxpayer compliance to a huge extent. The government also plans to introduce a centralized portal soon for all tax compliance like e-invoicing, e-way bills and GST return filing.

7. An improved logistics and distribution system

A single tax system reduces the necessity for multiple documentation for the availability of products . GST minimizes transportation cycle times, improves supply chain and turnaround , and results in warehouse consolidation, among other benefits. With the e-way bill system under GST, the removal of interstate checkpoints is most beneficial to the world in improving transit and destination efficiency. Ultimately, it helps in lowering the high logistics and warehousing costs.

8. To market competitive pricing and increase consumption

Introducing GST has also led to a rise in consumption and tax revenues. thanks to the cascading effect of taxes under the previous regime, the costs of products in India were above in global markets. Even between states, the lower VAT rates in certain states led to an imbalance of purchases in these states. Having uniform GST rates have contributed to overall competitive pricing across India and on the worldwide front. This has hence increased consumption and led to higher revenues, which has been another important objective achieved.

What are the components of GST?

There are three taxes applicable under this system: CGST, SGST & IGST

  • CGST: it’s the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)

GST Rates in India

There are four slabs categorized supported goods and services, as proposed by the government:

  • 5%: Under this slab, home items are included like sweets, sugar, spices, tea, coffee, coal, edible oil, etc.

What are the New Compliances Under GST?

Apart from online filing of the GST returns, the GST regime has introduced several new systems alongside it.

1. e-Way Bills

GST introduced a centralized system of waybills by the introduction of “E-way bills”. This technique was launched on 1st April 2018 for inter-state movement of products and on 15th April 2018 for intra-state movement of products during a staggered manner.

Under the e-way bill system, manufacturers, traders and transporters can generate e-way bills for the products transported from the place of origin to its destination on a standard portal with ease. Tax authorities also are benefited as this technique has reduced time at check -posts and helps reduce evasion .

2. E-invoicing

The e-invoicing system was made applicable from 1st October 2020 for businesses with an annual aggregate turnover of quite Rs.500 crore in any preceding financial years (from 2017–18). Further, from 1st January 2021, this technique was extended to those with an annual aggregate turnover of quite Rs.100 crore.

These businesses must obtain a singular invoice reference number for each business-to-business invoice by uploading on the GSTN’s invoice registration portal. The portal verifies the correctness and genuineness of the invoice. Thereafter, it authorizes using the digital signature alongside a QR code.

E-invoicing allows interoperability of invoices and helps reduce data entry errors. it’s designed to pass the invoice information directly from the IRP to the GST portal and therefore the e-way bill portal. It will, therefore, eliminate the need for manual data entry while filing GSTR-1 and helps within the generation of e-way bills too.

3. Tax Laws before GST

In the earlier tax regime, there have been many indirect taxes levied by both the state and therefore the Centre. States mainly collected taxes within the sort of Value Added Tax (VAT). Every state had a special set of rules and regulations.

Inter-state sale of products was taxed by the Centre. CST (Central State Tax) was applicable just in case of inter-state sale of products. The indirect taxes like the entertainment tax, octroi and native tax were levied together by state and center. These led to tons of overlapping of taxes levied by both the state and therefore the Centre.

For example, when goods were manufactured and sold, excise duty was charged by the Centre. Over and above the excise duty, VAT was also charged by the state. It led to a tax on tax effect, also referred to as the cascading effect of taxes.

The following is that the list of indirect taxes within the pre-GST regime:

  • Central Excise Duty

CGST, SGST, and IGST have replaced all the above taxes.

However, certain taxes like the GST levied for the inter-state purchase at a concessional rate of twenty-two by the difficulty and utilization of ‘Form C’ remains prevalent.

It applies to certain non-GST goods such as:

1. Petroleum crude;

2. High-speed diesel

3. Motor spirit (commonly referred to as petrol);

4. Natural gas;

5. Aviation turbine fuel; and

6. Alcoholic liquor for human consumption.

It applies to the subsequent transactions only:

1. Resale

2. Use in manufacturing or processing

3. Use in certain sectors like the telecommunication network, mining, the generation or distribution of electricity or the other power sector

Benefits of GST & its impact on economy

1. Simplified legal system

2. Reduction prices of products in and services thanks to elimination of cascading

3. Transparency in taxation system

4. Increase employed opportunities

5. It would subsume all indirect taxes at the middle and therefore the state level.

6. It would bring down the costs of products and services and thus, increase consumption.


Impacts of GST thus far seem good opportunities for the event of the economy. Some facts and forecast regarding GST:

1. Impacts of GST reforms are very positive for growth, capital formation, investment, consumption and employment within the Indian economy.

2. Impact on employment is positive but GST reforms raises employment only up to 1 percent above the benchmark. This is often partly thanks to substitution of labor by capital. Creating more employment requires expansion of labor intensive service sectors alongside investment in human capital.

3. The distribution of income also becomes more equal after the GST reforms. The economic well being of households and their consumption increases up to by 8 percent above the benchmark. They also increase labor supply to require jobs created additionally.

4. In general, by liberalizing the economy, the GST reforms make a really positive atmosphere for investment and capital accumulation. Capital stock expands up to 60 percent above the benchmark economy due to expansion in investment and more efficiency within the use of capital that reduces the value of capital.

5. Economy creates more employment within the service sectors including the transport and storage, hotel and restaurant, food and beverages and textiles, health and education and community services sectors after the GST reform

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aNumak & Company is a Global Business and Management Consulting firm with expertise in building scalable business models for diverse industry verticals.

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aNumak & Company

aNumak & Company is a Global Business and Management Consulting firm with expertise in building scalable business models for diverse industry verticals.