RAS Mains Topic 54: GST Basics — India

Q: What is GST? Explain its dual structure with four components.

GST, implemented **1 July 2017** (101st Constitutional Amendment), is a multi-stage, destination-based indirect tax. Four components: (i) **CGST** — Central tax on intra-state supply; (ii) **SGST** — State tax on intra-state supply; (iii) **IGST** — Centre collects on inter-state supply, distributes to consuming state; (iv) **UTGST** — for Union Territories without legislature.

Study Material

Paper Paper I

Unit 3

1. GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services in India. It replaced over 17 Central and State taxes including Central Excise Duty, Service Tax, VAT, CST, Octroi, and Entry Tax. Implemented on 1 July 2017.
2. Constitutional basis: The 101st Constitutional Amendment Act, 2016 inserted Article 246A (giving both Parliament and State Legislatures power to legislate on GST), Article 269A (for IGST on inter-state supply), and Article 279A (for GST Council).
3. Dual GST structure: India follows a Dual GST model — Centre and States both levy tax simultaneously on the same supply. Four components: (i) CGST — levied by Centre; (ii) SGST — levied by State; (iii) IGST — on inter-state supply (Centre collects, shares with states); (iv) UTGST — for Union Territories without legislature.
4. GST rate slabs (as of 2024): 0% (exempted — food grains, fresh vegetables, education, healthcare), 5% (essential goods — edible oils, sugar, tea, coal, economy class air travel), 12% (processed food, computers, medicines), 18% (most services, FMCG, chemicals), 28% (luxury goods, tobacco, cement, automobiles) + Cess on sin goods.
5. GST Council (Article 279A): A constitutional body with Union Finance Minister as Chairperson and State Finance Ministers as members. Decides rates, exemptions, thresholds, and policy matters. Decisions by 3/4th weighted majority (Centre = 1/3 weight; all States combined = 2/3 weight).
6. Input Tax Credit (ITC): A mechanism that allows registered businesses to deduct the GST paid on inputs (purchases) from the GST payable on outputs (sales). This eliminates the cascading effect (tax on tax). ITC can be claimed only if: supplier has filed return, the invoice is reflected for credit, and the goods/services are used for business.
7. GSTN (GST Network): A Section 8 not-for-profit company (incorporated in 2013) that provides the IT backbone for GST. It handles registration, return filing, tax payment, refund processing, and invoice matching. Originally set up with mixed ownership, it is now fully government-owned: Centre (50%) and States collectively (50%).
8. Composition Scheme: A simplified tax option for small businesses, but with different turnover limits by category: manufacturers/traders and eligible restaurants generally up to ₹1.5 crore (₹75 lakh in special category states), and eligible service providers up to ₹50 lakh under the concessional scheme. They pay flat tax rates (1%, 5%, and 6% respectively), cannot claim ITC, and generally cannot make inter-state outward supply.
9. GST registration threshold: Generally mandatory for businesses with annual turnover above ₹40 lakh (goods) or ₹20 lakh (services) [₹20 lakh / ₹10 lakh for special category states]. Some categories must register regardless of turnover, such as e-commerce operators, persons liable under reverse charge, and other notified persons.
10. Key GST returns: GSTR-1 (monthly/quarterly — outward supplies); GSTR-3B (summary return — self-assessed); GSTR-9 (annual return); GSTR-9C (reconciliation statement — for turnover > ₹5 crore); GSTR-10 (final return on cancellation of registration).
11. E-way Bill: Electronic waybill mandatory for transporting goods worth > ₹50,000 (intra-state or inter-state). Generated on the E-way Bill Portal (ewaybillgst.gov.in). Valid for: ≤100 km = 1 day; every additional 100 km = 1 extra day (ODC cargo = every 20 km = 1 day). Prevents tax evasion in transit.
12. GST impact on Rajasthan: Rajasthan is a consuming state (more imports than exports of manufactured goods) — GST's destination-based principle favours consuming states. Rajasthan receives IGST share based on consumption. Rajasthan GST revenue has grown from ~₹20,000 crore (2017-18) to ~₹50,000 crore (2023-24), a ~150% increase.

