As a fresher or commerce graduate, you may have several questions and doubts regarding GST compliance in India. To help you build a clear understanding of the subject, I have compiled a comprehensive list of frequently asked questions and answers for your reference. These Q&As are designed to simplify GST concepts and make learning easier.
All questions and answers are updated in line with the
latest compliance requirements, and this list will be revised from time to time
to reflect any changes in regulations.
Let’s begin with the Q&A section.
Question 1: What
is GST and why was it introduced in India?
Answer: GST is an indirect tax applicable in India.
Broadly, taxes in India are levied under two categories: Direct Tax and Indirect
Tax.
Direct Tax
is generally imposed on the income earned by an individual or business. For
example, a salaried person pays tax on salary income as per the applicable
income tax slab, while a business earning profits is also taxed under the
income tax provisions.
On the other hand, Indirect Tax is imposed not
on income, but on the supply of goods and services. GST falls under this
category. It is levied on the sale or supply of goods and services within
India. Businesses engaged in trading or providing services are required to
collect GST from customers and deposit it with the government.
Now, if we discuss why GST was introduced in India,
the answer lies in the tax structure that existed before July 2017. Prior to
GST, India had multiple indirect taxes such as VAT, CST, Excise Duty,
Service Tax, and several state-specific levies. Different goods attracted
different taxes, services were taxed separately, and tax rules varied from
state to state. This created a highly complex and fragmented taxation system.
To simplify this structure, the government planned to
merge and replace these multiple indirect taxes with a single, unified tax
system. As a result, Goods and Services Tax (GST) was introduced in July
2017.
The objective of GST was to create a uniform tax
structure across the country, reduce complexities, and ensure smoother
compliance for businesses. While GST follows the concept of “One Nation, One
Tax,” a few other taxes still exist in certain sectors. However, GST now covers
more than 95% of indirect taxation in India, making it the backbone of the
country’s tax system.
Question 2: Which taxes are still
applicable in India even after the introduction of GST?
Answer: Before the introduction of GST, India had a
wide range of indirect taxes imposed by both the State Governments and
the Central Government.
At the state level, one of the most significant taxes
was VAT (Value Added Tax), which was levied on the sale of goods within
a state. VAT served as a major source of revenue for state governments.
However, one major drawback was that each state had its own VAT rules and
rates, which created complexity for businesses operating across multiple
states.
For the interstate sale of goods, CST (Central
Sales Tax) was applicable. In addition, states also imposed other levies
such as Local Body Tax, Octroi Duty, Entry Tax, and Purchase Tax.
At the central level, taxes such as Central Excise
Duty (on manufacturing of goods), Service Tax (on services), and Customs
Duty / Import Duty were charged.
With the introduction of GST in July 2017, most of
these indirect taxes were subsumed into a single unified tax system.
This significantly simplified the tax structure and reduced compliance burdens.
However, GST did not replace every tax. Certain taxes
and levies are still applicable in India even today because some sectors and
products remain outside the GST framework.
Taxes still applicable even after GST:
- Customs
Duty / Import Duty – applicable on imports into
India
- Excise
Duty – still applicable on specific products such as
petroleum and tobacco
- VAT
– continues on petroleum products and alcoholic liquor for human
consumption
- Electricity
Duty – levied separately by state governments
- Stamp
Duty / Registration Charges – applicable on
property registration and legal documents
- Road
Tax / Motor Vehicle Tax – charged on
vehicles
- Property
Tax – levied by municipal authorities
- Professional
Tax – imposed by certain state governments
Why are these taxes still outside GST?
Certain goods and sectors were intentionally kept
outside GST due to revenue considerations and policy decisions. For example:
- Alcohol
for human consumption remains fully outside GST.
- Petroleum
products such as petrol, diesel, crude oil,
aviation turbine fuel, and natural gas are not yet fully under GST.
- Electricity
and real estate-related charges also continue under separate
taxation systems.
So, while GST covers the majority of indirect taxation
in India, a few important taxes continue to exist alongside it. This is why
businesses and professionals must still be aware of these separate tax
mechanisms even in the GST era.
Question 3: If GST is a single unified
tax, then why are there CGST, SGST, and IGST?
Answer:
Although GST is often referred to as a single unified tax system, India
has adopted a Dual GST Model. This model ensures that tax revenue is
fairly shared between the Central Government and the State
Governments.
Before GST, state governments earned revenue mainly
through taxes such as VAT, while the central government collected taxes
like Excise Duty and Service Tax. When GST was introduced, these
multiple taxes were merged into one system. However, since both the Centre and
the States needed to continue receiving their share of tax revenue, India
implemented the dual structure of GST.
