legal entty) by a governmental organizaton to collectvely fund government spending, public

expenditures,

or to regulate and reduce negatve externalites.

Tax compliance refers to policy actons and individual behaviour aimed at ensuring that taxpayers are
paying

the right amount of tax at the right tme and securing the correct tax allowances and tax reliefs.

The frst known taxaton took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or
indirect

taxes and may be paid in money or as its labor equivalent.

BASIS

DIRECT TAXES

INDIRECT TAXES

Meaning

Tax levied on the income or wealth of a

person is paid by that person directly to the

government.

Tax is levied on the goods or services of a

person is collected from the buyers by

another person (seller) and paid by him to the

government.

Incidence

and Impact

Falls on the same person. Imposed on the

income of a person and paid by the same

person.

Falls on diferent persons. Imposed on sellers

but collected form consumers and paid by

sellers.

Burden

More income atracts more income tax. Tax

burden here is progressive on people.

Rate of tax is fat on all individuals. Therefore,

porton of their income as tax. Tax burden

here is regressive.

Evasion

Possible.

Comparatvely difcult.

Infaton

Helps in reducing the infaton.

Contributes to infaton.

Shifability

Cannot be shifed to others.

Can be shifed to others.

Examples

Income tax, wealth tax, capital gains tax,

corporate tax, etc.

GST, excise duty, customs, etc.

Economic Reforms in the 1990s: The idea of GST in India was frst discussed during the economic

liberalizaton era of the 1990s. A commitee led by Dr. R. Chelliah recommended the introducton of a
Value

Added Tax (VAT) system to replace the existng sales tax system.

VAT Implementaton: In 2005, the VAT system was introduced at the state level, marking a signifcant
step

toward a unifed taxaton system. VAT harmonized tax rates and provided input tax credit, laying the

foundaton for GST.

Recommendatons of the Kelkar Commitee: In 2003, the Kelkar Commitee proposed a

model. It recommended a dual GST structure, with both central and state GST components, and
suggested a

GST Council for decision-making.

Consttutonal Amendment: The biggest hurdle in implementng GST was the need for a consttutonal

amendment to confer concurrent taxaton powers to both the central and state governments. This

amendment was passed in 2016, clearing the way for GST implementaton.
WHAT IS TAX?

DIRECT VS INDIRECT TAX

HISTORY OF GST IN INDIA

369BASIC CONCEPTS

GOODS & SERVICES TAX

SYMBIOSIS LAW SCHOOL

CA KARAN CHANDWANI

GST Council Formaton: The GST Council was established in September 2016, comprising
representatves

from the central and state governments. It is responsible for making recommendatons on tax rates,

exemptons, and other important issues related to GST.

GST Rollout: On July 1, 2017, India implemented the GST, unifying the country into a single market
for goods

and services. Under GST, goods and services are categorized into fve tax slabs - 0%, 5%, 12%, 18%,
and 28%,

with some essental items exempted from taxaton.

Destnaton-Based Taxaton: GST is a destnaton-based tax, which means that the tax is collected at the
point

of consumpton rather than at the point of origin. This ensures that revenue is received by the state in
which

the goods or services are ultmately consumed, promotng a fair distributon of tax income among
states.

Dual GST Model: In many countries, including India, GST follows a dual model, where both the
central

government and state governments levy and collect GST on the same transacton. This model allows
for a

seamless transiton from the previous tax system and maintains the fscal autonomy of states.

Tax on Supply: GST is levied on the supply of goods and services rather than on the manufacture or
sale of

goods or provision of services. This shif in focus from the producton stage to the supply stage
reduces the

scope for tax evasion and improves tax compliance.

Input Tax Credit (ITC): One of the fundamental features of GST is the provision of input tax credit.
Businesses
can claim credit for the GST they pay on inputs (raw materials, services, etc.) against the GST they
collect on

their output (sales). This eliminates the cascading efect of taxes and encourages a more efcient
supply

chain.

Uniform Tax Rates: GST aims to bring about a uniform tax structure across the country by subsuming
various

central and state taxes. It categorizes goods and services into diferent tax slabs (e.g., 0%, 5%, 12%,
18%, 28%)

to ensure a standardized approach to taxaton, promotng simplicity and ease of compliance.

Threshold Exempton: GST provides a threshold exempton limit, under which small businesses with a

turnover below a specifed threshold are not required to register for GST or collect and remit GST.
This eases

the compliance burden for small enterprises.

E-Invoicing and Digital Compliance: GST emphasizes digitalizaton and transparency. It mandates e-
invoicing

for businesses above a certain turnover, electronic fling of returns, and online payment of taxes
through the

GSTN portal. This reduces paperwork and enhances efciency.

Ant-Profteering Measures: GST incorporates ant-profteering provisions to ensure that businesses

the beneft of reduced taxes (due to input tax credit or rate reductons) to consumers. This prevents
undue

price hikes afer the introducton of GST.

GST Council: In countries with a dual GST model like India, a GST Council is established to make
decisions

related to GST rates, exemptons, and other policy maters. The council comprises representatves from
the

central and state governments, fostering cooperatve federalism.

Compositon Scheme: GST ofers a compositon scheme for small taxpayers, allowing them to pay a
lower

rate of tax and fle simplifed returns. This scheme reduces compliance burdens for eligible businesses.

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