Key facts

GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services in India.
Constitutional basis: The 101st Constitutional Amendment Act, 2016 inserted Article 246A (giving both Parliament and State Legislatures power to legis…
GST rate slabs (as of 2024): 0% (exempted — food grains, fresh vegetables, education, healthcare), 5% (essential goods
GST Council (Article 279A): A constitutional body with Union Finance Minister as Chairperson and State Finance Ministers as members.
GSTN (GST Network): A Section 8 not-for-profit company (incorporated in 2013) that provides the IT backbone for GST.

Key Points at a Glance

1
GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services in India. It replaced over 17 Central and State taxes including Central Excise Duty, Service Tax, VAT, CST, Octroi, and Entry Tax. Implemented on 1 July 2017.
2
Constitutional basis: The 101st Constitutional Amendment Act, 2016 inserted Article 246A (giving both Parliament and State Legislatures power to legislate on GST), Article 269A (for IGST on inter-state supply), and Article 279A (for GST Council).
3
Dual GST structure: India follows a Dual GST model — Centre and States both levy tax simultaneously on the same supply. Four components: (i) CGST — levied by Centre; (ii) SGST — levied by State; (iii) IGST — on inter-state supply (Centre collects, shares with states); (iv) UTGST — for Union Territories without legislature.
4
GST rate slabs (as of 2024): 0% (exempted — food grains, fresh vegetables, education, healthcare), 5% (essential goods — edible oils, sugar, tea, coal, economy class air travel), 12% (processed food, computers, medicines), 18% (most services, FMCG, chemicals), 28% (luxury goods, tobacco, cement, automobiles) + Cess on sin goods.
5
GST Council (Article 279A): A constitutional body with Union Finance Minister as Chairperson and State Finance Ministers as members. Decides rates, exemptions, thresholds, and policy matters. Decisions by 3/4th weighted majority (Centre = 1/3 weight; all States combined = 2/3 weight).
6
Input Tax Credit (ITC): A mechanism that allows registered businesses to deduct the GST paid on inputs (purchases) from the GST payable on outputs (sales). This eliminates the cascading effect (tax on tax). ITC can be claimed only if: supplier has filed return, the invoice is reflected for credit, and the goods/services are used for business.
7
GSTN (GST Network): A Section 8 not-for-profit company (incorporated in 2013) that provides the IT backbone for GST. It handles registration, return filing, tax payment, refund processing, and invoice matching. Originally set up with mixed ownership, it is now fully government-owned: Centre (50%) and States collectively (50%).
8
Composition Scheme: A simplified tax option for small businesses, but with different turnover limits by category: manufacturers/traders and eligible restaurants generally up to ₹1.5 crore (₹75 lakh in special category states), and eligible service providers up to ₹50 lakh under the concessional scheme. They pay flat tax rates (1%, 5%, and 6% respectively), cannot claim ITC, and generally cannot make inter-state outward supply.
9
GST registration threshold: Generally mandatory for businesses with annual turnover above ₹40 lakh (goods) or ₹20 lakh (services) [₹20 lakh / ₹10 lakh for special category states]. Some categories must register regardless of turnover, such as e-commerce operators, persons liable under reverse charge, and other notified persons.
10
Key GST returns: GSTR-1 (monthly/quarterly — outward supplies); GSTR-3B (summary return — self-assessed); GSTR-9 (annual return); GSTR-9C (reconciliation statement — for turnover > ₹5 crore); GSTR-10 (final return on cancellation of registration).
11
E-way Bill: Electronic waybill mandatory for transporting goods worth > ₹50,000 (intra-state or inter-state). Generated on the E-way Bill Portal (ewaybillgst.gov.in). Valid for: ≤100 km = 1 day; every additional 100 km = 1 extra day (ODC cargo = every 20 km = 1 day). Prevents tax evasion in transit.
12
GST impact on Rajasthan: Rajasthan is a consuming state (more imports than exports of manufactured goods) — GST's destination-based principle favours consuming states. Rajasthan receives IGST share based on consumption. Rajasthan GST revenue has grown from ~₹20,000 crore (2017-18) to ~₹50,000 crore (2023-24), a ~150% increase.