Under this system, GST collected on goods and services
is distributed between the central and state governments based on the place of
consumption.
To simplify:
- If
GST collected on a transaction is ₹1,000, the revenue is ultimately
shared between the Centre and the State.
- The
structure in which it is collected depends on the nature of supply.
Why CGST, SGST, and IGST Exist
These terms are used to classify GST according to
whether the transaction is within a state or between states.
1. CGST – Central Goods and Services Tax
This is the portion of GST that goes to the Central
Government.
2. SGST – State Goods and Services Tax
This is the portion of GST that goes to the State
Government where the goods or services are consumed.
3. IGST – Integrated Goods and Services
Tax
This is levied on interstate transactions (when
goods or services move from one state to another) and is later apportioned
between the Centre and the destination state.
How It Works in Practice
Intrastate Supply (Within the Same State)
If goods or services are supplied within the same
state, GST is split into CGST + SGST.
Example:
If GST on a transaction is ₹1,000:
- ₹500
= CGST → paid to Central Government
- ₹500
= SGST → paid to State Government
So, the total tax remains ₹1,000, but it is divided
equally.
Interstate Supply (Between Two States)
If goods or services are supplied from one state to
another, IGST is charged.
Example:
If GST on the transaction is ₹1,000:
- ₹1,000
= IGST
This amount is first collected by the Central
Government, and later the appropriate share is transferred to the consuming
state.
Why This System Matters
The purpose of this structure is to ensure:
- Fair
revenue distribution between Centre and States
- Smooth
taxation of interstate trade
- Uniformity
in the GST framework across India
So, while GST is a
unified tax system in principle, the classifications of CGST, SGST, and IGST
exist to support India’s federal structure and ensure proper allocation of tax
revenue.
Question 4: How can we determine which tax
to charge on a supply? When should we charge CGST, SGST, or IGST?
Answer:
The determination of whether to charge CGST, SGST, or IGST depends
entirely on two important factors under GST:
1.
Nature of Supply
2.
Place of Supply (POS)
Understanding these two concepts makes tax
determination simple and practical.
1. Nature of Supply
Intrastate Supply
When the supply of goods or services takes place within
the same state or union territory, it is treated as an intrastate supply.
Example:
Goods supplied from Mumbai to Pune — both locations are within Maharashtra.
Hence, this is an intrastate supply.
Interstate Supply
When the supply of goods or services takes place from
one state/union territory to another, it is treated as an interstate
supply.
Example:
Goods supplied from Mumbai (Maharashtra) to Jaipur (Rajasthan).
Since the supply crosses state boundaries, it is an interstate supply.
2. Place of Supply (POS)
Place of Supply
refers to the location where the goods or services are considered to be
supplied and consumed.
This concept is very important because GST follows the
destination-based taxation principle, meaning tax revenue goes to the
state where the goods/services are consumed.
Example:
If goods are sold from Maharashtra to Rajasthan, the Place of Supply is Rajasthan,
because that is where the goods are delivered and consumed.
How to Determine Which Tax to Charge
Once the concepts of intrastate supply, interstate
supply, and place of supply are clear, tax applicability becomes
straightforward.
In Case of Intrastate Supply
Charge CGST + SGST
- CGST
= Central Government’s share
- SGST
= State Government’s share
Example:
If the GST rate is 18%, then:
- 9%
CGST
- 9%
SGST
Note:
If the supply is within a Union Territory, then SGST is replaced by
UTGST.
In Case of Interstate Supply
Charge IGST only
- The
full tax is collected as IGST.
Example:
If the GST rate is 18%, then:
- 18%
IGST
Quick Rule to Remember
- Same
State = CGST + SGST / UTGST
- Different
States = IGST
Final Understanding
The correct GST type is not chosen randomly—it is
determined through:
- Where
the supplier is located
- Where
the customer receives the goods/services
- Whether
the transaction stays within the state or crosses state boundaries
So, by identifying the nature
of supply and the place of supply, you can accurately determine
whether to charge CGST, SGST, or IGST under GST law.
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Question 5: Could you please explain GST
applicability with an example?
Answer:
The best way to understand GST applicability is through practical examples.
Let’s look at two common business scenarios to see how GST is charged depending
on the nature of supply.
Example A – Intrastate Supply
Scenario:
ABC Enterprises in Mumbai supplies goods worth ₹10,000 to PQR
Enterprises in Pune.
Applicable GST rate = 18%
Explanation:
In this case, both the supplier and the buyer are
located in the same state — Maharashtra.
