UPSC GS Paper III: Taxation, GST Structure, Dual GST, Council Issues, Revenue Sharing

Must?Know (20–25 detailed bullets)

• Article 246A – Grants concurrent power to Parliament and state legislatures to make laws on goods and services tax; introduced by 101st Constitutional Amendment Act, 2016.
• Article 269A – Specifies that inter-state supply of goods and services falls under Parliament’s exclusive power; levies Integrated Goods and Services Tax (IGST) on inter-state trade.
• Article 279A – Establishes the GST Council as a constitutional body; mandates its composition and decision-making process.
• 101st Constitutional Amendment Act, 2016 – Introduced GST in India; received presidential assent on September 8, 2016; came into effect on July 1, 2017.
• GST Council – Chaired by Union Finance Minister; includes Finance Ministers of all states; decisions require 3/4th majority of weighted votes (Centre: 1/3, States: 2/3 collectively).
• Dual GST Model – India adopted a dual GST system where Central GST (CGST) and State GST (SGST) are levied on intra-state supply; IGST on inter-state supply.
• CGST – Collected by the Centre; applies to intra-state supply; revenue retained by Centre; rate capped at 14% for most goods.
• SGST – Collected by the state government; applies to intra-state supply; revenue retained by respective state; cannot be set on petroleum, alcohol.
• IGST – Collected by the Centre; applies to inter-state supply and imports; distributed to destination state after collection.
• GST Compensation Cess – Levied under GST (Compensation to States) Act, 2017; funds shortfall in state revenue post-GST; rate varies by product (e.g., 15% on cigarettes, up to 200% on luxury cars).
• GST Compensation Period – Initially set for 5 years (2017–2022); extended temporarily beyond 2022 due to pandemic-induced revenue shortfalls.
• GST Council’s Role in Rate Setting – Recommends tax rates, exemptions, thresholds; finalizes rate slabs (0%, 5%, 12%, 18%, 28%); revised rates over 40 times since 2017.
• GST Network (GSTN) – Non-profit private limited company; 51% owned by government; provides IT infrastructure for GST return filing, payment, and registration.
• Reverse Charge Mechanism – Shifts tax liability from supplier to recipient; applies in specific cases like unregistered seller to registered buyer; ensures tax compliance in B2B transactions.
• Input Tax Credit (ITC) – Allows offset of taxes paid on inputs against output tax; CGST credit can be used only against CGST, IGST against IGST and CGST/SGST (in order).
• Zero-Rated Supply – Exports and supplies to SEZs; treated as inter-state; IGST levied but refunded or claimed as credit; enables tax-free exports.
• Composition Scheme – Simplified tax regime for small businesses with turnover up to ?1.5 crore (?75 lakh in special category states); limits ITC and inter-state supply.
• E-Way Bill – Mandatory for inter-state movement of goods valued over ?50,000; generated on GSTN portal; enforced since April 1, 2018.
• GST on Petroleum Products – Crude oil, diesel, petrol, ATF, and natural gas excluded from GST; taxed under pre-GST regime (excise, VAT).
• GST on Alcohol – Not under GST; states continue to levy excise duty and VAT; impacts revenue pooling and uniformity.
• HSN Code – Harmonized System of Nomenclature; used for classifying goods; mandatory for businesses with turnover > ?1.5 crore (2-digit), > ?5 crore (4-digit), > ?10 crore (6-digit).
• SAC Code – Services Accounting Code; used for classifying services under GST; essential for invoicing and return filing.
• GST Returns – GSTR-1 (outward supplies), GSTR-2A (auto-drafted inward supplies), GSTR-3B (summary return); multiple return forms simplified under QRMP scheme.
• QRMP Scheme – Quarterly Return Monthly Payment; for taxpayers with turnover-?5 crore; file GSTR-1 and GSTR-3B quarterly with monthly tax payment via PMT-06.
• GST Appellate Tribunal (GSTAT) – Proposed under Section 109 of CGST Act; not yet fully operational; intended to reduce litigation burden on High Courts.

Difficulty Level

Intermediate – Requires understanding of constitutional provisions, fiscal federalism, and operational mechanics; questions often combine static and dynamic elements.

Common UPSC Traps (3–5 factual traps)

Trap: GST Council decisions are binding on both Centre and States – Fact: GST Council recommendations are not legally binding; however, Parliament and state legislatures generally follow them to maintain fiscal coordination (as per GST Council’s role under Article 279A).

Trap: IGST is shared equally between Centre and State – Fact: IGST is collected by the Centre but transferred to the destination state; the Centre retains a portion equivalent to CGST, and the rest is settled to the consuming state.

Trap: GST replaced all indirect taxes – Fact: GST subsumed 17 major central and state taxes (e.g., excise, service tax, VAT) but excluded alcohol, petroleum, electricity, and real estate (partially taxed).

Trap: GST Council has judicial powers – Fact: GST Council is advisory and recommendatory; it lacks adjudicatory or enforcement powers; disputes are resolved through appellate authorities and courts.

