History of GST in India

GST, or Goods and Services Tax, is a unified tax applied in India on the sale of goods and services, from the initial manufacturing stage all the way to final consumption. It replaces several previous indirect taxes, simplifying the tax structure. The introduction of GST marked a significant overhaul in India's taxation system, making it one of the most substantial tax reforms in recent times. The historical background of GST in India traces its origins to an ambitious vision of simplifying the country's complex tax system, which was fraught with overlapping taxes levied by both the central and state governments. This background of GST in India set the stage for a transformative journey towards a more streamlined and efficient tax regime, aiming to foster economic growth and ease of doing business across the nation.

When did GST start?

The history of GST started in 1954 with France and has since spread to over 160 countries. Malaysia adopted it in 2015. In 2017, India introduced GST, changing to a system where both central and state governments collect taxes on goods and services. This was a big shift, making tax collection simpler and replacing various indirect taxes with a single, unified tax system

Who introduced GST in India?

Back in 2014, the Finance Minister at the time, Arun Jaitley, brought a bill to parliament to make way for GST. By May 2015, this bill, called the 122nd Amendment, got the green light in the Lok Sabha. Fast forward to April 2017, and four more important GST bills were approved by both the Lok Sabha and the Rajya Sabha. This set the stage for GST to kick off on July 1, 2017, marking a new era in how goods and services are taxed in India

History of GST in India

The history of GST in India is a fascinating narrative of ambition, challenge, and progress that began in the early 2000s. It all started when Prime Minister Atal Bihari Vajpayee and his government envisioned a simpler, more integrated tax system. This vision marked the genesis of GST in India, aiming to replace the complex tapestry of various taxes with a single, streamlined process. To spearhead this massive reform, a group of State Finance Ministers, well-acquainted with the complexities of State VAT and other tax mechanisms, was formed in 2000.
The discussions around fiscal responsibility and budget management took a significant turn in 2004, further cementing the genesis of GST in India. The formation of the Fiscal Responsibility and Budget Management Committee during this period was crucial. Tasked with assessing and suggesting fiscal reforms, the committee identified GST as a pivotal opportunity to modernize India's tax system and recommended its implementation.
Yet, the path to actualizing GST was fraught with obstacles. In 2006, the Finance Minister announced plans to launch GST by April 1, 2010. However, numerous delays ensued, underscoring the complexity of overhauling the history of GST in India. The drafting of the Constitution (115th Amendment) Bill in 2011 was a significant step forward, designed to facilitate the introduction of GST. Despite thorough review by the Standing Committee, political shifts and the 2014 elections necessitated a reset, leading to the introduction of new legislation.
The history of GST in India continued to unfold through a series of key events:
●    2000: The formation of a group of State Finance Ministers to explore GST marked a foundational moment in the history of GST in India.
●    2006: The announcement of GST's planned start in 2010 signaled a significant commitment to tax reform.
●    2009-2011: The release of the first discussion paper and the drafting of GST legislation demonstrated progress in the genesis of GST in India.
●    2013-2014: The review of GST law and the introduction of new amendments highlighted the challenges in reforming the tax system.
●    2015-2016: The passage of the GST law by Parliament and the establishment of the GST Council were landmark moments in the history of GST in India.
●    2017: The official start of GST on July 1, 2017, was a historic achievement, marking a new era in taxation.
●    2018-2021: The implementation of the E-way bill and other regulatory changes underscored the ongoing evolution of the history of GST in India.
This extended journey reflects a concerted effort to simplify and modernize India's tax system. The history of GST in India illustrates the need for patience, meticulous planning, and collaborative effort. Through legislative and administrative milestones, the implementation of GST has shown that transformative ideas require endurance and flexibility to come to fruition, ultimately aiming to streamline tax administration for the benefit of all stakeholders involved.
 

Tax Structure before GST

Before GST, tax rules were clear: the central government and states each had their own taxes without mixing. The central government taxed goods made in factories (but not alcohol or drugs), while states could tax goods sold. The central government also had a tax for when goods were sold between states, and this money went to the state where the goods came from.
On top of that, the central government could tax all kinds of services, not just goods. And when goods came into or left India, there were extra taxes on top of the usual customs duty, called Countervailing Duty (CVD) and Special Additional Duty (SAD), to balance out other taxes like excise duties and state VAT.
When GST started, the rules changed so both the central and state governments could tax goods and services together. This meant they had to work together and make decisions on how GST would work to keep everything fair and organized.
 

Decisions taken by GST Council

GST Council has made some big choices
●    They set up four main tax rates for GST 5%, 12%, 18%, and 28%. Some things won't be taxed at all.
●    Extra taxes, more than 28%, will be added to some luxury items and things like tobacco.
●    State tax offices will handle most of the tax work (90%) for businesses making less than   ₹1.5 crore a year. The central government will take care of the rest (10%).
●    For businesses making more than ₹1.5 crore a year, both state and central tax offices will share the work evenly.