Therefore, this transaction is treated as an intrastate
supply.
For intrastate supply, GST is divided into:
- CGST
= 9%
- SGST
= 9%
Tax Calculation:
- 9%
CGST on ₹10,000 = ₹900
- 9%
SGST on ₹10,000 = ₹900
Total GST = ₹1,800
Government Allocation:
- ₹900
CGST → paid to the Central Government
- ₹900
SGST → paid to the Maharashtra State Government
Example B – Interstate Supply
Scenario:
ABC Enterprises in Mumbai supplies goods worth ₹10,000 to MNP
Enterprises in Jaipur, Rajasthan.
Applicable GST rate = 18%
Explanation:
Here, the supplier is in Maharashtra and the
buyer is in Rajasthan.
Since the supply is made from one state to another, it
is treated as an interstate supply.
For interstate supply, only IGST is charged.
Tax Calculation:
- 18%
IGST on ₹10,000 = ₹1,800
Government Allocation:
- The
full ₹1,800 is initially collected by the Central Government.
- Later,
the amount is apportioned between the Centre and the destination state.
Since the goods are delivered and consumed in Rajasthan,
the state’s share is transferred to the Rajasthan Government, not
Maharashtra.
Why This Is Important
This example highlights one of the core principles of
GST:
GST is a Destination-Based Tax
This means tax revenue belongs to the state where
goods or services are consumed, not where they are produced or sold.
That is why GST is also known as a consumption-based
tax system.
Final Understanding
- Same
State Supply → CGST + SGST
- Different
State Supply → IGST
By identifying whether the transaction is intrastate
or interstate, businesses can correctly determine GST applicability and tax
structure.
_______________________________________________________________________
Question 6: Intrastate supply and
interstate supply are clear, but what is Zero-Rated Supply under GST?
Answer:
Zero-Rated Supply under GST mainly refers to supplies made in relation
to:
1.
Exports of goods or services,
and
2.
Supplies made to SEZ units / SEZ
developers (Special Economic Zones)
These supplies are called zero-rated because
they are eligible for GST benefits even though the tax burden is intended to be
nil.
What Does “Zero-Rated” Mean?
In simple terms, zero-rated supply means that the
supply is taxable under GST law, but the effective tax rate is 0%.
This ensures that exports and SEZ supplies remain
competitive and free from domestic tax burden.
Unlike exempt supplies, zero-rated supplies also allow
the supplier to claim Input Tax Credit (ITC) on purchases used for
making such supplies.
Example 1 – Export Supply
Suppose ABC Enterprises in India supplies goods
to a buyer in Dubai, UAE.
Since the goods are supplied outside India, this
transaction is treated as an export.
Under GST, exports are considered zero-rated
supplies, meaning GST is not ultimately borne on such transactions.
This helps make Indian goods and services tax-free in
the international market.
Example 2 – Supply to SEZ
If a supplier in India provides goods or services to a
business located in a Special Economic Zone (SEZ), that transaction is
also treated as a zero-rated supply.
Even if both parties are located in the same state,
the transaction is considered an interstate supply under GST law.
That is why supplies to SEZ units are generally
treated as interstate zero-rated supplies.
Why Is Zero-Rated Supply Important?
The objective is to ensure that exports and SEZ
transactions remain free from domestic taxes, thereby promoting international
trade and economic growth.
Methods of Making Zero-Rated Supply
A supplier can make zero-rated supplies in two ways:
1. Without Payment of Tax (Under LUT /
Bond)
If the supplier has furnished a Letter of
Undertaking (LUT) or Bond, they can supply goods/services without
charging GST.
This is the most commonly used method.
2. With Payment of IGST
If the supplier has not opted for LUT / Bond,
then GST must be paid first—usually as IGST—from the supplier’s own
funds.
Later, the supplier can claim a refund of the
tax paid.
Practical Example
Suppose ABC Enterprises in Mumbai supplies
goods to an SEZ buyer also located in Mumbai.
Even though both are in the same state:
- The
supply is treated as interstate
- It
qualifies as zero-rated supply
If ABC Enterprises has LUT, no tax needs to be
charged.
If ABC Enterprises does not have LUT, it must
pay IGST first and later claim a refund.
Final Understanding
- Exports
= Zero-Rated Supply
- Supply
to SEZ = Zero-Rated Supply
- Always
treated as Interstate Supply
- Eligible
for ITC benefits
- Can
be supplied with or without payment of IGST
So, zero-rated supply is a special GST concept
designed to ensure that exports and SEZ transactions remain tax-efficient while
still preserving input tax benefits for businesses.
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More QNA will be updated soon...................
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