Essential GST Terminology Explained: Part One

The Goods and Services Tax (GST) system consolidates numerous indirect taxes previously collected by both central and state governments in India. To gain a clearer understanding of GST, familiarizing oneself with fundamental terms is crucial. Below are key definitions explained concisely.

Central Taxes Replaced by GST

The following taxes, previously collected by the Central Government, were subsumed under GST:

• Central Excise Duty
• Additional Customs Duties (known as CVD)
• Special Additional Customs Duty (SAD)
• Service Tax

State Taxes Replaced by GST

Similarly, various state-level taxes were integrated into the GST framework:

• State Value Added Tax (VAT)
• Central Sales Tax (collected by states but levied by the Centre)
• Entertainment and Amusement Tax (excluding those imposed by local bodies)
• Taxes on lotteries, betting, and gambling
• Entry Tax
• Octroi

Input Tax Credit (ITC)

Input Tax Credit (ITC) refers to the GST paid on the acquisition of goods and services. This includes State GST (SGST) paid to state governments, Central GST (CGST) paid to the central government, and Integrated GST (IGST) applicable to inter-state transactions and imports. ITC allows businesses to deduct the GST paid on inputs from the GST payable on their outward supplies, effectively reversing the tax liability on purchases. This mechanism is crucial for mitigating the cascading effect of taxes, ensuring that tax is not levied on tax. However, taxpayers who choose the composition levy scheme are generally ineligible to claim ITC. For further details, refer to our article on claiming input credit.

Understanding a Taxable Person under GST

Under the GST Act, a 'taxable person' is defined as any individual or entity conducting business operations within India, who is either already registered or legally obligated to register for GST. This definition encompasses anyone involved in economic activities, including trade and commerce. The term 'person' is broadly interpreted to include individuals, Hindu Undivided Families (HUFs), companies, firms, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), corporations, government companies, foreign body corporates, co-operative societies, local authorities, governmental bodies, trusts, and artificial juridical persons.

Who is Required to Register for GST?

Several criteria determine the obligation to register under GST:

• Any business entity with an annual turnover exceeding INR 20 lakhs (or INR 10 lakhs for specific North-Eastern and hilly states).
• Exemption: This threshold does not apply if the turnover is solely from goods or services exempt under GST.
• Entities previously registered under older tax laws (e.g., Excise, VAT, Service Tax) are mandated to register under GST.
• In cases of business transfer or demerger, the transferee must register for GST from the transfer date.
• Individuals or entities engaging in inter-state supply of goods.
• Casual taxable persons (defined below).
• Non-resident taxable persons (defined below).
• Agents acting on behalf of a supplier.
• Entities responsible for paying tax under the reverse charge mechanism.
• Input Service Distributors.
• E-commerce operators or aggregators.
• Suppliers providing goods or services through an e-commerce aggregator.
• Those offering online information, database access, or retrieval services from outside India to an unregistered person in India.

Casual Taxable Person

A casual taxable person is an individual who occasionally provides goods or services in a GST-applicable region without maintaining a permanent business establishment there. For instance, if a consultant based in Bangalore delivers taxable services in Pune, where they lack a fixed office, they would be considered a casual taxable person in Pune.

Non-Resident Taxable Person

Similar to a casual taxable person, a non-resident taxable person is someone who sporadically supplies goods or services within a GST-governed territory, but crucially, lacks a fixed business presence in India. This distinction highlights their foreign residency. For comprehensive details on GST registration requirements, consult our dedicated article.

Reverse Charge Mechanism (RCM)

The Reverse Charge Mechanism (RCM) shifts the responsibility for paying GST from the supplier to the recipient of goods or services. Both the Central and State Governments specify the categories of supplies where RCM is applicable. Historically, similar reverse charge provisions existed under Service Tax for services such as manpower supply, mutual fund agents, works contracts, and goods transport agencies. Under the GST framework, RCM can apply to both goods and services.

Key aspects of RCM include:

• Any individual or entity obligated to pay GST under RCM must provide details of their inward supplies.
• Registration for GST becomes mandatory for persons subject to RCM, irrespective of the standard turnover threshold.
• Specific rules govern the 'time of supply' for goods and services where tax is paid under the reverse charge basis.

The introduction of GST has transformed India's indirect tax landscape. This article has covered several fundamental GST terms. To further enhance your comprehension of GST concepts, we encourage you to explore additional definitions in the second part of this series and browse other informative articles on our blog.