India adopted a new tax code after it gained independence from the United Kingdom in 1947, and since then, it has been making various changes to the existing system. The complex multi-tier system of taxation comprised central and state governments and had taken at least a few first two or three decades following the country’s independence. There were cascading effects of taxes: they had instances of high tax evasion with a poor response level. The tax-to-GDP ratio was less than 15-16% in the 1990’s.
Major reforms were initiated by adopting the Value Added Tax (VAT) mechanism for indirect taxes in the 2000s. VAT helped streamline and simplify the indirect tax structure by replacing taxes like sales tax, octroi, and entry tax. The goods and services tax (GST) was the next logical step in indirect tax reform.
GST online compliance subsumes most indirect taxes at the central and state levels, including excise duty, service tax, VAT, entertainment tax, octroi, and entry tax. It is levied on the supply of goods and services right from the stage of manufacturing to final consumption.
Digitization – The Backbone of GST Implementation
A unique feature of India’s GST is the complete digitization of processes relating to registration, payment, return filing, refunds, and invoices. The Goods and Services Tax Network (GSTN), a non-profit, non-government company, manages the entire IT infrastructure and network that integrates the government and taxpayers. Some benefits of a digital GST network are:
- Unitary register of online registration.
- e-payments replace physical payments
- Ease in filing the auto-populated monthly returns.
- Auto-generated refunds and invoice matching.
- Improving policy-related analytics and data mining.
Three simple documents and one day are all that are required for a taxpayer’s registration on the GST portal. A single login ID is used by taxpayers to administer returns and paybacks, query inquiries, and follow up on the status of cases. As of August 2023, there are more than one crore and forty lakh registered users on the GSTN portal.
They enhance the tracking of inter-state transportation of goods worth more than Rs. 50,000 in value. Currently, more than nine crore e-way bills have been created on the portal as of March this year. In 2020, GST e-invoicing was introduced to report B2B invoices meant to tackle GST evasion. In 2021, more than 29 crore e-invoices were created monthly.
| Income Bracket | Tax Rate |
| Less than Rs. 2,50,000 | Nil |
| Between Rs. 2,50,001 to Rs. 5,00,000 | 0.05 |
| Between Rs. 5,00,001 to Rs. 10,00,000 | 0.2 |
| More than Rs. 10,00,000 | 0.3 |
Table: Tax rates for different income brackets in 2017-18
| Tax Slab (Rs. ) | New Tax Rates |
| 0 – 2,50,000 | 0 |
| 2,50,000 – 5,00,000 | 0.05 |
| 5,00,000 – 7,50,000 | 0.1 |
| 7,50,000 – 10,00,000 | 0.15 |
| 10,00,000 – 12,50,000 | 0.2 |
| 12,50,000 – 15,00,000 | 0.25 |
| Above Rs. 15,00,000 | 0.3 |
Table: New tax rates post Budget 2020
Data analytics and AI are also used for identifying risky taxpayers, verification of suspicious transactions, and targeting audits besides e-filing and e-payments. Tax compliance has really increased with all these elements. A recent CRISIL study found that GST revenue was 18% more than under the previous taxation system in 2019-20.
Key Features and Benefits of GST
Some salient features of the Goods and Services Tax are:
- A single tax replaces a multi-layered indirect tax.
- It adopts the consumption-based model.
- Based on the destination principle.
- Simultaneous on all goods and services nationwide.
- Sharing of administration by the Centre and the State.
One of the advantages of GST is that it eliminates all the cumulative effects of taxes during the production and distribution cycles, as it does not have any such effect anymore. Some major benefits are:
- Widens the tax base and improves tax compliance
- Boosts investments, manufacturing, and export competitiveness
- Reduces logistics costs and delays
- Simplifies tax administration through a centralized registration and payment system
- Enhances transparency through seamless flow of input tax credits
- Promotes ‘Make in India’ through lower burden on domestic manufacture
The new tax regime has also faced criticism and challenges during its implementation. Compliance has emerged as an issue for small businesses. Complex filing procedures, glitches in the GST portal, and refund delays are other pain points that need resolution.
The extensive reporting requirements have increased business costs. Revenue collection was also impacted during the initial years after the GST rollout. Addressing these challenges can help realize the full potential of GST.
