GST in India
India’s comprehensive new Goods and Services Tax (GST) replaces most central and state taxes like excise duty, countervailing duty, service tax, VAT, Octroi, entry tax and luxury tax. Learn about GST and what it means for you, here. We’ll also look at how mid-market rate currency exchange from Wise can cut your costs when trading internationally.
What is GST?
GST was introduced in India under the Goods and Service Tax Act, and came into effect nationwide on 1st July 2017. This indirect tax is levied on the provision of goods and services, and combines many different legacy taxes at national and state level. The implementation of GST is intended to streamline and simplify the Indian tax code, making it easier to calculate and collect tax revenues.
GST is a consumption tax - which means it is ultimately collected from the consumer at the point of consumption. However, as a multi-stage tax it may be paid at different stages of the production process, and later refunded when the product reaches its final destination.
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What are the GST slab rates?
The GST rate you’ll pay depends on the product or service you’re buying.
Goods and services are split into categories and fitted under 4 main GST tax slabs. The tax slab your products fall under shows the percentage GST rate you need to pay. The main GST slabs are set at 5%, 12%, 18% and 28%, although there are also rates for gold (3%) and some precious and semi-precious stones (0.25%).
You’ll also need to know which of the 3 different types of GST apply to your products:
Central GST and State GST are levied when trading within a state
Integrated GST is charged when importing or moving products between states.
Take a look at the table below for the GST rates for different products.
GST tax rates for different products.
Some precious and semi-precious stones
Day to day basic goods like cooking oil, spices, frozen vegetables, tea Other items covered include coal, fertilizers and life-saving drugs
Examples include processed food, ghee, frozen meat, cell phones, computers
Some food products like ice cream, pasta and mineral water. Other items in this slab include washing machines, wristwatches and TV screens
Luxury items such as cigarettes, cars, high end motorcycles
How does GST work?
GST is a consumption tax which is paid by the end consumer in the supply chain. However, GST may have to be paid and reclaimed by other parties as the product passes along the supply chain.
Here’s an example of different GST calculations:
IGST on inter-state trades If a supplier in Delhi is selling a shipment to a partner in Kerala, IGST at 18% will apply. If the trade is worth a total of INR100,000, IGST will amount to INR18,000 which is collected on behalf of the central government.
GST on intra-state trades In this case, CGST and SGST may be applied. The total GST rate in this case is 12%, made up of CGST at 6% and SGST at 6%. On an INR100,000 deal, INR12,000 is collected - with INR6,000 going to the state, and INR6,000 to the central government
Calculate how much GST you need to pay with our handy GST calculator.
Import and Export GST
GST rate on exports
If you’re exporting goods from India, you’re unlikely to ultimately need to pay GST. However, you may need to prove the goods have been exported, or pay and reclaim the GST at a later stage.
GST rate on imports
IGST is calculated on the value of the goods imported + Basic Customs Duty + Social Welfare Surcharge (Education Cess). You may also need to pay GST Compensation Cess and GST Cess, depending on the specific goods being imported. Here are the current rates:
- Basic Customs duty - 10%
- Social Welfare Surcharge - 3%
- IGST - 18%
- Compensation Cess - 15%
Advantages of GST
GST simplifies consumption taxes in India. By removing layers of state and central taxes it’s easier to calculate and pay tax owed. GST should also bring down the cost of goods, as the cascading effect of legacy taxes has been removed. This means consumers no longer pay taxes on taxes applied further up the supply chain.
|Transaction||New system||Old system||Income distribution|
CGST + SGST
VAT + Central Excise/Service tax
Tax income is shared between the central and state governments
Central Sales Tax + Excise/Service Tax
Taxes are collected centrally and then distributed according to the destination of the goods
FAQ about GST in India
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