The full form of GST is Goods and Services Tax. Before learning more about GST, let’s understand how taxation works in India. The Government requires revenue to function, and taxes are a primary source of income for the Government. These collected taxes are used for public welfare and development.
Taxes in India are broadly classified into two types: Direct Tax and Indirect Tax.
What is Direct Tax?
Direct tax is imposed on the income of an individual, company, or entity. The tax liability depends on the income earned from various sources such as salary, rent, business profits, or interest. The more a person earns, the higher the tax they pay, meaning high-income individuals contribute more compared to lower-income groups.
The responsibility of paying direct tax lies solely on the taxpayer and cannot be transferred to another individual.
Examples of Direct Taxes in India:
- Income Tax
- Wealth Tax (Abolished later)
- Estate Tax
What is Indirect Tax?
Unlike direct tax, indirect tax is levied on goods and services instead of income. These taxes increase the cost of products and services, and the final burden is passed on to the end consumer, making it the same for both the rich and poor.
Previously, indirect taxes in India were levied by both Central and State Governments, making the system complex.
Examples of Indirect Taxes Before GST:
- Goods and Services Tax (GST)
- Customs Duty
- Excise Duty (on petrol, diesel, alcohol, etc.)
- Central Sales Tax
- Securities Transaction Tax (STT)
- Stamp Duty
- Entertainment Tax
Why Was GST Introduced?
GST was implemented to replace multiple indirect taxes imposed by the Central and State Governments, creating a more simplified and uniform tax system. It has replaced nearly 17 different state and central taxes, such as VAT, excise duty, service tax, and entertainment tax.
GST is applicable on both goods and services, ensuring a more transparent taxation process.
Example of GST Calculation
To understand GST better, let’s consider an example:
- Manufacturer produces a product costing ₹1,000 and adds 18% GST → Price becomes ₹1,180.
- Wholesaler buys it and sells it to a retailer for ₹1,500 + 18% GST → Price becomes ₹1,770.
- Retailer sells it to the customer for ₹2,000 + 18% GST → Final price becomes ₹2,360.
The Input Tax Credit (ITC) mechanism ensures that businesses can claim credit for the tax already paid at earlier stages, avoiding double taxation.
GST Meaning in Different Indian Languages
- Hindi: वस्तु एवं सेवा कर
- Gujarati: માલ અને સેવાઓ કર
- Tamil: பொருட்கள் மற்றும் சேவைகள் வரி
- Telugu: వస్తువులు మరియు సేవల పన్ను
- Marathi: वस्तू आणि सेवा कर
- Kannada: ಸರಕು ಮತ್ತು ಸೇವಾ ತೆರಿಗೆ
- Malayalam: വസ്തുക്കളും സേവന നികുതിയും
- Punjabi: ਗੁਡਸ ਐਂਡ ਸਰਵਿਸਿਜ਼ ਟੈਕਸ
- Urdu: سامان اور خدمات ٹیکس
- Bengali: পণ্য ও পরিষেবা কর
Conclusion
GST has simplified India’s taxation system by eliminating multiple indirect taxes, reducing tax evasion, and making compliance easier. It is a destination-based tax, ensuring uniformity across the country and benefiting both businesses and consumers.