Key Pillars of Digitization in the GST System
The nationwide GST tax system functions on a robust IT and digital infrastructure catering to over 1.3 crore registered taxpayers. Some key pillars enabling end-to-end digitization are:
- GST Portal: The portal managed by GSTN is the main interface for taxpayers to access services like registration, return filing, payments, and refunds. Facilities for grievance redressal, online verification, and contact centers are offered.
- GST Suvidha Providers (GSPs): GSPs are private companies that act as a bridge between taxpayers and the GSTN system. They enable services like submitting registration applications, filing returns, and more.
- API interface: The GST portal allows integration with accounting and ERP software of businesses through APIs. Taxpayers can directly upload invoices and auto-populate returns.
- GST App: Mobile apps make services like return filing, tracking status, and notifications accessible on smartphones. Apps like ‘Jhatpat GST’ have been launched.
- E-Way Bill System: E-way bills are mandatory for moving goods worth over Rs.50,000 within or across states. They are generated electronically and verified using RFID and E-permits.
- E-Invoicing: Large companies must generate B2B e-invoices with a standard format with a QR code and digital signature to transmit to the ‘Invoice Registration Portal.’
- Analytics: Data analytics helps identify gaps in fraud and monitor compliance. Based on consumption patterns, it is also useful for policymaking regarding slab rates, exemptions, etc.
Apart from the GST portal, private players like BillDesk, Razorpay, and PayU provide payment gateways. Facilities like SMS alerts and vernacular languages make the system accessible. Robust cybersecurity measures like encryption and firewalls protect taxpayers’ data.
Key Initiatives in GST Online Compliance
The GST Council and GSTN regularly undertake initiatives to enhance digital tax compliance for taxpayers. Some key efforts are:
- GST e-Invoicing System: To track B2B transactions in real-time, GST e-invoicing was introduced in a phased manner for companies with over Rs.500 crore turnover. It aims to curb fake invoices and fraud.
- QR Code on B2C Invoices: QR codes have been mandated on B2C tax invoices of over Rs.200 value for real-time reporting to improve compliance. Dynamic QR codes will contain GSTIN and transaction details.
- GSTR-2B Auto-Drafted Returns: System-computed input tax credit statements are auto-populated in Form GSTR-2B to ease return filing. Taxpayers can validate and submit returns monthly.
- SMS-based File Return Reminder: Automated SMS reminders are sent to taxpayers on the due date for filing GST returns to prevent delays and discrepancies in compliance.
- Late Fee Amnesty Scheme: To provide relief from late fees, a waiver scheme was introduced for taxpayers to clear past pendency of returns between June 2020 and January 2021 without late fees.
- GST Compliance Rating: A compliance rating mechanism has been proposed to nudge taxpayers into timely compliance. Parameters like return filing, turnover, and pending demands will determine ratings.
- Integration with e-NAM: Wholesale mandis under the e-National Agriculture Market (e-NAM) have been integrated with the GSTN and E-Way bill system to improve reporting by traders.
- New Return Filing System: A simplified return filing process will be rolled out through self-review, amendment, and audit trails. This will ease the burden and enhance compliance.
E-Invoicing – A Major Step Towards Digital Compliance
E-invoicing or electronic invoicing involves reporting business-to-business invoices to a government portal to obtain a reference number before issuance to buyers. India introduced GST e-invoicing in a phased manner, starting with large taxpayers:
- Companies with turnover over Rs.500 crore adopted GST e-invoicing in October 2020
- Those with turnover over Rs.100 crore were brought under e-invoicing from January 2021.
- The threshold was lowered to Rs.50 crore from April 2021.
Under e-invoicing, taxpayers must generate invoices on their internal systems and report them to the Invoice Registration Portal (IRP). The IRP verifies invoice details, generates a unique Invoice Reference Number (IRN), digitally signs the invoice, and sends it back to the taxpayer to issue to the buyer.
Major benefits of e-invoicing are:
- Real-time reporting of B2B invoices
- Improved tax compliance and transparency
- Elimination of fake invoices
- Faster input tax credit settlement
- Reduced reconciliation problems
- Maintaining an invoice trail
According to data, over 30 crore e-invoices are generated monthly, indicating growing adoption by businesses. E-invoicing and e-way bills create an interconnected digital infrastructure for tracking transactions end-to-end.
Return Filing Under GST Regime
The benefits of online GST return filing are:
- Easy reporting and submission on the GST portal through digital forms
- Auto-population of values from previous months’ and suppliers’ returns
- Reduced data entry issues and errors
- Faster processing and refunds based on returns
- Analytics-based identification of discrepancies
However, glitches on the GSTN portal, complicated filing procedures, and tall claims on input tax credit remain key challenges. Simplifying returns with tracking of differences and improving system stability can enhance compliance.
