Misconceptions about GST ?

GST, or Goods and Services Tax, is a major tax reform that was implemented in India in 2017. It replaced many indirect taxes that were levied by the central and state governments on the supply of goods and services. GST is based on the concept of “one nation, one tax, one market”, which aims to simplify the tax system, reduce tax evasion, and boost economic growth.

However, GST is also a complex and evolving system that has generated a lot of confusion and controversy among the public. There are many myths and misconceptions about GST that need to be clarified and debunked. In this post, we will discuss some of the common misconceptions about GST and explain why they are wrong.

Misconception 1: GST is a single tax that replaces all other taxes.

Many people think that GST is a single tax that replaces all other taxes on goods and services. This is not true, as GST is not applicable to some goods and services that are still subject to different taxes and rates depending on the state where they are consumed. For example, petroleum products, alcohol, and electricity are outside the scope of GST and are taxed by the state governments. GST is also not applicable to the levies charged by local bodies, such as municipal taxes or entertainment taxes.

GST is actually a dual tax system that consists of two components: Central GST (CGST) and State GST (SGST). CGST is levied by the central government and SGST is levied by the state government on the same transaction. For inter-state transactions, Integrated GST (IGST) is levied by the central government instead of CGST and SGST. IGST is then distributed between the central and state governments according to a formula.

Misconception 2: GST is inflationary and will increase the prices of goods and services.

Another common misconception is that GST is inflationary and will increase the prices of goods and services. This is also false, as GST eliminates the cascading effect of tax, which means that there is no tax on tax. This reduces the cost of production and increases the profit margin for the businesses. This also benefits the consumers as they pay lower prices for goods and services.

GST also has different rates for different categories of goods and services, ranging from 5% to 28%. Some essential items such as food grains, milk, education, and healthcare are exempted from GST or taxed at lower rates. These items constitute a large part of the consumption basket of the common people and hence have a low impact on inflation.

Misconception 3: GST is complicated and burdensome for small businesses.

Another myth is that GST is complicated and burdensome for small businesses. This is another myth, as GST simplifies the tax system and reduces the compliance burden for the taxpayers. Small businesses can do manual billing under GST and do not need internet connectivity all the time. They only need to file one return and pay one tax instead of multiple returns and taxes under the previous system. They can also claim input tax credit and refunds under GST.

GST also provides some exemptions and concessions for small businesses based on their turnover and nature of business. For example, businesses with an annual turnover of less than Rs 20 lakh are exempted from registering under GST. Businesses with an annual turnover of less than Rs 75 lakh can opt for the composition scheme, which allows them to pay a flat rate of tax (1% to 5%) without claiming input tax credit or filing detailed returns. These provisions help small businesses to save time, money, and hassle under GST.

Misconception 4: GST is a taxable benefit and will affect the income tax liability of the taxpayers.

Some people also think that GST is a taxable benefit and will affect the income tax liability of the taxpayers. This is incorrect, as GST is an indirect tax that is paid by the consumers at the point of sale. It does not affect the income tax liability of the taxpayers, as it is not a part of their income or expenditure. GST is also not taxable in the hands of the taxpayers, as they do not receive it as a benefit or a subsidy from the government.

GST is actually a consumption-based tax that depends on how much goods and services one consumes. It does not depend on how much one earns or saves. Therefore, it does not affect one’s income tax bracket or slab rate. In fact, GST can help in reducing one’s income tax liability by allowing one to claim deductions for certain expenses that are subject to GST, such as rent, travel, medical bills, etc.

Misconception 5: GST is the same for everyone and does not take into account the diversity and needs of different states and sectors.

The last misconception is that GST is the same for everyone and does not take into account the diversity and needs of different states and sectors. This is also untrue, as GST is a federal system that involves both the central and state governments in its administration and decision-making. The GST Council, which consists of representatives from both levels of government, meets regularly to review and revise the GST policies and rates. GST also allows for some flexibility and autonomy for the states to levy additional taxes or cesses on certain goods or services to meet their specific needs or priorities.

For example, some states have imposed a cow cess or a calamity cess on top of GST to fund their welfare or disaster relief programs. These cesses are collected by the state governments and are not shared with the central government. Similarly, some sectors such as textiles, handicrafts, agriculture, etc. have been given special treatment or exemptions under GST to protect their interests and livelihoods.

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