How does GST impact consumers?

GST is a single, unified tax system that replaced a multitude of indirect taxes such as VAT, service tax, excise duty, and others. It follows a “destination-based tax” model, where tax is collected at the point of consumption rather than the point of production.

How does GST impact consumers?

1. Reduction in Cascading Effect of Taxes
   • Before GST: Taxes were levied at every stage of production and distribution without credit for earlier taxes paid (e.g., tax on tax).
   • Under GST: Input tax credit is available, reducing the overall tax burden and potentially lowering the cost of goods and services for consumers.
2. Price Changes
   • Positive Impact: Essential items and services are taxed at lower rates (0%, 5%).
   • Negative Impact: Luxury items and goods like tobacco or automobiles fall under higher tax slabs (18%, 28%), increasing costs for consumers.
3. Uniform Tax Rates
   • Consumers benefit from standard rates across the country, reducing the price variation of goods and services between states.
4. Digital Transparency
   • With GST compliance requiring invoices to be generated electronically, it has curbed tax evasion and led to more transparency in pricing.

Why was GST implemented?

GST was introduced to simplify India’s complex indirect tax structure, improve tax compliance, and promote ease of doing business. It aimed to:

• Reduce tax cascading.
• Enhance the efficiency of the tax collection process.
• Establish a unified national market.

Whom does it impact?

GST impacts:

1. Consumers: By affecting the price of goods and services.
2. Businesses: By streamlining tax compliance through mechanisms like e-invoicing and input tax credit.
3. Government: By creating a steady and transparent tax revenue system.

Key Provisions in India

1. GST Rates:
   • Four main tax slabs: 5%, 12%, 18%, and 28%.
   • Essential items (e.g., food grains) are exempt or taxed minimally.
2. Composition Scheme:
   • Small taxpayers (with a turnover below a threshold) can opt for this to simplify compliance.
3. Input Tax Credit (ITC):
   • Businesses can claim credit for taxes paid on inputs, reducing the final tax burden.
4. Dual Structure:
   • Central GST (CGST) and State GST (SGST) for intra-state supplies.
   • Integrated GST (IGST) for inter-state supplies.

Landmark Cases in India

1. Mohit Minerals Pvt. Ltd. v. Union of India (2022)
   • The Supreme Court ruled that GST on ocean freight was unconstitutional, emphasizing cooperative federalism.
2. Alok Pharmaceuticals v. Commissioner of GST (2021)
   • Clarified provisions related to the ITC, reinforcing taxpayers’ rights to claim credits when conditions are met.
3. Patanjali Ayurved Ltd. v. GST Authority (2020)
   • Addressed classification disputes under GST for product categorization, impacting tax rates.
4. K.K. Khandelwal v. Commissioner of CGST (2019)
   • Dealt with anti-profiteering provisions, ensuring that benefits of reduced tax rates are passed on to consumers.

Conclusion

GST has had a mixed impact on consumers in India. While it has simplified taxation and reduced the cost of several essential items, the higher tax slabs for luxury goods and services have led to increased prices in some cases. With its robust legal framework and evolving judicial precedents, GST continues to be refined for greater economic benefit.