The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. The introduction of GST was enabled by the Constitution (101st Amendment) Act, 2016, which amended the Constitution to allow both the central and state governments to levy and collect this tax.

Key Features of the 101st Constitutional Amendment Act:

  • It grants concurrent powers to the central and state governments to levy GST.
  • It establishes a GST Council consisting of the Union Finance Minister, Union Minister of State for Revenue, and state Finance Ministers to make recommendations on various aspects of GST.
  • It amends several entries in the Union, State and Concurrent lists to facilitate the GST regime.
  • It empowers the center to levy an Integrated GST (IGST) on inter-state supply of goods and services and imports.
  • It allows the center to levy an additional 1% tax on the inter-state supply of goods for a period of two years or more.
  • It provides for compensation to states for any loss of revenue from the introduction of GST for a period of five years.

Goods and Services Tax Bills, 2017:The Constitution (101st Amendment) Act, 2016 paved the way for the introduction of four key GST Bills in the Parliament in 2017:

  1. The Central Goods and Services Tax (CGST) Bill, 2017
  2. The Integrated Goods and Services Tax (IGST) Bill, 2017
  3. The Union Territory Goods and Services Tax (UTGST) Bill, 2017
  4. The Goods and Services Tax (Compensation to States) Bill, 2017

The Parliament passed these Bills and came into effect on July 1, 2017, marking the historic implementation of GST in India.The introduction of GST aimed to create a harmonized system of taxation by subsuming various central and state indirect taxes. It sought to broaden the tax base, eliminate cascading of taxes, increase compliance, and reduce economic distortions caused by inter-state variations in taxes.The 101st Constitutional Amendment and the GST Bills are significant milestones in India’s tax reform journey. For UPSC aspirants, a thorough understanding of this topic is crucial as it has implications for India’s fiscal federalism, tax administration, and economic development.

GST Council and its Functions

  • The GST Council is the apex decision-making body that decides on all GST-related matters.
  • It is chaired by the Union Finance Minister and has state finance ministers as members.
  • The GST Council makes recommendations on tax rates, exemptions, threshold limits, GST laws, and other aspects of GST implementation.
  • Decisions in the GST Council are made by a 3/4th majority of the weighted votes of members present and voting.

GST Compensation to States

  • The 101st Constitutional Amendment guaranteed compensation to states for any revenue loss arising from the implementation of GST for a period of 5 years.
  • This was done to ensure that states do not suffer financially due to the transition to GST.
  • The compensation is funded through a GST Compensation Cess levied on certain luxury and sin goods.

Challenges in GST Implementation

  • Initial technical glitches in the GST Network (GSTN) portal leading to compliance issues.
  • Lack of clarity on certain provisions leading to litigations between center-state and inter-state.
  • Frequent changes in GST rates and rules causing uncertainty for businesses.
  • Difficulties faced by small businesses in complying with GST requirements.
  • Inclusion of petroleum products, real estate, and electricity outside the GST ambit.

Significance of GST for UPSC

  • GST is a major tax reform that has significantly impacted India’s fiscal federalism and economic integration.
  • Understanding the objectives, features, and challenges of GST is crucial for answering questions on Indian economy, public finance, and center-state relations.
  • Questions on GST may be asked in both the UPSC Prelims and Mains examinations.
  • Candidates should be well-versed with the constitutional amendments, GST Council, tax slabs, input tax credit, and other key aspects of the GST regime.

What are the differences between Central GST, State GST, and Integrated GST?

CGST vs SGST vs IGST

CGST (Central Goods and Services Tax):

  • Levied by the central government on intra-state supply of goods and services
  • Collected by the central government

SGST (State Goods and Services Tax):

  • Levied by the state governments on intra-state supply of goods and services
  • Collected by the respective state governments

IGST (Integrated Goods and Services Tax):

  • Levied by the central government on inter-state supply of goods and services, as well as on imports and exports
  • Collected by the central government, but the revenue is shared between the center and the destination state

Key Differences:

  • Applicability: CGST and SGST apply to intra-state transactions, while IGST applies to inter-state transactions, imports, and exports.
  • Collecting Authority: CGST is collected by the central government, the state governments collect SGST, and the central government collects IGST.
  • Revenue Sharing: The central and state governments retain CGST and SGST revenues. IGST revenue is shared between the centre and the destination state.
  • Input Tax Credit: CGST credit can be used to offset CGST or IGST liability, SGST credit can be used to offset SGST or IGST liability, but IGST credit can be used to offset CGST, SGST or IGST liability.

In summary, the three types of GST have been designed to ensure a seamless flow of input tax credit across goods and services, both within and across state borders. This helps avoid the cascading effect of taxes.

Amendments of the Constitution of India