Understanding Goods and Services Tax (GST) in India

The Goods and Services Tax (GST) is a landmark indirect tax reform in India, implemented on July 1, 2017. It replaced a complex web of multiple central and state indirect taxes, aiming to create a unified and simplified tax system across the country.

What is GST?

GST is a destination-based consumption tax levied on the supply of goods and services. This means the tax is ultimately borne by the final consumer, and it’s collected at the point of consumption, not at the point of origin or production.

Key characteristics of GST:

• Single Tax: It merged various taxes like Excise Duty, Service Tax, VAT, CST, etc., into one.
• Multi-stage: It’s levied at every stage of the production and distribution chain, from manufacturing to the final sale.
• Value Addition: Tax is charged only on the “value addition” at each stage, preventing the cascading effect of taxes.
• Destination-based: The tax accrues to the state where the goods or services are finally consumed.

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Different Types of GST in India

The Indian GST system operates on a dual model, meaning both the Central and State Governments levy and collect taxes. Depending on the nature of the transaction (intra-state or inter-state), different types of GST apply:

1. CGST (Central Goods and Services Tax):
   • Levied by the Central Government on intra-state (within the same state/UT) supplies of goods and services.
   • For example, if goods are sold from Mumbai to Pune (both in Maharashtra), CGST will be charged.
2. SGST (State Goods and Services Tax):
   • Levied by the State Government on intra-state (within the same state/UT) supplies of goods and services.
   • It replaces state-level taxes like VAT, Entry Tax, Luxury Tax, etc.
   • In an intra-state transaction, CGST and SGST are levied concurrently and are typically half of the total applicable GST rate. For instance, if the total GST rate is 18%, it will be 9% CGST and 9% SGST.
3. IGST (Integrated Goods and Services Tax):
   • Levied by the Central Government on inter-state (between two different states/UTs) supplies of goods and services, as well as on imports and exports.
   • IGST is the sum of CGST and SGST (i.e., the full GST rate).
   • The revenue collected from IGST is later apportioned between the Central and State Governments based on the recommendations of the GST Council.
   • For example, if goods are sold from Mumbai (Maharashtra) to Bangalore (Karnataka), IGST will be charged.
4. UTGST (Union Territory Goods and Services Tax):
   • Similar to SGST, but it applies to the supply of goods and services within Union Territories without a legislature (e.g., Andaman & Nicobar Islands, Chandigarh, Daman & Diu, Dadra & Nagar Haveli, Lakshadweep).
   • In these UTs, CGST and UTGST are levied concurrently.

Different GST Rates (Slabs)

The GST Council determines the rates for various goods and services. India primarily has five main GST slabs:

• 0% (Nil Rated): Essential items like fresh vegetables, fruits, milk, bread, salt, specific educational services, and health services.
• 5%: Commonly applied to basic necessities like packaged food items, specified life-saving drugs, domestic LPG, coal, etc.
• 12%: Includes processed foods, butter, ghee, mobile phones, computers, specified apparel, etc.
• 18%: This is the most common slab, covering a wide range of goods and services such as hair oil, soaps, toothpaste, capital goods, financial services, telecom services, restaurant services (non-AC), etc.
• 28%: Reserved for luxury items, demerit goods (sin goods), and certain consumer durables like cars, motorcycles, aerated drinks, cement, ACs, etc. A Compensation Cess is also levied on some items in this slab (e.g., luxury cars, tobacco products) to compensate states for revenue loss due to GST implementation.

Note: There are also special rates for certain items like precious stones (0.25%) and gold (3%). Rates are subject to revision by the GST Council.

How is GST Calculated?

GST calculation depends on whether the amount is GST-exclusive or GST-inclusive.

