88 Goods and Services Tax
88.1 Background and Concept
The Goods and Services Tax (GST) is a unified, destination-based, multi-stage consumption tax on the supply of goods and services across India (kapoor2023?; cbic2024?). Introduced on 1 July 2017, GST replaced a fragmented patchwork of central and state indirect taxes:
| Family | Subsumed taxes |
|---|---|
| Central | Central Excise Duty, Service Tax, Additional Customs Duty (CVD), Special Additional Duty, Cesses, Surcharges |
| State | VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax, Entertainment Tax, Purchase Tax, Tax on Lotteries |
GST does not subsume: Customs Duty, Stamp Duty, State Excise on alcohol, Tax on petroleum products (currently outside GST), Property Tax.
88.2 Constitutional Basis
The 101st Constitutional Amendment Act, 2016 added:
- Article 246A — concurrent power to Centre and States to make laws on GST.
- Article 269A — IGST levy by Centre on inter-state supplies.
- Article 279A — GST Council.
88.3 Structure of GST in India
India follows a dual GST model — both Centre and States levy GST simultaneously on the same transaction.
| Component | Levied by | Working content |
|---|---|---|
| CGST — Central GST | Centre | On intra-state supply, by Centre |
| SGST / UTGST — State / Union Territory GST | State / UT | On intra-state supply, by State |
| IGST — Integrated GST | Centre | On inter-state supply and imports |
| Compensation Cess | Centre | On select luxury / sin goods to compensate States |
88.4 Key Features
| Feature | Working content |
|---|---|
| Destination-based | Tax accrues to the State of consumption |
| Multi-stage | Levied at every stage of value addition |
| Tax credit / ITC | Input tax credit across the chain |
| Single tax | Replaces multiple central + state indirect taxes |
| Common return | GSTR forms; one common e-invoicing system |
| HSN / SAC codes | Harmonised classification of goods / services |
| Threshold | ₹40 lakh for goods (₹20 lakh in special-category states); ₹20 lakh for services |
88.5 GST Rates
| Rate | Coverage |
|---|---|
| 0 % (Exempted) | Essential food, healthcare, education |
| 0.25 % | Rough diamonds |
| 3 % | Gold, silver, jewellery |
| 5 % | Mass consumption — household necessities, transport |
| 12 % | Standard — processed food, electronics |
| 18 % | Standard rate — most goods and services |
| 28 % | Luxury / sin goods — cars, ACs, tobacco |
| + Compensation Cess | Additional on tobacco, aerated drinks, motor vehicles |
88.6 GST Council (Article 279A)
The GST Council is the apex body for GST policy:
| Aspect | Content |
|---|---|
| Chairperson | Union Finance Minister |
| Members | Union MoS Finance + each State’s Finance / Tax Minister |
| Voting | Centre 1/3; States 2/3 |
| Decisions | Three-fourths majority |
| Functions | Recommend rates, exemptions, model laws, threshold, dispute resolution |
88.7 Input Tax Credit (ITC)
Input Tax Credit is the credit of tax paid on inputs available against tax payable on outputs, eliminating tax on tax (cascading). The recipient claims ITC if:
- Has tax invoice / debit note.
- Has received goods / services.
- Tax is actually paid by supplier to government.
- Has filed return.
- Within prescribed time.
ITC is blocked on motor vehicles (with exceptions), food, beauty treatment, club membership, life insurance for personal use, etc.
88.8 GST Returns
| Return | Content | Frequency |
|---|---|---|
| GSTR-1 | Outward supplies | Monthly / Quarterly |
| GSTR-3B | Summary return | Monthly |
| GSTR-9 | Annual return | Yearly |
| GSTR-9C | Self-certified reconciliation (post-2021) | Yearly (above threshold) |
| GSTR-2A / 2B | Auto-populated input statement | Monthly |
| GSTR-4 | Composition-scheme return | Quarterly / Annual |
88.9 Composition Scheme
Small taxpayers (turnover up to ₹1.5 crore for goods, ₹50 lakh for services) can opt for the Composition Scheme — pay tax at a flat lower rate (1 %, 2.5 %, 6 % for service composition) without ITC, with simpler compliance.
88.10 Reverse Charge Mechanism (RCM)
Under Reverse Charge, the recipient of goods or services pays GST instead of the supplier. Applies to:
- Supplies from unregistered to registered persons (notified categories).
- Specified services — legal services, GTA, sponsorship, etc.
- Imports of services.
88.11 E-Way Bill and E-Invoicing
| Tool | Working content |
|---|---|
| E-Way Bill | Required for movement of goods exceeding ₹50,000 in value |
| E-Invoicing | Mandatory for B2B invoices for businesses above turnover threshold; QR-coded; reported on IRP |
| GSTN | GST Network — IT backbone managing returns, invoices, payments |
88.12 Anti-Profiteering
Section 171 of the CGST Act and the National Anti-Profiteering Authority (NAA) — now Competition Commission of India (after 1 December 2022) — ensure that benefits of GST rate reductions or input-tax credits are passed on to consumers.
