Genesis

The idea of a nationwide GST in India was first proposed by the Kelkar Task Force on
Indirect taxes in 2000. The objective was to replace the prevailing complex and
fragmented tax structure with a unified system that would simplify compliance,
reduce tax cascading, and promote economic integration. The Empowered
Committee of State Finance Ministers prepared a design and roadmap, releasing the
First Discussion Paper in 2009. The Constitution Amendment Bill was introduced in
2011 but faced challenges regarding compensation to States and other issues.
After years of deliberation and negotiations between the Central and State
Governments, the Constitution (122 nd Amendment) Bill, 2014, was introduced in the
Parliament. The Bill aimed to amend the Constitution to enable the implementation
of GST. The Constitution Amendment Bill was passed by the Lok Sabha in May, 2015.
The Bill with certain amendments was finally passed in the Rajya Sabha and
thereafter by the Lok Sabha in August, 2016. Further, the Bill has been ratified by
the required number of States and has since received the assent of the President on
8th September, 2016 and has been enacted as the 101st Constitution Amendment
Act, 2016. The GST Council was notified w.e.f. 15 th September, 2016. For assisting
the GST Council, the office of the GST Council Secretariat was also established.
The GST Council, consisting of the Union Finance Minister and representatives from
all States and Union Territories, was established to make decisions on various
aspects of GST, including tax rates, exemptions, and administrative procedures. It
played a crucial role in shaping the GST framework in India. On 1 st July, 2017, GST
laws were implemented, replacing a complex web of Central and State taxes. Under
the Indian GST, goods and services are categorized into different tax slabs, including
5%, 12%, 18%, and 28%. Some essential commodities are exempted from GST, Gold
and job work for diamond attract low rate of taxation. Compensation cess is being
levied on demerit goods and ceratin luxury items.
To prepare for the implementation of GST, extensive efforts were made to build the
necessary technological infrastructure and train tax officials and businesses. GST
Network (GSTN), a not-for-profit company, was created to provide the IT backbone
for the GST system, including taxpayer registration, return filing, and tax payments.
Since its implementation, the Indian GST has undergone various amendments and
refinements based on feedback from businesses and the evolving economic
scenario. While the GST implementation initially posed challenges for businesses in
terms of understanding the new compliance requirements and adapting to the
changes, it has gradually settled into the Indian tax landscape.
It can be said that the history of GST in India showcases a monumental shift in the
country's tax structure, aiming to create a more unified, efficient, and transparent
indirect tax regime for the benefit of businesses and the economy as a whole.

GST and Centre-State Financial Relations

The implementation of GST has brought about a fundamental shift in the financial
relations between the Central Government and the State Governments in India. GST
is a unified tax system that replaced multiple indirect taxes levied by both the
Central and State Governments. Under GST, both the Central and State
Governments share the authority to levy and collect taxes on goods and services.
This has led to greater harmonization and uniformity in the tax structure across
States, promoting economic integration.
The GST system follows a dual structure, comprising Central GST (CGST) and State
GST (SGST), levied concurrently by the Central and State governments, respectively.
Additionally, an Integrated GST (IGST) is levied on interstate supplies and imports,
 which is collected by the Central Government but apportioned to the destination
state.
In terms of revenue distribution, the GST Council plays a crucial role. It is a joint
forum consisting of the Union Finance Minister and representatives from all States
and Union Territories. The Council makes decisions on various aspects of GST,
including tax rates, exemptions, and revenue sharing between the Central and State
Governments. Except for one decision, all decisions of the Council were taken by
consensus.
To ensure a smooth transition to the GST regime and address any revenue losses
incurred by the States, a compensation mechanism was established. The Central
Government was committed to providing compensation to the States for any
revenue shortfall during the initial years of GST implementation. This compensation
was meant to bridge the gap between the expected revenue growth and the actual
revenue collected by the States.
It has fostered greater coordination, reduced tax barriers, and streamlined the tax
system, leading to improved efficiency and competitiveness in the Indian economy.
The successful implementation of GST relies on a cooperative and consensus-based
approach between the Central and State Governments. It has transformed financial
relations, ensuring greater coordination and efficiency in the Indian tax system.\