Impact of GST on Tax Efficiency
Tax efficiency refers to maximizing tax revenue collection while minimizing distortions, leakage, avoidance, exemptions, etc. GST has positively impacted India’s tax efficiency through:
- Widened tax base: By bringing crores of taxpayers from the unorganized sector under tax, GST has increased the tax net substantially.
- Improved tax compliance: Digital procedures make tax evasion difficult. GST filings surged to 1.32 crore taxpayers in 2021 from around 65 lakh under the VAT regime.
- Higher tax buoyancy: Tax revenues have kept pace with GDP growth after the GST rollout. Total gross GST collections reached Rs.1.4 lakh crore by March 2021.
- Lower tax rates on goods: Average indirect tax rates before GST was around 25-30%. Under GST, most goods are taxed at 5/12/18% GST.
- Reduction in logistics costs: Removing inter-state barriers has reduced transportation time and costs, boosting supply chain efficiency.
- Increased export competitiveness: GST and input tax credits have made Indian products more competitive in global markets.
- Curbing the black economy: E-invoices and e-way bills help counter tax evasion by tracking the movement of goods in real-time.
However, complex GST return filing, glitches in IT systems, revenue shortfalls in some months, and compliance burdens still need to be addressed to achieve the full potential of GST in enhancing tax efficiency.
Conclusion
GST has been a landmark tax reform, creating a unified common market in India. It has eliminated the maze of cascading indirect taxes into a simple, transparent tax system. A robust IT infrastructure and nationwide digitization have enabled the implementation of a state-of-the-art GST network for registration, GST return filing, and payments.
E-invoicing, e-way bills, and compliance rating mechanisms have significantly improved tax compliance and collection. This shows the transformative impact of technology in enabling tax administration. However, simplifying procedures further for small businesses and stabilizing digital systems remain key priorities. Overall, GST and digitization have enhanced the efficiency, transparency, and compliance of indirect taxes to usher in a new tax regime.
FAQs
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What is the Goods and Services Tax (GST)?
GST was designed to replace several cascading taxes collected by the federal and provincial governments. GST taxes are imposed at every step of the manufacturing and sales process.
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What are the advantages of GST?
Some of the primary advantages of GST are the absence of the cascading impact of taxes, consistent tax rates across states, enhanced ease of doing business, simpler tax compliance processes, and the formation of a single national market.
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How does GST function?
GST combines all indirect taxes into a single, tiered tax system – CGST, SGST, and IGST. Except for alcohol, petroleum, and electricity, it is charged on both commodities and services. Taxes paid on inputs are deducted from taxes due on the finished output.
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What role do technology and digitalization play in GST?
The effective deployment of GST is dependent on digitization. All activities, including registration, GST return filing, tax payments, and refunds, are completed online using the GST Portal. Technology is also used in invoice matching, e-way billing, and other operations.
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What exactly is GST E-invoicing?
E-invoicing is the electronic creation of invoices on the GST site before supplying goods/services. It assigns each invoice a unique Invoice Reference Number (IRN). Its goal is to reduce tax evasion.
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What exactly is an e-way bill under GST?
E-way bills are electronic documents created on the GST site before transporting goods valued at more than Rs. 50,000 within or outside a state. It comprises information on the items, consignor, receiver, and carrier.
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How does GST improve tax compliance?
GST promotes improved tax compliance by requiring invoice matching, a continuous flow of input tax credits, comprehensive digital trails of transactions, and incentives for purchasers to insist on invoices in order to collect tax credits.
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What exactly is the GSTN (Goods and Services Tax Network)?
GSTN is a non-profit, non-government, private limited business that handles GST Portal’s whole IT infrastructure. It offers taxpayers front-end and back-end services to the federal and state governments.
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What are the advantages of GST for small businesses?
GST assists small firms by decreasing compliance burdens via online processes, avoiding cascading taxes, allowing for the smooth flow of input tax credits, and allowing them to grow nationwide with minimum state-by-state compliance.
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How has the Goods and Services Tax (GST) promoted transparency in the taxing system?
GST has boosted transparency by implementing fully online procedures, improving tax compliance, creating large digital trails, reducing human interaction, and allowing the Centre and States to share data.