1. GST Exclusive (GST added to the base amount):

• Formula:
  • GST Amount = (Original Price × GST Rate) / 100
  • Total Price = Original Price + GST Amount
• Example: A product costs ₹1,000 (exclusive of GST), and the GST rate is 18%.
  • GST Amount = (1,000 × 18) / 100 = ₹180
  • Total Price = 1,000 + 180 = ₹1,180
  • If Intra-state: CGST = ₹90, SGST = ₹90
  • If Inter-state: IGST = ₹180

2. GST Inclusive (GST already included in the total amount):

• Formula:
  • GST Amount = Original Price – (Original Price × (100 / (100 + GST Rate)))
  • Base Price (without GST) = Original Price / (1 + (GST Rate / 100))
• Example: A product’s total price is ₹1,180 (inclusive of GST), and the GST rate is 18%.
  • Base Price = 1,180 / (1 + (18 / 100)) = 1,180 / 1.18 = ₹1,000
  • GST Amount = 1,180 - 1,000 = ₹180
  • If Intra-state: CGST = ₹90, SGST = ₹90
  • If Inter-state: IGST = ₹180

Why is GST Mandatory? (Importance of GST Registration)

GST registration is mandatory for most businesses that exceed certain turnover thresholds, or for specific types of businesses regardless of turnover. It’s crucial for several reasons:

• Legal Compliance: Operating a business without mandatory GST registration is illegal and can lead to heavy penalties and legal action.
• Input Tax Credit (ITC): Only GST-registered businesses can claim Input Tax Credit on taxes paid on their purchases (inputs). This prevents the “cascading effect” (tax on tax) and significantly reduces the overall tax burden for businesses.
• Wider Market Access: Many businesses, especially B2B (Business-to-Business), prefer to deal only with GST-registered suppliers as it enables them to claim ITC. Non-registered businesses may lose out on significant opportunities.
• Enhanced Credibility: Having a GSTIN (GST Identification Number) adds to a business’s credibility and professionalism.
• Online Processes: GST processes like registration, return filing, and payment are largely online, making compliance easier for businesses.
• Regulation of Unorganized Sector: GST has brought many businesses from the informal sector into the formal economy, improving transparency and compliance.

Who needs to register for GST? (General thresholds and specific cases)

• Goods Suppliers: Annual turnover exceeding ₹40 Lakhs (₹20 Lakhs for special category states).
• Service Providers: Annual turnover exceeding ₹20 Lakhs (₹10 Lakhs for special category states).
• Mandatory for certain cases, regardless of turnover:
  • Inter-state suppliers of goods.
  • Casual taxable persons.
  • Non-resident taxable persons.
  • E-commerce operators and those supplying goods through e-commerce platforms.
  • Input Service Distributors (ISD).
  • Persons liable to pay tax under Reverse Charge Mechanism (RCM).

Benefits of GST

GST has brought about significant benefits for various stakeholders in the Indian economy:

For Businesses and Industry:

• Elimination of Cascading Effect: By allowing Input Tax Credit across the entire value chain, it removed the “tax on tax” effect, leading to a reduction in the overall cost of goods and services.
• Simplified Tax Structure: Replaced multiple central and state taxes with a single tax, reducing complexity and compliance burden.
• Common National Market: Fostered a “One Nation, One Tax” regime, facilitating seamless movement of goods and services across states, leading to reduced logistics costs and improved supply chain efficiency.
• Reduced Compliance Cost: Fewer returns to file compared to the previous multiple tax regimes.
• Increased Transparency: Digitalization of processes and matching of invoices promotes transparency and reduces tax evasion.
• Boost to ‘Make in India’: Makes Indian goods and services more competitive in domestic and international markets.

For Government:

• Increased Tax Base and Revenue: Improved compliance and a wider tax base lead to higher tax collections.
• Simpler Administration: Streamlined tax administration and easier monitoring.
• Improved ‘Ease of Doing Business’: Contributes to India’s improved ranking in global business indices.

For Consumers:

• Reduced Prices (in the long run): Elimination of cascading effect often translates to lower prices for many goods and services.
• Transparency: Consumers are more aware of the tax component they are paying.

Input Tax Credit (ITC): The Backbone of GST

What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is perhaps the most significant feature of GST, designed to eliminate the “cascading effect” of taxes (tax on tax). In simple terms, ITC allows a GST-registered business to reduce the tax payable on its output by the tax already paid on its inputs (purchases of goods or services).