Salient Features of GST

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of
goods and services in India. Here are some of the salient features of GST:
a. One Nation, One Tax: GST replaced multiple indirect taxes levied by the Central
and State Governments, such as excise duty, service tax, value-added tax (VAT), and
others. It brought uniformity in the tax structure across India, eliminating the
cascading effect of taxes.
b. Dual Structure: GST operates under a dual structure, comprising the Central GST
(CGST) levied by the Central Government and the State GST (SGST) levied by the
State Governments. In the case of Inter-state transactions, Integrated GST (IGST) is
applicable, which is collected by the Central Government and apportioned to the
respective State. Import of goods or services would be treated as inter-state supplies
and would be subject to IGST in addition to the applicable customs duties.
c. Destination-based Tax: GST is a destination-based tax, levied at each stage of the
supply chain, from the manufacturer to the consumer. It is applied to the value
addition at each stage, allowing for the seamless flow of credits and reducing the tax
burden on the end consumer.
d. Input Tax Credit (ITC): GST allows for the utilization of input tax credit, wherein
businesses can claim credit for the tax paid on inputs used in the production or
provision of goods and services. This helps avoid double taxation and reduces the
overall tax liability.
e. GST would apply on all goods and services except Alcohol for human consumption.
GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas)
would by applicable from a date to be recommended by the GSTC. Tobacco and
tobacco products would be subject to GST. In addition, the Centre would have the
power to levy Central Excise duty on these products. Exports are zero-rated supplies.
Thus, goods or services that are exported would not suffer input taxes or taxes on
finished products.
f. Threshold Exemption: Small businesses with a turnover below a specified
threshold (currently, the threshold is ₹ 20 lakhs for supplier of services/both goods &
services and ₹ 40 lakhs for supplier of goods (Intra–Sate) in India) are exempt from
GST. For some special category states, the threshold varies between ₹ 10-20 lakhs
for suppliers of goods and/or services except for Jammu & Kashmir, Himachal
 Pradesh and Assam where the threshold is ₹ 20 lakhs for supplier of services/both
goods & services and ₹ 40 lakhs for supplier of goods (Intra–Sate). This threshold
helps in reducing the compliance burden on small-scale businesses.
g. Composition Scheme: The composition scheme is available for small taxpayers
with a turnover below a prescribed limit (currently ₹ 1.5 crores and ₹ 75 lakhs for
special category state). Under this scheme, businesses are required to pay a fixed
percentage of their turnover as GST and have simplified compliance requirements.
h. Online Compliance: GST introduced an online portal, the Goods and Services Tax
Network (GSTN), for registration, filing of returns, payment of taxes, and other
compliance-related activities. It streamlined the process and made it easier for
taxpayers to fulfill their obligations.
i. Anti-Profiteering Measures: To ensure that the benefits of GST are passed on to
the consumers, the government established the National Anti-Profiteering Authority
(NAA). The NAA monitored and ensured that businesses do not engage in unfair
pricing practices and profiteering due to the implementation of GST. All GST anti-
profiteering complaints are now dealt by the Competition Commission of India (CCI)
from 1st December, 2022.
j. Increased Compliance and Transparency: GST aims to enhance tax compliance
by bringing more businesses into the formal economy. The transparent nature of the
tax system, with the digitization of processes and electronic records, helps in curbing
tax evasion and increasing transparency.
k. Sector-specific Exemptions: Certain sectors, such as healthcare, education, and
basic necessities like food grains, are given either exempted from GST or have
reduced tax rates to ensure affordability and accessibility.
l. Accounts would be settled periodically between the Centre and the States to ensure
that the credit of SGST used for payment of IGST is transferred by the Exporting
State to the Centre. Similarly, IGST used for payment of SGST would be transferred
by the Centre to the Importing State. Further, the SGST portion of IGST collected on
B2C supplies would also be transferred by the Centre to the destination State. The
transfer of funds would be carried out on the basis of information contained in the
returns filed by the taxpayers.
It's important to note that the GST framework is subject to changes and
amendments are passed based on the evolving needs of the economy and the
Government's policy decisions.