Why was GST introduced in India?

GST was introduced in India to replace a fragmented indirect-tax maze with a unified, destination-based tax system that reduces cascading, lowers compliance friction, and creates a common national market. According to PIB, GST subsumed 17 large taxes and 13 cesses into one unified tax.

1.1 Pre-GST Indirect Tax Maze

Before 1 July 2017, India had a fragmented, multi-layered indirect tax system. Centre and States separately taxed goods and services, and businesses had to deal with different laws, rates, registrations, and credit rules for different stages of the same transaction.

Central taxes replaced by GST:

Central Excise Duty (on manufacture)
Service Tax (on services)
Central Sales Tax (inter-state trade)
Additional Customs Duties (CVD, SAD)
Special Additional Duty of Customs

State taxes replaced by GST:

Value Added Tax (VAT) - state-level sales tax
Octroi and Entry Tax
Entertainment Tax (except local body taxes)
Luxury Tax
Purchase Tax

Problems with the old system:

Cascading effect (tax on tax): Excise duty on manufacturing + VAT on sale = double taxation on same value. VAT was often charged on a value that already included excise duty.
High compliance cost: Businesses maintained multiple registrations for different taxes, with different challans, due dates, forms, audits, and departmental interfaces.
Interstate trade barriers: CST (Central Sales Tax) at 2% on inter-state sales created barriers because credit did not flow smoothly across state borders.
Octroi checkposts: Trucks lost time at state borders and municipal entry points; the old system converted internal trade into a chain of local tax gates.
Varied rates across states: Different VAT rates for the same goods in different states meant India functioned as many state markets rather than one domestic market.

1.2 Journey to GST

Key milestones in the journey to GST:

2000: First discussion of GST - the Atal Bihari Vajpayee government set up the Empowered Committee of State Finance Ministers.
2003-04: The FRBM Committee recommended introduction of GST, giving the reform a fiscal-policy anchor.
2006: Finance Minister P. Chidambaram announced a target of GST from 1 April 2010 in the Union Budget.
2009: The Empowered Committee released the First Discussion Paper on GST.
2011: The Constitution (115th Amendment) Bill, 2011 was introduced for GST-related constitutional provisions, then referred to the Standing Committee during 2011-13.
2014: The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha by the NDA government after the earlier Bill lapsed with the dissolution of the 15th Lok Sabha.
2016: The 101st Constitutional Amendment Act was passed, inserting Articles 246A, 269A, and 279A. Constitutional changes came into force in September 2016, and the GST Council was created.
2017: GST was launched at midnight on 1 July 2017 from the Central Hall of Parliament under the slogan "One Nation, One Tax".

The historical point for an exam answer is simple: GST was not merely a tax-rate change. It was a constitutional and administrative redesign of India's indirect-tax system, meant to replace origin-linked, cascading, department-heavy taxation with a technology-backed tax on supply and consumption.

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PREDICTED Predicted RAS Questions

Based on PYQ trends and 2026 syllabus analysis

1 5M What is GST? Explain its dual structure with four components. 5 marks · 50 words

Model Answer

GST, implemented 1 July 2017 (101st Constitutional Amendment), is a multi-stage, destination-based indirect tax. Four components: (i) CGST — Central tax on intra-state supply; (ii) SGST — State tax on intra-state supply; (iii) IGST — Centre collects on inter-state supply, distributes to consuming state; (iv) UTGST — for Union Territories without legislature.

~50 words • 5 marks