Key GST Terminologies You Need to Know

This article outlines essential GST terminologies that every business should understand. It offers insights into GST, its structure, and the benefits it brings—all explained in a clear, practical manner. At DisyTax, we specialize in providing expert GST services and personalized support to help your business thrive.

What is Goods and Services Tax (GST)?

GST is a single, unified indirect tax introduced to replace multiple central and state levies, such as VAT, Central Excise, and related duties. It applies uniformly to all businesses—large or small—making it one of the most significant tax reforms in our country. Under this system, both goods and services attract GST, and the nation follows a dual model where the central and state governments operate independently yet cohesively. DisyTax offers expert consultancy to help you navigate these changes seamlessly.

Key Features of GST:

• Unified Structure: A consistent tax framework across the nation.
• Dual GST System: For intra-state transactions, both CGST and SGST apply, while IGST is levied on inter-state sales.
• Tax Slabs: Structured into four primary slabs of 5%, 12%, 18%, and 28%, with a 0% rate for essential items like food grains and staples.
• GST Council: Chaired by the Finance Minister and supported by state finance heads to balance central and state interests.

Indirect Taxes Replaced by GST

GST was designed to simplify the tax structure by replacing several indirect taxes previously levied separately by the central and state governments. With this unified system, DisyTax helps businesses understand the benefits and streamline their tax processes.

Taxes Previously Collected by the Centre:

• National Excise Duty: Levied on manufactured goods.
• Customs Duties: Including additional customs charges and special duties.
• Service Tax: Applied to services across various sectors.

Taxes Previously Collected by the States:

• State VAT: Imposed on the sale of goods within a state.
• Local Sales Taxes: Including central sales taxes where applicable.
• Entertainment and Amusement Taxes: Collected by states, except those set by local authorities.
• Lotteries, Betting, and Gambling Taxes: Various charges on gaming activities.

This consolidated structure eliminates discrepancies and reduces the cascading effect of taxation—benefits we explain in detail at DisyTax.

The GST Framework Explained

Types of GST Transactions:

• Intra-State Transactions: Sales within the same state attract both CGST and SGST.
• Inter-State Transactions: Sales across state borders are subject to IGST. This also applies to imported goods, which may incur additional customs duty.
• Zero-Rating on Exports: Exports or supplies to Special Economic Zones (SEZs) are zero-rated, making them exempt from GST.

Benefits of GST

• Elimination of Cascading Tax: Stops the tax-on-tax phenomenon, a major benefit explained by our experts at DisyTax.
• Input Tax Credit: Businesses can claim credits on both goods and services, reducing the overall tax burden.
• Unified Compliance: A single system for registration and filing, simplifying tax management.
• Enhanced Transparency: Increases compliance and reduces tax evasion, fostering a fair competitive environment.

Who are the Taxable Persons under GST?

A taxable person is any business operating in India and required to register under the GST Act. DisyTax is here to guide you through the registration process and ensure you meet all compliance requirements.

GST Registration is Mandatory for:

• Businesses engaged in the supply of goods with an annual aggregate turnover exceeding Rs 40 lakhs (or Rs 20 lakhs for North Eastern and hilly states).
• Service providers with an annual aggregate turnover exceeding Rs 20 lakhs (or Rs 10 lakhs for North Eastern and hilly states).
• Casual taxable persons who occasionally undertake taxable supplies in the state.
• Non-resident taxable persons making taxable supplies in India.
• Persons liable to pay tax under the reverse charge mechanism.
• Agents of a supplier supplying goods or services on behalf of a registered taxable person.
• E-commerce operators, aggregators, or individuals supplying through e-commerce platforms.
• Input Service Distributors (ISDs) distributing credit to their branches.
• Any other persons as notified by the government under the GST Act.

What is a GSTIN?

The GST Identification Number (GSTIN) is a unique, state-wise, 15-digit number assigned to every taxpayer under GST. This number is essential for all GST-related transactions and plays a critical role in tax administration. At DisyTax, we break down its structure to help you understand its components:

• Digits 1-2: State Code – Represents the state in which the business is registered (e.g., 27 for Maharashtra).
• Digits 3-12: PAN of the Taxpayer – The 10-digit Permanent Account Number issued by the Income Tax Department.
• Digit 13: Entity Code – Differentiates multiple registrations under the same PAN within a state (usually starting with 1).
• Digit 14: Default Alphabet ‘Z’ – Typically the letter ‘Z’ is used as a filler.
• Digit 15: Checksum Character – An alphanumeric character used to verify the validity of the GSTIN.

This structured approach ensures each taxpayer is uniquely identifiable, making it easier for tax authorities to track liabilities and verify compliance. For personalized assistance with your GSTIN or any GST queries, DisyTax is your trusted partner.

What is Reverse Charge?

In certain cases, the responsibility to pay GST shifts from the supplier to the buyer—this is known as reverse charge. DisyTax advises businesses on managing reverse charge scenarios effectively to avoid compliance issues.

Example:

If a business purchases specified goods from an unregistered supplier, the buyer must pay GST directly, reversing the typical tax flow.

Mixed Supply vs. Composite Supply under GST

Composite Supply:

• Involves two or more goods/services supplied together, with one designated as the principal supply.
• Example: A packaged deal where products are bundled with ancillary services such as packaging, transportation, and insurance. In this case, the delivered goods are considered the principal supply.

Mixed Supply:

• Consists of multiple independent goods/services offered together for a single price.
• Example: A festive gift hamper containing various items, where the component with the highest GST rate (e.g., 28%) dictates the overall tax treatment.

What is Continuous Supply?

Continuous supply refers to goods or services that are provided and billed on a recurring basis, such as monthly or quarterly. This is especially relevant for subscription-based businesses. DisyTax can help you set up efficient recurring billing systems to ensure smooth operations.

Example:

Telecom and internet service providers typically offer continuous supply, with regular billing cycles over an extended period.

What is a Compliance Rating?

The GST compliance rating is a performance metric (ranging from 1 to 10) that reflects a taxpayer’s adherence to GST rules. This rating helps buyers and partners assess the reliability and transparency of a supplier. At DisyTax, we help our clients maintain high compliance standards and optimize their tax practices.

Key Benefits:

• Assesses overall tax compliance.
• Enables businesses to choose reliable suppliers with higher compliance scores.
• Future enhancements in the compliance system are expected to further boost transparency in business transactions.

Connect with DisyTax

At DisyTax, we are dedicated to offering professional GST services, including registration, compliance advisory, and personalized tax solutions. Our team of experts is ready to help your business navigate the complexities of GST and ensure you benefit from every available advantage.

Contact us today to schedule a consultation and discover how our tailored services can boost your business efficiency and compliance.