Regarded as one of the biggest tax reforms in our country, the Goods and Services Tax (GST) regime being rolled out marked a significant transformation in the indirect taxation system. It has made understanding the framework easier by bringing all indirect taxes under a single category.
The GST council works consistently towards bringing about healthy changes in GST rates and several other tax parameters to ensure benefits to businesses and consumers across the country. As easy as GST is for consumers, small business owners can find it challenging to understand its intricacies completely.
In this article, we’ll explore the different types of GST rates and how they can benefit small business owners.
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Understanding the Various Types of GST
Here is a detailed look at the different types of GST:
- State Goods and Services Tax (SGST): This GST regime is applicable only on transactions that occur within a state. The SGST Act controls such exchanges, and the revenue generated is collected exclusively by the state government.
- Central Goods and Services Tax (CGST): This GST regime is applicable on all intrastate transactions and is governed by the CGST Act. The revenue generated through CGST is collected solely by the central government.
- Integrated Goods and Services Tax (IGST): This is a tax that is applicable on all interstate transactions and is governed by the IGST Act. The tax collecting body for IGST is the central government. The proceeds are then distributed among the concerned states.
- Union Territory Goods and Services Tax (UTGST): This tax acts as the counterpart of SGST. The only difference is that the tax is levied on the transactions that happen in the union territories of India like Pondicherry, Andaman and Nicobar Islands, Daman and Diu, Lakshadweep Islands, Chandigarh, and Dadra and Nagar Haveli.
GST Rates in India
The GST council determines the GST rates periodically. While the GST rates are typically low for essential goods, luxury products are more heavily taxed. The GST rates are segregated into four main slabs: tax of 5%; 12%, 18%; and 28%. Aside from these, there is a category of essentials like vegetables and milk, as well as other common household goods that are exempt from GST.
Since its inception, GST rates of various products and services have been revised several times by the GST council. Here is a brief look at some of the everyday products that are included in the various GST rate slabs:
- The 5% tax slab includes household necessities such as sugar, spices, coffee, tea, edible oil. Other inclusions include life-saving drugs, sweets, and coal.
- The 12% tax slab includes processed food and electronics like computers.
- The 18% tax slab includes capital goods, industrial intermediaries, and everyday items like toothpaste, soap, and hair oil
- The 28% GST tax slab includes all luxury items, ranging from cars, motorcycles, air conditioners, and refrigerators to cigarettes and aerated drinks..
The Benefits of GST to MSMEs
- Micro-small-and-medium enterprises (MSMEs) that were supposed to pay VAT and service tax separately now only have to pay GST. This makes invoicing simpler and eliminates the need to take note of taxation differences between different goods and services, as everything falls into a few broad categories.
- GST rates reduce transportation costs significantly for MSMEs. This is a result of the reduction in the number of border checks, which also facilitates fast transportation.
- MSME owners no longer have to abide by the myriad state tax rules that were in place before, when carrying out business operations and interstate transactions. The advent of GST has made it easy for small business owners to set up operations and keep track of their tax liability.
Filing for GST is also a very simple process that’s completely online. Just login to https://services.gst.gov.in/services/login
We hope this article has given you a thorough understanding of the concept of GST, the different tax rates, and its benefits for small business owners. So, no matter what part of the country you are in, you can now be cognizant of your GST outgo as you start or continue your entrepreneurial journey!
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