Practice MCQs (5–7 questions)

Question: Which of the following is NOT subsumed under GST in India?
A) Central Excise Duty
B) Value Added Tax (VAT)
C) Stamp Duty on Property Transfer
D) Service Tax
Answer: C
Explanation: Stamp duty on property transfer remains outside GST and is levied by states under their respective stamp acts.
Why others fail: VAT and excise were major state and central taxes replaced by SGST and CGST, making C the correct exclusion.

Question: Under the dual GST model in India, which tax is levied on inter-state supply of goods?
A) CGST
B) SGST
C) UTGST
D) IGST
Answer: D
Explanation: IGST is levied on inter-state supplies under Article 269A of the Constitution.
Why others fail: CGST and SGST apply only to intra-state transactions, making D the only constitutionally correct option.

Question: The GST Compensation Cess is levied to:
A) Fund infrastructure projects in backward states
B) Compensate states for revenue loss due to GST implementation
C) Subsidize exports under zero-rated supply mechanism
D) Finance the GSTN’s IT infrastructure
Answer: B
Explanation: As per the GST (Compensation to States) Act, 2017, cess is collected to compensate states for revenue shortfall during the transition period.
Why others fail: Option C confuses cess with refund mechanism; the cess is specifically for state compensation.

Question: Which of the following statements about the GST Council is correct?
A) It has equal voting weight for Centre and all states combined
B) It is a constitutional body established under Article 279A
C) Its decisions require simple majority for approval
D) It can impose binding tax rates on states
Answer: B
Explanation: Article 279A establishes the GST Council as a constitutional body with weighted voting (Centre: 1/3, States: 2/3).
Why others fail: Option A is false—voting is weighted, not equal; decisions require 3/4th majority, not simple.

Question: Input Tax Credit (ITC) under GST cannot be availed on which of the following?
A) Office furniture used for business
B) Goods used for constructing an office building
C) Motor vehicles for transporting goods
D) Health insurance for employees
Answer: D
Explanation: As per Section 17(5) of CGST Act, ITC is blocked on health insurance and personal benefits unless for specific taxable supplies.
Why others fail: Option B allows ITC if used for business; only personal use and specified blocked credits are disallowed.

Question: The HSN code is mandatory for GST taxpayers based on annual turnover. What is the requirement for taxpayers with turnover above ?5 crore?
A) 2-digit HSN code
B) 4-digit HSN code
C) 6-digit HSN code
D) 8-digit HSN code
Answer: C
Explanation: As per CBIC notification, taxpayers with turnover > ?5 crore must use 6-digit HSN codes on invoices.
Why others fail: Option B applies to turnover between ?1.5–5 crore; higher turnover mandates more digits.

Question: Which of the following is a feature of the QRMP scheme under GST?
A) Monthly return filing for all taxpayers
B) Quarterly return with monthly payment via PMT-06
C) Applicable to taxpayers with turnover up to ?10 crore
D) Mandatory e-way bill generation for all supplies
Answer: B
Explanation: QRMP allows eligible taxpayers (turnover-?5 crore) to file returns quarterly and pay tax monthly using PMT-06.
Why others fail: Option C is incorrect—threshold is ?5 crore, not ?10 crore.

Last?Minute Revision (20–25 one?liners)

• GST implemented on July 1, 2017 – Midnight session in Parliament.
• 101st Constitutional Amendment Act – Enacted GST; added Articles 246A, 269A, 279A.
• Article 246A – Concurrent power for GST; overrides Entry 54 (C) and 55 (S) of Seventh Schedule.
• GST Council – 3/4th majority needed; Centre has 1/3 weight, states 2/3 collectively.
• IGST Act, CGST Act, SGST Act – All passed in 2017; based on GST Council recommendations.
• GSTN – 51% government ownership; Tata Consultancy Services holds 10%.
• Composition Scheme – Turnover limit ?1.5 crore; no ITC; tax rate 1%, 5%, or 6%.
• E-Way Bill – Threshold ?50,000; implemented April 1, 2018.
• Reverse Charge – Applies when recipient pays tax; e.g., unregistered supplier to registered dealer.
• Zero-Rated Supply – Exports and SEZ supplies; IGST paid but refunded.
• GST Compensation Cess – Expires after compensation period; not a permanent levy.
• Petroleum products excluded – Crude, petrol, diesel, ATF, natural gas.
• Alcohol for human consumption – Not under GST; taxed by states.
• SAC Code – Used for services; e.g., SAC 9983 for IT services.
• HSN Code – 6-digit mandatory for turnover > ?5 crore.
• GSTR-1 – Filed monthly/quarterly; details outward supplies.
• GSTR-3B – Summary return; self-declared; due by 20th of next month.
• QRMP Scheme – For turnover-?5 crore; file GSTR-3B quarterly.
• IGST Model – Based on destination principle; revenue goes to consuming state.
• Union Finance Minister – Chairs GST Council.
• GST Appellate Tribunal – Not yet functional; delays in dispute resolution.
• 17 Taxes Subsumed – Including central sales tax, octroi, luxury tax.
• No GST on electricity – Governed by Electricity Act, 2003.
• Real estate – Only under GST for under-construction properties; stamp duty separate.
• verify from standard source – Exact cess rates on luxury cars and tobacco vary; check latest notifications.