How ITC Works:

Imagine a manufacturer buys raw materials for ₹100 and pays 18% GST (₹18) on it. When he sells the finished product for ₹200 and collects 18% GST (₹36) from his customer, he doesn’t have to pay the full ₹36 to the government. Instead, he can “credit” the ₹18 he already paid on raw materials against his output tax liability.

• Output GST (on sales): ₹36
• Input GST (on purchases): ₹18
• Net GST Payable: ₹36 – ₹18 = ₹18

This means he only pays tax on the value he added (₹100 in this case), not on the entire sale value.

Prerequisites for Availing ITC:

To claim ITC, a registered person must meet certain conditions:

1. Possession of Tax Invoice: You must have a valid tax invoice or debit note issued by a GST-registered supplier.
2. Receipt of Goods/Services: You must have actually received the goods or services.
3. Tax Paid by Supplier: The supplier must have paid the tax collected from you to the government. This is validated through the matching of invoices on the GST portal (GSTR-2A/2B).
4. Filing of Returns: You must have filed your GST returns (e.g., GSTR-3B).
5. Payment to Supplier: You must pay the supplier the value of the goods or services along with the tax within 180 days from the date of the invoice. Failing this, the ITC availed would need to be reversed.

Benefits of ITC:

• Eliminates Cascading Effect: Prevents double taxation, making goods and services cheaper.
• Reduced Tax Burden: Businesses pay tax only on the value addition, improving profitability.
• Improved Cash Flow: Less tax outflow directly translates to better working capital.
• Formalization of Economy: Encourages businesses to register under GST to avail ITC, leading to a more compliant ecosystem.

GST Refund Process: Getting Your Due Back

When can you claim a GST Refund?

Businesses might find themselves in a position where the GST paid on their inputs (purchases) is more than the GST collected on their outputs (sales). This scenario can lead to a GST refund. Common situations for claiming a refund include:

1. Exports of Goods or Services: Exports are typically “zero-rated” under GST, meaning no tax is levied on outward supply, but ITC on inputs is available.
2. Supplies to SEZ Units: Supplies made to Special Economic Zones (SEZ) are also zero-rated.
3. Inverted Duty Structure: Where the GST rate on inputs is higher than the GST rate on outputs.
4. Excess Payment of Tax: Due to error or oversight.
5. Refund of Unutilized ITC: Due to reasons like capital goods acquisition or certain exempt supplies.
6. Deemed Exports.
7. Refund for International Tourists (Tourist Refund Scheme).

The GST Refund Process (Simplified):

1. File Relevant Returns: Ensure all your regular GST returns (GSTR-1, GSTR-3B) for the relevant period are filed.
2. File Refund Application (FORM GST RFD-01): The refund application is filed electronically on the GST common portal (www.gst.gov.in). This form requires details of the refund amount and the reason for the claim.
3. Generate ARN: Upon successful submission, an Application Reference Number (ARN) is generated.
4. Acknowledgement: The system generates an acknowledgement in FORM GST RFD-02.
5. Scrutiny by Tax Officer: The refund application is then processed by the tax authorities within a specified timeframe (usually 15-30 days for scrutiny). They may request additional documents or clarifications in FORM GST RFD-08.
6. Reply to Clarification: You need to respond to any clarification requests in FORM GST RFD-09.
7. Provisional Refund (90%): For certain categories like exports or inverted duty structure, a provisional refund of 90% of the claim may be disbursed within 7 days of acknowledgement, subject to certain conditions.
8. Final Refund Order: After due verification, the tax officer issues a final refund order in FORM GST RFD-06.
9. Disbursement: The refund amount is credited directly to your bank account.

Time Limit for Refund: The refund application must generally be filed within two years from the relevant date (e.g., date of export, due date of annual return).

E-way Bill: Managing Goods Movement

What is an E-way Bill?

An E-way Bill (Electronic Way Bill) is a unique document required for the movement of goods under the GST regime. It is generated electronically on the GST portal before the movement of goods commences. Its purpose is to ensure that goods are being transported legally and that GST has been accounted for.

