The GST is “Goods and Services Tax” a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It is designed to replace various indirect taxes like VAT, excise duty, service tax, and others.
It is an indirect type of tax, which has to be paid on buying goods or service and the buyer has to pay this tax, this tax is received by the state government and the central government. GST tax has been implemented in India from 1st July 2017. And GST is a completely online tax system.
Before 2017, by removing many types of indirect type taxes like “Excise Duty, Vat, Entry Tax, Service Tax” etc. in India, a tax named GST has been brought in their place.
What is GST Number?
Whichever person or company or institute gets its registration done under GST, it is given a REGISTRATION number and you can call it GST registration number or GST number if you want.
This GST number is made up of total 15 digits and 10 digits of the PAN card of the person or organization who has applied for the GST number are also added to it.
For example: 22AAAA0000A1Z5
Types Of GST
- CGST (central goods and service Tax): – Its collected by the central government on a local State sale (intra – state sale) (example: – within Maharashtra)
- SGST / UTGST (state goods and service Tax): – Its collected by the state government on a local State sale (intra – state sale) (example: – within Maharashtra)
- IGST (integrated goods and service tax): – Its collected by the central government for inter – state sale (example: – Maharashtra to Gujrat)
Types of Sales Tax
When we talk about sales tax in the context of GST, it can be divided into two types: local sales tax and interstate sales tax.
1. Local Sales Tax (CGST – SGST)
Local sales tax refers to sales that happen within the same state, meaning both the production and the sale of the product occur in the same state.
For example, if a product is made in Maharashtra and sold in Maharashtra, it is considered a local sale. In this case, CGST and SGST need to be paid.
- CGST (Central Goods and Service Tax): This tax is collected by the central government for sales within the same state (e.g., sales in Maharashtra).
- SGST (State Goods and Service Tax): This tax is collected by the state government for sales within the same state (e.g., sales in Maharashtra).
2. Interstate Sales Tax (IGST)
Interstate sales tax applies when a sale takes place between two different states. For example, if a product is made in Maharashtra and sold in Gujarat, this is an interstate sale. In such cases, IGST needs to be paid.
- IGST (Integrated Goods and Service Tax): This tax is collected by the central government for sales between different states (e.g., from Maharashtra to Gujarat).
Understanding GST Registration
A business is required to register for GST if its aggregate turnover exceeds a specified threshold limit. However, even if the turnover is below the threshold, certain businesses may still need to register, such as e-commerce businesses or those involved in interstate supply.
Who Must Register for GST?
- Businesses with a turnover exceeding ₹40 Lakhs (₹20 Lakhs for special category states like Jammu & Kashmir, Himachal Pradesh, etc.)
- Service providers with a turnover exceeding ₹20 Lakhs (₹10 Lakhs for special category states)
- E-commerce operators
- Casual taxable persons (e.g., a temporary business at a trade fair)
GST Tax Structure
GST applies at different rates, which are designed to suit the nature of the goods and services. The rates are:
- 5%: Essential items such as spices, tea, etc.
- 12%: Processed foods, mobile phones.
- 18%: Services, restaurants (without input tax credit).
- 28%: Luxury goods such as cars, high-end electronics.
Additionally, some goods and services are exempt from GST, such as basic food items, education services, and healthcare services.
Input Tax Credit (ITC)
One of the most important aspects of GST for accountants is understanding Input Tax Credit (ITC). The idea behind ITC is simple – a business can offset the tax paid on inputs (purchases) against the tax collected on outputs (sales).
For example, if a business buys raw materials worth ₹10,000 with GST of ₹1,800, and later sells finished goods worth ₹15,000 with GST of ₹2,700, the business only needs to pay the difference of ₹900 (i.e., ₹2,700 – ₹1,800) to the government.
However, there are conditions for claiming ITC:
- ITC can only be claimed if the purchase invoices are in the name of the registered business.
- ITC can be claimed on the goods and services used for business purposes only.