About the Goods and Services Tax Network (GSTN)
●    The government started GSTN in 2013 as a private company to help out with GST stuff. It's like an online place where businesses can register for GST, pay their taxes, and file their tax returns. It also works on the computer programs for 25 states that are part of this system.
●    GSTN picked 34 tech and finance companies to help make apps and tools for businesses to use with GSTN. These tools make it easier for businesses to do their GST tasks online.
 

Features of the GST regime

The GST (Goods and Services Tax) system transforms how goods and services are taxed in India, making it unique and comprehensive:
●    GST Application
Unlike the old tax system, GST is applied to the 'supply' of goods and services. This means any time goods or services change hands or are provided, GST comes into play, moving away from the traditional focus on manufacturing, selling, or service provision.
●    Destination-Based Tax
GST is charged based on where goods or services are used or consumed, not where they're produced. This destination-based approach aims to tax goods and services in the location where they're ultimately used.
●    Three-Part Tax Structure
The GST framework is divided into three main parts: CGST (Central GST) for revenues to the central government, SGST/UTGST (State GST or Union Territory GST) for revenues to state or union territory governments, and IGST (Integrated GST) for inter-state supplies, with tax rates decided jointly by the states and the central government.
●    Central Taxes Replaced
GST replaces a slew of central taxes, including various excise duties specifically on items like medicinal and toilet preparations, service tax, additional customs duties like CVD (Countervailing Duty) and SAD (Special Additional Duty), among others.
●    State Taxes Subsumed
It also consolidates several state taxes into one, including VAT (Value Added Tax), entry taxes, luxury taxes, entertainment taxes (except those collected by local bodies), and others, streamlining the tax process and reducing complexity.

●    Exemptions for Small Businesses
Small businesses with annual revenues below ₹20 lakh are exempt from GST, providing relief to small-scale operators. This exemption threshold is reduced to ₹10 lakh for businesses in special category states. Additionally, businesses with a turnover of up to ₹50 lakh can opt for a composition scheme, allowing them to pay GST at a fixed rate on their turnover, simplifying compliance and tax calculations.
●    Specific Use of Tax Credits
In the GST system, the input tax credit for CGST can only be used to offset CGST liabilities, and SGST/UTGST credits can only be used against SGST/UTGST liabilities. This segregation ensures that the central and state revenues are clearly demarcated. However, input tax credits from any category can be utilized to settle IGST dues, facilitating easier tax compliance for inter-state transactions.
By addressing the inefficiencies and complexities of the previous tax system, GST aims to create a more streamlined, efficient, and equitable tax structure in India, promoting economic growth and reducing tax evasion.
 

Benefits of GST Implementation

The introduction of GST in India has brought about several significant benefits:
●    Unified Market 
GST has unified India into a single market, making it more attractive for foreign investment by eliminating various state taxes.
●    Less Tax Burden
It has reduced the "tax on tax" effect, which means lower costs for businesses and consumers.
●    Standardized Regulations
With GST, tax laws, rates, and procedures are now consistent across all states, simplifying business operations nationwide.
●    Economic Growth
The new tax regime is expected to boost manufacturing and exports, creating more jobs and contributing to economic growth.
●    Competitive Pricing
Indian products can now compete more effectively in international markets due to the streamlined tax structure.
●    Improved Investment Climate
The overall environment for investments in India is likely to become more favorable thanks to GST.
●    Reduced Tax Evasion
The uniformity of SGST and IGST rates makes it harder for tax evasion, leading to more revenue.
●    Lower Business Costs
Companies are likely to see reduced costs, which can lead to increased consumption and higher production.
●    Simplified Tax System
GST offers a simpler taxation process with fewer exemptions, making compliance easier.
●    Digital and Simplified Procedures
Processes for registration, tax payments, returns, and refunds under GST are automated and simplified, accessible through the GSTN portal.
●    Transparent Input Tax Credit
The process for claiming input tax credits is more transparent and accurate, reducing the chances of errors and fraud.
●    Lower Product Prices
The efficient input tax credit system under GST ensures lower final product prices for consumers.
●    Support for Small Retailers
Small-scale retailers might be exempt from GST or benefit from lower rates, making essentials more affordable for consumers.
Overall, GST is designed to make doing business in India simpler and more transparent, benefiting the economy, businesses, and consumers alike.
 

Conclusion

GST in India, introduced on July 1, 2017, represents a pivotal moment in the brief history of GST in India. This significant tax reform streamlined the tax structure by replacing multiple indirect taxes with a single unified system, simplifying taxation for goods and services across the nation