When is an E-way Bill Mandatory?

An E-way Bill is mandatory for the inter-state and intra-state movement of goods where the consignment value exceeds ₹50,000.

• Intra-state Threshold: For intra-state movements, states have the discretion to set their own thresholds, but ₹50,000 is the general Central Government threshold. Some states have higher or lower limits or specific rules.
• Below Threshold: For consignments below ₹50,000, generating an E-way Bill is optional but often recommended for smooth transit.

Who Should Generate an E-way Bill?

• Registered Person (Consignor/Consignee): If a registered person causes the movement of goods.
• Transporter: If the registered person has not generated the E-way Bill.
• Unregistered Person: If an unregistered person is supplying goods to a registered person, the recipient (registered person) is responsible for generating the E-way Bill.

Key Information Required for E-way Bill Generation:

An E-way Bill consists of two parts:

• Part A: Details of the consignment, including:
  • GSTIN of supplier and recipient
  • Place of dispatch and delivery PIN codes
  • Invoice number and date
  • Value of goods
  • HSN Code of the goods
  • Reason for transportation
• Part B: Details of the conveyance (vehicle number)

Validity of E-way Bill:

The validity of an E-way Bill depends on the distance the goods are to be transported:

• Up to 200 km: 1 day
• For every additional 200 km or part thereof: 1 additional day

The validity period is counted from the time of generation of the E-way Bill and expires at midnight on the last day.

Importance of E-way Bill:

• Ensures Compliance: Helps tax authorities track the movement of goods and prevent tax evasion.
• Facilitates Movement: Standardized documentation speeds up logistics and reduces transit time at checkposts.
• Simplifies Audits: Provides a digital trail for audits and verifications.

Reverse Charge Mechanism (RCM) in GST: Shifting the Tax Burden

What is Reverse Charge Mechanism (RCM)?

Normally, under GST, the supplier of goods or services is liable to pay the tax to the government (this is called “Forward Charge”). However, under the Reverse Charge Mechanism (RCM), the recipient of the goods or services becomes liable to pay the GST, instead of the supplier.

Why RCM?

RCM is implemented for specific categories of supplies to:

• Bring certain unregistered suppliers into the tax net indirectly.
• Ensure tax collection in cases where the supplier might be difficult to track (e.g., in specific services like legal services).
• Regulate certain sectors.

Key Scenarios where RCM Applies:

RCM applies in two main scenarios:

1. Specified Goods and Services (Section 9(3) of CGST Act): The government, on the recommendation of the GST Council, notifies specific categories of goods or services where RCM applies, irrespective of whether the supplier is registered or unregistered. Examples include:
   • Legal services provided by an advocate/firm to a business entity.
   • Goods Transport Agency (GTA) services to specified recipients.
   • Services provided by a director of a company to the company.
   • Services provided by an arbitral tribunal.
   • Supply of raw cotton by an agriculturist.
   • Supply of used vehicles, seized and unutilized goods, old and used goods by government entities.
   • Note: The list of notified goods and services under RCM can change and should be verified periodically.
2. Supplies from Unregistered to Registered Persons (Section 9(4) of CGST Act): This provision initially mandated RCM on all supplies from unregistered persons to registered persons above a certain limit. However, this has largely been deferred/made applicable only to specific real estate projects currently. Always check the latest notifications.

Impact of RCM:

• Recipient’s Responsibility: The recipient (a registered person) is responsible for:
  • Calculating and paying the GST.
  • Issuing a tax invoice if the supplier is unregistered.
  • Filing the GST return with RCM details.
• Compulsory Registration: A person who is required to pay tax under RCM must compulsorily register under GST, even if their turnover is below the threshold limit.
• ITC Availability: The recipient paying tax under RCM can generally avail Input Tax Credit for the tax paid, subject to normal ITC rules.

GST for E-commerce Sellers: Special Provisions

E-commerce has boomed in India, and GST has specific provisions to regulate this sector and ensure tax compliance.