All Indian states and Union Territories with their respective codes (as per GST), capitals, and other relevant details:
ascending order based on State Code (GST Code):
| State Code (GST Code) | State/Union Territory Name | Type | Capital |
|---|---|---|---|
| 01 | Andhra Pradesh | State | Amaravati |
| 01 | Jammu & Kashmir | Union Territory | Srinagar |
| 02 | Arunachal Pradesh | State | Itanagar |
| 02 | Himachal Pradesh | State | Shimla |
| 03 | Assam | State | Dispur |
| 03 | Punjab | State | Chandigarh |
| 04 | Chandigarh | Union Territory | Chandigarh |
| 05 | Uttarakhand | State | Dehradun |
| 06 | Haryana | State | Chandigarh |
| 07 | Delhi | Union Territory | New Delhi |
| 08 | Rajasthan | State | Jaipur |
| 09 | Uttar Pradesh | State | Lucknow |
| 10 | Bihar | State | Patna |
| 11 | Sikkim | State | Gangtok |
| 13 | Nagaland | State | Kohima |
| 14 | Manipur | State | Imphal |
| 15 | Mizoram | State | Aizawl |
| 16 | Tripura | State | Agartala |
| 17 | Meghalaya | State | Shillong |
| 19 | West Bengal | State | Kolkata |
| 20 | Jharkhand | State | Ranchi |
| 21 | Odisha | State | Bhubaneswar |
| 22 | Chhattisgarh | State | Raipur |
| 23 | Madhya Pradesh | State | Bhopal |
| 24 | Gujarat | State | Gandhinagar |
| 26 | Dadra and Nagar Haveli and Daman and Diu | Union Territory | Daman |
| 27 | Maharashtra | State | Mumbai |
| 29 | Karnataka | State | Bengaluru |
| 30 | Goa | State | Panaji |
| 31 | Lakshadweep | Union Territory | Kavaratti |
| 32 | Kerala | State | Thiruvananthapuram |
| 33 | Tamil Nadu | State | Chennai |
| 34 | Puducherry | Union Territory | Puducherry |
| 35 | Andaman and Nicobar Islands | Union Territory | Port Blair |
| 36 | Telangana | State | Hyderabad |
| 38 | Ladakh | Union Territory | Leh |
| 39 | Arunachal Pradesh | State | Itanagar |
Explanation of Columns:
- State Code (GST Code): The GST code is a unique two-digit code used for GST-related purposes.
- State/Union Territory Name: The name of the Indian state or Union Territory.
- Type: Specifies whether it’s a State or Union Territory.
- Capital: The capital city of the respective state or Union Territory.
Types of GST Returns
As an accountant, you need to be familiar with the different types of GST returns that must be filed. Below are the key returns you need to understand:
-
GSTR-1: This is a sales return that businesses must file monthly. It includes details of all outward supplies made during the period (sales, exports, etc.).
-
GSTR-2: This is a purchase return, which includes details of all inward supplies made (purchases, import of goods, etc.). However, this return has been suspended for now, and data is auto-populated from GSTR-1.
-
GSTR-3B: This is the monthly self-assessment return. It summarizes sales, purchases, and the GST liability of the business. It’s a crucial return for payment purposes.
-
GSTR-4: This is for taxpayers under the Composition Scheme. It is a quarterly return where they need to report their turnover and pay GST accordingly.
-
GSTR-9: This is an annual return, which consolidates all GST filings for the financial year. It must be filed by all registered taxpayers, except for composition dealers.
-
GSTR-9C: This is a reconciliation statement and is applicable for businesses with an aggregate turnover exceeding ₹2 crore. It is filed along with GSTR-9.
Filing GST Returns on the GST Portal
Filing GST returns requires using the GST portal. Here’s a step-by-step guide on how to file returns.
Step 1: Login to the GST Portal
- Visit the official GST portal at www.gst.gov.in.
- Click on “Login” and enter your GSTIN (Goods and Services Tax Identification Number) along with your username and password.
Step 2: Select the Type of Return
- After logging in, go to the “Services” tab and select “Returns.”
- From the drop-down menu, select the return type you want to file, such as GSTR-1 or GSTR-3B.
Step 3: Fill in the Details
- For GSTR-1, enter details of all sales and exports during the month.
- You can either manually enter the details or upload them through a JSON file.
- For GSTR-3B, enter:
- Total sales for the month.
- Eligible ITC.
- Taxable turnover.
- GST liability.
- Ensure that the data entered matches your books of accounts.
Verification: After entering all the data, verify the details. Double-check the figures to ensure there are no discrepancies.
Payment of Tax: If your tax liability exceeds the Input Tax Credit available, you must pay the balance. The GST portal allows you to pay the tax through various payment modes, including net banking, credit/debit cards, or NEFT/RTGS.
Submit and File: Once all the details are correct, click on “Submit” and then “File” the return. You will receive an acknowledgment of successful filing.
Download Acknowledgment and ARN: After successful filing, download the acknowledgment receipt (ARN) for your records.
Common Mistakes to Avoid
- Incorrect classification of goods or services: This can lead to incorrect GST rates and possible audits.
- Failure to match input and output details: Always ensure that ITC claimed corresponds to valid purchases.
- Missed deadlines: Missing the due dates for filing returns results in late fees and penalties.
Reconciliation and Auditing of GST Returns
One important aspect for accountants is reconciling the returns. This involves checking the data between the accounting system, GST portal, and financial statements. This ensures that there is no mismatch and that taxes have been accurately paid.