Eligible citizens of every nation must pay taxes to their local Government for the Nation to run judiciously. Taxation refers to the imposition of compulsory levies by the Government on individuals or entities. Taxation is the primary way by which any Government raises revenues for its expenditures. This blog will not only give you a quick run-through about all that you need to know about GST but it will also tell you how the GST calculator ease-out tax calculations.
Two types of taxation systems (direct and indirect) are prevalent in India. As the name speaks for itself, direct taxes are directly paid by the taxpayer to the Government. Income taxes, property taxes, and taxes on assets fall under this category. On the other hand, indirect tax included all the other types of taxes like sales tax, entertainment tax, excise duty, etc until July 01, 2017. This is when Goods & Service Tax (GST) was introduced.
World over, most nations have unveiled the substantial merits of a unified National market led by a single tax. GST was introduced with the primary motive of taking a toll on tax evaders who tried to escape from paying the entire tax amount by finding loopholes in the taxation system. Earlier, each indirect tax had a different rate of charging. Putting all indirect taxes under one umbrella, GST came into force as a revolutionary tax reform with a unified slab rate of 18%. Check out sales tax calculation for more information.
Types of GST
The Central Goods and Services Tax (CGST)
tax collected by the Central Govt.
The State Goods and Services Tax (SGST)
tax levied by the State Govt.
The Union Territory Goods and Services Tax (UTGST)
tax levied for the intra-state supply of goods and services
The Integrated Goods and Services Tax (IGST)
tax is applicable on inter-state supply of goods and services by the Central Govt.
Benefits of GST
Reduced tax evasion
- GST registration synced with PAN
- Invoice level reported and matched
- Credits reconciled
- E-way bills generated
Corruption free tax administration
- Movement of goods tracked
- GST commissioner appointed for the investigation
- Analytics and risk management by Directorate General
Procedural benefits
- Common procedures for registration
- Lesser tax filings and uniform formats
- Clear and transparent rules
- Ease of bookkeeping
- Lesser revenue leaks and generation of better revenues
- Refund of taxes
- Common tax base
- A universal system of classification of goods and services
Removal of cascading effect (tax on tax)
- Cost of goods and services brought down
- Uniform taxes levied on all items
Enhanced threshold limit
- Earlier, businesses had to pay VAT after crossing the limit of Rs. 5 lakh
- With GST implication, this limit is has been increased to Rs. 20 lakh
Technology-driven
- Registration
- Return filing
- Application for refund
- Response to notices
- Consumer grievances
Smooth and quick online processing
- Online filing of tax returns
- The easy interface of the online portal
- All GST related information available on the portal itself
Ease of operation for e-commerce businesses
- Uniformity of tax laws across state borders
- Logistics vendors and e-commerce companies can set up warehouses anywhere at their convenience
Cons of GST
Increased cost of operation
- Businesses need to keep their books of accounts updated with the latest GST compliant software or Enterprise Resource Planning (ERP) software
- ERP is costly and requires a properly trained person to run the software
- Small and medium businesses have to hire professionals to help them out with GST laws
Enhanced burden of compliance
- Since every company needs mandatory gst registration online, the entire process from registration and maintaining documents to invoices and filing returns gets tiresome
- Less tech-savvy states and businesses are facing enhanced difficulties with all the procedures going online
Penalties for non-GST compliant firms
- MSMEs who can’t understand GST compliances are penalized for the same
How does GST work?
GST is a destination-based tax. It is levied in the states where goods and services are consumed (not where they are manufactured). Charged at every point of sale, it is included in the price that a consumer pays while purchasing a product.
All goods and services are primarily divided into a four-tier slab rate structure of 5%, 12%, 18%, and 28%. Even though the prevailing centralized GST rate is 18% almost everywhere, the Central Government of India is trying to reduce this four slab structure and bring it down to two or three.
Calculation of GST
Every organization operating in India needs to mandatorily register itself for the GST. A GST identification number (GSTIN) is required for the same. Since consumers have to pay taxes for all goods and services they use, they can put GST calculators to use for reaching the exact amount of GST they need to pay. Let’s have a look at how GST calculators work.
There are two aspects to a GST calculator – adding GST to and removing GST from the total price of a good or service.
When you have to add GST
GST amount= (Price x GST%)
Net price = Cost of the product + GST amount
When you have to remove GST
GST= Original cost – [Original cost x {100/(100+GST%)}]
Net price = Original cost – GST
The GST calculators available online are fairly easy to use. Simply input the variables (original cost and GST percentage) and the calculator will immediately display the GST amount.
Benefits of using GST calculator
You can know the exact tax amount you’ll be paying, in advance
- Being quick and accurate, they save your valuable time
- They keep you away from any fraudulent activities that may arise from the wrong GST calculation
New compliances under GST
E-way bills
- Centralized system of waybills
- For interstate and intra-state movement of goods
- Manufacturers, traders, and transporters can generate e-way bills from the place of origin to the destination
- Benefits tax authorities by saving time at check-posts
- Help reduce tax evasion
E-invoicing
- Businesses must obtain a unique invoice reference invoice for every business by uploading it on the GSTIN’s invoice registration portal
- Allows interoperability of invoices
- Help reduce data entry errors
- Passes information directly from the IRP to GST portal and e-way bill portal
- Eliminates the requirement for manual data entry while filing GST returns