Mandatory GST Registration:

One of the most significant provisions is that every person supplying goods or services through an E-commerce Operator (ECO) is mandatorily required to register under GST, regardless of their annual turnover. There is no threshold limit benefit for these sellers. This rule aims to track all transactions happening on online platforms.

Key Compliances for E-commerce Sellers:

1. Compulsory Registration: As mentioned, GST registration is mandatory.
2. HSN/SAC Codes: Proper classification of goods (HSN) or services (SAC) is crucial for correct tax application.
3. Invoice Issuance: Sellers need to issue proper GST-compliant invoices for their supplies.
4. GST Returns: E-commerce sellers must file regular GST returns like GSTR-1 (sales details) and GSTR-3B (summary return).
5. Tax Collection at Source (TCS) by ECOs:
   • E-commerce Operators (like Amazon, Flipkart, Myntra) are required to collect TCS @ 1% (0.5% CGST + 0.5% SGST/UTGST or 1% IGST) on the net value of taxable supplies made through their platform.
   • This TCS is deposited with the government by the ECO.
   • The e-commerce seller can claim credit for this TCS when filing their GST returns.
   • ECOs also file a separate return (GSTR-8) detailing the TCS collected.

Impact on E-commerce Sellers:

• Increased Compliance Burden: The mandatory registration and TCS provisions mean more compliance steps than traditional offline sellers might face.
• Transparency: The system ensures greater transparency in e-commerce transactions.
• Level Playing Field: Aims to create a level playing field between online and offline businesses by ensuring tax compliance.

Penalty for Not Filing GST Returns: Consequences of Non-Compliance

Filing GST returns on time is a critical compliance requirement. Failure to do so can lead to significant penalties, interest, and other adverse consequences.

Types of Penalties:

1. Late Fees:
   • For GSTR-1 (Sales Details) and GSTR-3B (Summary Return):
     • ₹50 per day (₹25 CGST + ₹25 SGST) for each day of delay.
     • Reduced to ₹20 per day (₹10 CGST + ₹10 SGST) if there are no outward supplies (NIL GSTR-1) and no tax liability (NIL GSTR-3B) for the period.
     • There are maximum caps on late fees based on turnover, which are revised by the GST Council.
   • For GSTR-9 (Annual Return):
     • ₹200 per day (₹100 CGST + ₹100 SGST).
     • Subject to a maximum of 0.25% of the turnover in the state or union territory.
     • The maximum late fee has also been rationalized for different turnover slabs.
2. Interest:
   • If there is a tax liability, interest @ 18% per annum is charged on the unpaid tax amount for the period of delay. This is calculated from the day following the due date of the return until the date of actual payment.

Other Consequences of Non-Filing:

• Blocked ITC: You cannot file your current GST returns if your previous returns are not filed. This means you won’t be able to claim Input Tax Credit, which can significantly increase your tax outflow.
• Blocked GSTR-1: You won’t be able to file GSTR-1 for the subsequent tax period if GSTR-3B for the previous period is not filed. This will impact your recipients’ ability to claim ITC, potentially affecting your business relationships.
• No Refund: You cannot claim any GST refund if your returns are not up-to-date.
• Legal Action: Continued non-compliance can lead to further penalties, cancellation of GST registration, and even prosecution under the GST Act.
• Lower Compliance Rating: Non-filing affects your compliance rating, which could be visible to other businesses and impact your credibility.

It’s always advisable to file GST returns by the due dates to avoid penalties and ensure smooth business operations.

How to Get GST Number? Who Needs GST Registration?

What is a GST Number (GSTIN)?

GSTIN stands for Goods and Services Tax Identification Number. It’s a 15-digit unique identification number issued to every registered taxpayer under GST. The first two digits represent the state code, followed by the 10-digit PAN of the taxpayer, then the entity code, and a checksum digit.

Who Needs GST Registration? (Mandatory Thresholds)

GST registration is generally mandatory for businesses exceeding certain annual aggregate turnover thresholds. These thresholds vary based on the nature of business (goods vs. services) and the state/union territory.