88.13 Achievements and Challenges
| Achievements | Challenges |
|---|---|
| Single market — uniform tax | Multiple rates create complexity |
| Higher tax base — registrations rose | Compliance burden on small businesses |
| Removal of state border check-posts | Frequent rate / rule changes |
| Transparency through digital trail | Litigation on classification, ITC eligibility |
| GST collections crossing ₹1.5 lakh crore monthly | Petroleum, alcohol still outside |
| Reduction in cascading effect | State revenue compensation issues |
88.14 Exam-Pattern MCQs
Q1. GST came into force in India on:
A. 1 April 2016 B. 1 April 2017 C. 1 July 2017 D. 1 January 2018
Answer: C. 1 July 2017.
Q2. Match each GST component with its content:
| Component | Content | ||
|---|---|---|---|
| (i) | CGST | (a) | On inter-state supply by Centre |
| (ii) | SGST | (b) | On intra-state supply by Centre |
| (iii) | IGST | (c) | On luxury / sin goods |
| (iv) | Compensation Cess | (d) | On intra-state supply by State |
A. (i)-(b), (ii)-(d), (iii)-(a), (iv)-(c) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(c), (iii)-(a), (iv)-(b)
Answer: A.
Q3. Which of the following is not subsumed under GST?
A. Central Excise Duty B. Service Tax C. Customs Duty D. State VAT
Answer: C. Customs Duty on imports is not subsumed; IGST is levied in addition to customs duty on imports.
Q4. Match each constitutional article with its content:
| Article | Content | ||
|---|---|---|---|
| (i) | Article 246A | (a) | GST Council |
| (ii) | Article 269A | (b) | Concurrent power on GST |
| (iii) | Article 279A | (c) | IGST levy |
A. (i)-(b), (ii)-(c), (iii)-(a) B. (i)-(a), (ii)-(b), (iii)-(c) C. (i)-(c), (ii)-(a), (iii)-(b) D. (i)-(c), (ii)-(b), (iii)-(a)
Answer: A.
Q5. The major GST rate slabs in India are:
A. 5 %, 10 %, 15 %, 20 % B. 0 %, 5 %, 12 %, 18 %, 28 % C. 1 %, 2 %, 5 %, 10 % D. 8 %, 16 %, 24 %, 32 %
Answer: B. The standard slabs are 0, 5, 12, 18, 28 per cent, plus 0.25 % (rough diamonds) and 3 % (gold).
Q6. The GST Council is chaired by:
A. The Prime Minister B. The Union Finance Minister C. The RBI Governor D. The President
Answer: B. The Union Finance Minister chairs the GST Council.
Q7. Match each return with its content:
| Return | Content | ||
|---|---|---|---|
| (i) | GSTR-1 | (a) | Annual return |
| (ii) | GSTR-3B | (b) | Outward supplies |
| (iii) | GSTR-9 | (c) | Reconciliation statement |
| (iv) | GSTR-9C | (d) | Summary return (monthly) |
A. (i)-(b), (ii)-(d), (iii)-(a), (iv)-(c) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(c), (iii)-(a), (iv)-(b)
Answer: A.
Q8. GST decisions in the GST Council require:
A. Simple majority B. Two-thirds majority C. Three-fourths majority D. Unanimity
Answer: C. Decisions require a three-fourths majority (Centre 1/3 vote, States together 2/3).
- GST in India effective 1 July 2017 under the 101st Constitutional Amendment 2016.
- Subsumed taxes: Central — Excise, Service Tax, CVD, SAD, cesses; State — VAT, CST, Octroi, Entry, Luxury, Entertainment.
- Not subsumed: Customs Duty, Stamp Duty, State Excise on alcohol, Petroleum (currently outside).
- Constitutional anchors: Art. 246A (concurrent power), 269A (IGST), 279A (GST Council).
- Dual GST: CGST + SGST/UTGST (intra-state); IGST (inter-state); Compensation Cess on luxury / sin goods.
- Destination-based, multi-stage, value-added, ITC-allowing.
- Major rates: 0, 5, 12, 18, 28 %; plus 0.25 % rough diamonds, 3 % gold.
- GST Council: chaired by FM; Centre 1/3 + States 2/3 votes; decisions 3/4 majority.
- ITC — credit of input GST against output GST; blocked on motor vehicles (with exceptions), personal expenses.
- Returns: GSTR-1 (outward), GSTR-3B (summary monthly), GSTR-9 (annual), GSTR-9C (reconciliation).
- Composition Scheme: small taxpayers, flat low rate, no ITC.
- Reverse Charge Mechanism — recipient pays GST in notified cases.
- E-Way Bill (movement > ₹50,000); E-Invoicing (B2B above threshold); GSTN IT backbone.
- Anti-profiteering under Sec. 171 — now with CCI.