Goods and Services Tax (GST) has come into effect on July 1, 2017, and is one of the major changes in indirect taxation, like an important reform in indirect taxation in India. This was supposed to pour goods and services into one common national market and consequently eliminate most of the varying tax frameworks prevailing in the country. GST, with a tagline of “One Nation, One Tax,” integrates various taxes ranging from Central Excise Duty to Service Tax and VAT into a single regime. It has a dual structure under which both national and state governments levy the GST as a “single tax” under three denominations: Central GST (CGST), State GST (SGST) and Integrated GST (IGST) for the transaction being executed outside of the state.
GST, which is a destination tax, that is, it is imposed when consumed rather than when produced, refers to the consumption point. Thus, it is further bifurcated into several tax slabs of 0%, 5%, 12%, 18% and lastly 28%, as per the classification of goods and services. Basic products are taxed at lower percentages, whereas luxury or non-essential products are charged higher tax slabs. Businesses are required to enrol on GST and periodically file returns, which increases compliance and reduces tax evasion with the help of digital platforms such as the GST Network or GSTN.
The benefits of GST registration include eliminating cascading taxes, improving supply-chain efficiencies, increasing transparency, and improving business operations. GST, however, has proven to be a very critical kind of reform that streamlines, boosts government revenue, and strengthens the foundation of the economy at large, with the absence of some of the implications, challenges and complexities in compliance and disruptions to a few during the initial transition phase.
Types or Categories of GST Taxpayers in India
In the Goods and Services Tax classification in India, taxpayers fall into a particular category depending upon their business type and turnover and whether they are self-employed or not. The classifications help in two ways: compliance and verification of applicable GST obligations. Below are the primary categories of GST taxpayers further detailed:
1. Regular Taxpayers
This category is reserved for businesses with an annual turnover exceeding the exemption limit (₹20 lakh for most states and ₹10 lakh for special category states). Taxpayers in this category are obligated to register under GST. File the periodic GST returns and in that GSTR-1, GSTR-3B, and others. Claim Input Tax Credit (ITC) for the incurred taxes due to purchases. This category is pertinent for businesses indulging in sales of taxable goods and/or services on a regular basis.
2. Composition Scheme Taxpayer
This scheme is available to small enterprises up to ₹1.5 crore (₹75 lakh for special category states) so that they can choose the simplified compliance requirements: 1% for traders and manufacturers, 5% for restaurants and 6% for service providers. Customers cannot pay GST for them or claim input tax credits. Quarterly returns CMP-08 and annual return GSTR-4 have to be filed. This type is suitable for small businesses that aim at lowering regulatory costs.
3. Casual Taxable Persons
A Casual Taxable Person is a person or business that may make available any goods or services in place of his/her absence, such as vendors who appear at exhibitions. Under GST, registration is compulsorily required for all such temporary activities. A casual taxable person has to pay the estimated Goods and Services Tax (GST) while registering. The registration has a validity of 90 days and can be further extended on request.
4. Non-resident Taxable Person (NRTP)
The Non-resident Taxable Person covers foreign entities or persons supplying goods or services in India without having a fixed place of business. Registration is mandatory for this category; no minimum threshold of turnover exists for registration. GST needs to be paid in advance based on the projected liabilities; the registration is valid for 90 days with an option to extend.
5. Input Service Distributor
An Input Service Distributor is a body which receives input service invoices and passes a credit of GST to its various branches. This distribution is only for the services, not for goods. ISDs have to file a monthly return called GSTR-6. This scheme is mostly used by organizations that have centralised procurement of services at their circle officer headquarters.
6. E-commerce Operators
All e-commerce operators, who are, in fact, companies subject to some government regulation but which have competitive and edge-exploiting portals, must register for GST, irrespective of their turnover. They are responsible for collecting and paying the Tax Collected at Source (TCS). Such businesses will be required to file a monthly return called GSTR-8. Well-known examples of such platforms include Amazon and Flipkart.
7. Tax Deduction at Source (TDS)
Government departments and others who are notified shall become liable to deduct GST at the source when making payments to the suppliers. The TDS rate shall be fixed at 2% of the gross value of payments. Returns in Form GSTR-7 have to be filed for filing the returns of TDS.
8. Special Economic Zone (SEZ) Developer or Unit
Special Economic Zones developers or units are companies that have registered under GST and conduct their operations with an export focus. They have access to a plethora of tax incentives and exemptions and hence availed zero-rated supplies in the SEZ regime and were subject to GST compliance.
9. Government Entities and Public Sector Undertaking (PSU)
Government authorities and PSUs, under the tax activity jurisdiction, are compelled to bear the burden of registration under GST. However, they are only permitted to bear the responsibility for TDS deductions under GST law.
10. Reverse Charge Mechanism Taxpayer
A taxpayer undone by the Reverse Charge Mechanism is one who is either a customer or a company that has incurred a direct liability to remit goods and services tax or the GST directly to the government rather than the provider when regarding certain specified products and/or services that an individual and/or a corporate receives avails. Relevance of RCM manifests when the supplier happens to be an unregistered person or falls in one of the specified notified categories, which incorporates the importation of services or legal services or even the sale of products by an e-commerce operator. In that way, this mechanism successfully shifts the tax burden or onus over the recipient itself, even if the issue does not turn out to be a great compliance nightmare at times. In effect, it is very important to note that the RCM taxpayer cannot immediately claim an Input Tax Credit (ITC) on GST under RCM; the claim of ITC has to be made after the tax remittance. This system improves accountability and mitigates revenue loss in the GST regime.
11. Non-Resident Online Service Distributors
As per the provisions under Goods and Services Tax (GST), a Non-Resident Online Service Distributor (NROSD) is a foreign body offering online data services and direct-to-consumer database access in India. These bodies have been mandated to register under GST irrespective of their sales level, as well as mandatory collection and remittance of GST on services. This means the revenue-generating international digital services of streaming services, e-learning platforms, and software distribution will fall under taxation and, therefore, be covered under this provision of the Act.
12. Embassy / UN Body / Other Notified Persons
In the GST regime, embassies, United Nations (UN) agencies and all such set-up establishments would get registration for Unique Identification Number (UIN) instead of common GST registration under the Goods and Services Tax Act, 2017. Consequently, they will be eligible for the recovery of taxes paid on the procurement from India in keeping with tax-exempt under this provision.
Conclusion
India divides the taxpayer under GST and enlightens citizens about the various roles in achieving effective tax system requirements for different types of businesses and the requirements of different sets of people in other sectors. The framework creates separate compliance arrangements for all regular taxpayers, composition scheme taxpayers, casual taxable persons, non-resident taxable persons and e-commerce operators under the framework that distinguishes between these categories. This would certainly bring efficiency and accessibility into the system. It also guarantees that large companies and foreign entities comply with the country’s tax rules in a transparent and fair manner, thus easing the compliance burden of smaller banks and making simpler tax reporting.
The other categories, like Input Service Distributors (ISD), Reverse Charge Mechanism (RCM) taxpayers and government entities, also provide flexibility to the GST framework to meet certain requirements and business models. It protects the system by providing refunds and tax exemptions to embassies, United Nations (UN) agencies, and other registered organisations in line with the Indian commitment towards fostering international collaboration and trade.
It is this flexibility that characterises the GST system of India and ensures that tax compliance applicable to it meets the needs of all taxpayers, small service providers, and large multinational corporations. Tax classification will increasingly be crucial as India’s tax system and processes evolve to ensure a more conducive business environment, fair tax practices and the long-term prosperity of the nation.
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