General Thresholds (as of latest updates):

• For Suppliers of Goods: Annual aggregate turnover exceeding ₹40 Lakhs (for most states).
  • For special category states (e.g., Northeastern states, Uttarakhand, Himachal Pradesh, Jammu & Kashmir), the threshold is ₹20 Lakhs.
• For Service Providers: Annual aggregate turnover exceeding ₹20 Lakhs (for most states).
  • For special category states, the threshold is ₹10 Lakhs.

Mandatory Registration (Regardless of Turnover):

Even if your turnover is below the threshold, GST registration is mandatory in the following cases:

• Inter-state supply of goods: If you supply goods from one state to another. (Exemption for inter-state supply of services if turnover below threshold).
• E-commerce sellers: As discussed, all suppliers through e-commerce operators must register.
• Casual Taxable Persons: Individuals who occasionally undertake supply of goods or services in a territory where they have no fixed place of business.
• Non-Resident Taxable Persons: Foreign residents supplying goods or services in India.
• Persons liable to pay tax under Reverse Charge Mechanism (RCM).
• Input Service Distributors (ISD).
• Agents of suppliers.
• E-commerce Operators who are required to collect TCS.
• Online Information and Database Access or Retrieval (OIDAR) services provided from outside India to a non-taxable online recipient.

How to Get a GST Number (Online Registration Process):

The GST registration process is entirely online via the official GST portal (www.gst.gov.in).

1. Part A of FORM GST REG-01:
   • Visit the GST portal and click on “Services” > “Registration” > “New Registration.“
   • Select “New Registration” and fill in basic details like Legal Name of Business, PAN, email address, mobile number, and state/district.
   • An OTP will be sent to your mobile and email for verification.
   • Upon successful verification, a Temporary Reference Number (TRN) is generated.
2. Part B of FORM GST REG-01:
   • Log in to the GST portal using the TRN.
   • Fill out the detailed application form (Part B) with information such as:
     • Business details (constitution, principal place of business)
     • Details of partners/directors/proprietors
     • Bank account details
     • Details of goods (HSN) and services (SAC)
     • Authorization form
   • Upload required documents (PAN card, Aadhar card, proof of business address, bank statement, etc.).
   • Submit the application with e-signature (DSC or EVC).
3. Application Reference Number (ARN):
   • Once the application is successfully submitted, an Application Reference Number (ARN) is generated and sent to your email and mobile. This ARN can be used to track the status of your application.
4. Verification by Officer:
   • A GST officer will scrutinize your application and documents. They may ask for further clarifications or additional documents in FORM GST REG-03.
   • You need to respond within 7 working days in FORM GST REG-04.
5. GSTIN Issuance:
   • If satisfied, the officer will approve the registration, and your GSTIN will be generated and communicated to you.
   • In case of rejection, the officer will issue a rejection order in FORM GST REG-05.

Check GST Registration Status: Verifying Business Legitimacy

It’s often necessary to check the GST registration status of a business – whether it’s your own application, a supplier, or a customer. This helps in verifying legitimacy and ensuring correct GST compliance.

How to Check GST Registration Status (Online):

The GST portal provides a simple way to check GST registration status.

1. Visit the GST Portal: Go to the official GST website: www.gst.gov.in
2. Navigate to Services: Click on “Services” in the main menu.
3. Select “User Services”: From the dropdown, choose “User Services.”
4. Choose “Search Taxpayer”: Under User Services, select “Search Taxpayer.”
5. Select “Search by GSTIN/UIN”:
   • Enter the 15-digit GSTIN (GST Identification Number) of the business you want to verify.
   • Enter the Captcha code shown.
   • Click “Search.”
   • The portal will display details like the legal name of the business, trade name, state, registration date, and status (Active/Inactive/Cancelled).
6. Select “Search by PAN”:
   • If you only have the PAN of a business, you can use this option.
   • Enter the 10-digit PAN, select the State, and enter the Captcha.
   • Click “Search.”
   • The system will list all GSTINs associated with that PAN in the selected state. You can then click on each GSTIN to view its details.

Checking Your Own Application Status (ARN Status):

If you have recently applied for GST registration, you can track your application status using the ARN (Application Reference Number).

