India’s taxation system has undergone significant reforms in recent years, and one of the most transformative steps was the introduction of the Goods and Services Tax (GST). Alongside GST, Customs Duty continues to be a crucial part of indirect taxes, impacting international trade and the domestic economy. This unit covers the structure, features, and procedures of GST, as well as the basics of customs duty and its application.
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Understanding GST – Goods and Services Tax
Definition:
GST is a comprehensive, destination-based indirect tax that has replaced multiple indirect taxes like VAT, service tax, and excise duty. It is levied on the supply of goods and services across India.
Key Features of GST
One Nation, One Tax – GST has unified India’s tax system, replacing a complex network of state and central taxes.
Destination-based Tax – Tax is collected at the point of consumption, not production.
Dual Structure – Both the Centre and States levy tax simultaneously through CGST (Central GST) and SGST (State GST) for intra-state supplies, while IGST (Integrated GST) applies for inter-state supplies.
Input Tax Credit (ITC) – Businesses can claim credit for taxes paid on inputs, reducing the cascading effect of taxes.
Digital Compliance – GST registration, return filing, and payments are done online via the GST portal.
Components of GST
CGST (Central GST) – Levied by the Central Government on intra-state transactions.
SGST (State GST) – Levied by the respective State Government on intra-state transactions.
IGST (Integrated GST) – Levied by the Central Government on inter-state transactions and imports.
The GST Council
The GST Council is a joint forum of the Centre and States.
Composition: Union Finance Minister (Chairperson), Union Minister of State for Finance, and Finance Ministers of all States.
Function: To make recommendations on GST rates, exemptions, threshold limits, and procedural rules.
GST Registration and Return Filing
Registration
Mandatory for businesses with turnover above the threshold limit (₹40 lakh for goods, ₹20 lakh for services in most states).
Voluntary registration is allowed for small businesses to avail ITC benefits.
Registration is done online via the GST portal.
GST Return Filing
Businesses must file periodic returns to report their sales, purchases, and tax liability.
GSTR-1 – Details of outward supplies (sales).
GSTR-3B – Summary return with tax payment.
Annual Return (GSTR-9) – Yearly summary of transactions.
Input Tax Credit (ITC)
ITC allows businesses to deduct the tax paid on purchases from their tax liability on sales.
Example: If a trader pays ₹500 as GST on purchases and collects ₹800 as GST on sales, they need to pay only ₹300 to the government.
Basics of Customs Duty
While GST covers domestic trade, Customs Duty is levied on goods imported into or exported from India.
Types of Customs Duty
Basic Customs Duty (BCD) – Levied on the assessable value of goods.
Countervailing Duty (CVD) – Equivalent to excise duty, applied to imported goods to ensure a level playing field.
Anti-dumping Duty – Imposed to protect domestic industries from low-priced foreign goods sold at unfair prices.
Safeguard Duty – Temporary duty to protect domestic industry from a sudden surge in imports.
Valuation Rules
Customs duty is calculated based on the assessable value of goods, which includes:
Cost of goods
Insurance charges
Freight charges (CIF value)
Customs Duty Exemptions
Certain goods enjoy exemptions under specific conditions, such as:
Raw materials for manufacturing export goods.
Essential commodities like life-saving drugs.
Items imported for charitable purposes.
GST vs Customs Duty – Key Difference
GST applies to domestic supply of goods and services.
Customs Duty applies to cross-border trade (imports and exports).
Interestingly, IGST is also charged on imports along with customs duty.
Emerging Trends in Indirect Taxation
E-invoicing under GST – Digital authentication of invoices to prevent tax evasion.
Faceless Customs Clearance – Faster and transparent import/export processing.
Integration of GST with E-way Bills – Real-time tracking of goods movement.
Customs Automation (ICES) – Reduces paperwork and improves trade efficiency.