GST is a comprehensive, multi-stage, destination-based tax levied on the supply of goods and services, introduced via the Constitutional 101st Amendment Act, 2016.
1. The Dual GST Model in India
Because of India's federal structure, a dual GST model is implemented where both the Center and States simultaneously levy tax on a common base:
- CGST (Central GST): Levied by the Central Government on intra-state supplies.
- SGST (State GST) / UTGST: Levied by State Governments/Union Territories on intra-state supplies.
- IGST (Integrated GST): Levied by the Central Government on all inter-state supplies of goods and services (including imports). IGST is subsequently shared between the Center and the destination state.
2. The GST Council (Article 279A)
The GST Council is a joint constitutional forum of the Center and States to make recommendations on GST rates, exemptions, threshold limits, and rules.
- Composition: Chaired by the Union Finance Minister, with the Union Minister of State for Finance and the Finance/Taxation Ministers of all State Governments as members.
- Decision Making: Decisions are taken by a majority of not less than three-fourths (75%) of the weighted votes of the members present and voting. The Center holds 1/3 weight, and all States together hold 2/3 weight.
3. Input Tax Credit (ITC) Mechanism
The cornerstone of GST is the seamless flow of credit across the supply chain. Input Tax Credit allows a registered business to reduce the tax they have paid on purchases (input tax) from the tax they owe on sales (output tax), preventing the cascading effect (tax-on-tax).