1. Visit the GST Portal: www.gst.gov.in
2. Navigate to Services: Click on “Services” > “Registration” > “Track Application Status.”
3. Enter ARN: Input your ARN (which you would have received via email/SMS after submitting your application).
4. Enter Captcha and Search: Enter the Captcha code and click “Search.”
5. View Status: The system will display the current status of your application (e.g., “Pending for Processing,” “Pending for Clarification,” “Approved,” “Rejected”).

What is HSN Code? What is SAC Code?

Proper classification of goods and services is fundamental under GST for determining the correct tax rate. This is done using HSN and SAC codes.

What is HSN Code? (Harmonized System of Nomenclature)

• Purpose: HSN code is a globally accepted multi-purpose international product nomenclature developed by the World Customs Organization (WCO). It’s used for the systematic classification of goods.
• Structure: It’s a 6-digit uniform code, which is further expanded to 8 digits in India.
  • The first two digits identify the Chapter.
  • The next two digits identify the Heading.
  • The next two digits identify the Sub-heading.
  • The last two digits (in India) are specific to detailed sub-classifications.
• Mandatory Use: Businesses need to declare HSN codes in their GST invoices and returns (GSTR-1). The number of digits required depends on the turnover of the business:
  • Businesses with turnover up to ₹5 Crores: 4-digit HSN code is usually sufficient.
  • Businesses with turnover above ₹5 Crores: 6-digit HSN code is mandatory.
  • For certain specified goods, 8-digit HSN is always required.
• Benefit: Ensures uniform classification of goods globally, simplifying international trade and taxation.

What is SAC Code? (Services Accounting Code)

• Purpose: Just as HSN codes classify goods, SAC codes are used for the classification of services under GST. Developed by the United Nations, it’s a unique coding system for different services.
• Structure: It’s a 6-digit code. All services are categorized under six broad sections, with specific services having their own codes.
  • For example, accounting and auditing services generally fall under 9982, with specific types having 998211, 998212, etc.
• Mandatory Use: Service providers need to declare SAC codes in their GST invoices and returns.
• Benefit: Provides a standardized method for classifying services, streamlining tax calculation and reporting for service industries.

Both HSN and SAC codes help in accurate determination of applicable GST rates and proper reporting in GST returns.

GST Exclusive vs. GST Inclusive: Understanding Pricing

When you encounter a price, it’s crucial to understand whether the Goods and Services Tax (GST) is already factored into that price or if it will be added on top. This distinction is commonly referred to as “GST Inclusive” and “GST Exclusive.”

1. GST Exclusive Price:

• Definition: This means the stated price does not include the GST amount. The GST will be calculated and added separately to this base price to arrive at the final amount payable.
• Common Use: Often seen in Business-to-Business (B2B) transactions, wholesale pricing, or for services where tax is typically itemized. It’s also common for price tags on products where the final tax is added at the checkout.
• Calculation:
  • Final Price = Exclusive Price + (Exclusive Price × GST Rate)
• Example: A supplier quotes a product price of ₹1,000 (GST Exclusive) with an 18% GST rate.
  • GST Amount = ₹1,000 × 18% = ₹180
  • Total Price = ₹1,000 + ₹180 = ₹1,180

2. GST Inclusive Price:

• Definition: This means the stated price already includes the GST amount. The price you see is the final price you pay.
• Common Use: Primarily used in Business-to-Consumer (B2C) transactions, especially in retail, restaurants, or consumer services where the final price is displayed upfront to the customer. This simplifies pricing for the end-consumer.
• Calculation (to find the GST amount or original base price):
  • GST Amount = Inclusive Price - (Inclusive Price / (1 + (GST Rate / 100)))
  • Base Price (without GST) = Inclusive Price / (1 + (GST Rate / 100))
• Example: A retail product is priced at ₹1,180 (GST Inclusive) with an 18% GST rate.
  • Base Price = ₹1,180 / (1 + (18 / 100)) = ₹1,180 / 1.18 = ₹1,000
  • GST Amount = ₹1,180 – ₹1,000 = ₹180