GST Theory Notes (Summarized and Exam-Oriented)
🔹 Possible Exam Questions
What are the key features of indirect taxes?
How does the burden of indirect taxes shift to the
consumer?
Why are indirect taxes considered regressive in nature?
✅ 4.1 Concept and Features of Indirect Taxes
Tax on goods and services: Levied at the time of supply,
manufacture, sale, purchase, import, or export.
Burden: Paid by the seller but passed on to the buyer –
ultimately borne by the consumer.
Inflationary: Leads to an increase in cost of
goods/services.
Social welfare: Discourages consumption of harmful/sin
goods by higher taxation.
Wider tax base: Covers a wide range of goods/services
with very low threshold limits.
Regressive in nature: Same rate applies to rich and poor,
increasing disparity.
No pinch: Buyer pays it unknowingly as it's inbuilt in the
price.
🔹 Possible Exam Questions
Distinguish between direct tax and indirect tax.
Why is direct tax considered progressive while indirect
tax is regressive?
✅ 4.2 Difference Between Direct & Indirect Taxes
Basis Direct Tax Indirect Tax
Incidence & Falls on same Falls on different
Impact person persons
Example Income Tax GST, Customs
Duty
Nature Progressive Regressive
Burden Cannot be Shifted to
shifted consumer
Evasion Possible Difficult (inbuilt
in price)
Inflation Impact Helps reduce Promotes
inflation inflation
Event Taxable income Supply of
goods/services
🔹 Possible Exam Questions
What were the issues with the indirect tax regime before
GST?
How did GST help remove the cascading effect of tax?
✅ 4.3 Background of Erstwhile Indirect Taxes
Constitution divides law-making into 3 lists (Union,
State, Concurrent) under Article 246 + Schedule VII.
Pre-GST: Centre & State taxed goods/services separately
(Excise, VAT, CST, Service Tax, Octroi, etc.)
Issues in pre-GST regime:
Fragmented tax structure, heavy compliance burden
Tax on tax (cascading effect)
No input tax credit across states
Logistics bottlenecks due to tax nakas
State-wise pricing and strategy decisions
GST unified these taxes under one system — "One
Nation, One Tax"
🔹 Possible Exam Questions
What is the constitutional amendment that enabled the
implementation of GST?
What changes were made to the Indian Constitution to
accommodate GST?
✅ 4.4 Constitutional Validity of GST
Constitution (101st Amendment) Act, 2016 enabled GST.
Introduced Article 246A: Empowers Centre and State to
make laws with respect to GST.
Article 269A: Provides for levy and collection of GST on
inter-State supply by the Centre and distribution of
revenue between Centre and States.
Article 279A: Provides for the formation of the GST
Council.
Inserted Schedule XII and amended Schedule VII to
update tax powers.
🔹 Possible Exam Questions
What is GST Council and what are its powers and
functions?
Who are the members of the GST Council?
✅ 4.5 GST Council
Constitutional body under Article 279A.
Headed by Union Finance Minister.
Other members:
Union Minister of State (Revenue or Finance)
Finance Ministers of all States or any other nominated
Ministers
Functions:
Recommend rates of tax, goods/services exempted,
model GST law, special provisions for special category
states, etc.
Ensures harmony in structure and administration of
GST
Decisions taken by 3/4th majority: Centre has 1/3rd
weightage; States collectively have 2/3rd.
🔹 Possible Exam Questions
What does the slogan "One Nation, One Tax" mean
under GST?
How does GST create a unified national market?
✅ 4.6 GST – One Nation, One Tax
GST is a single tax on the supply of goods and services
from manufacturer to consumer.
Credit of input taxes paid at each stage is available in
the next stage of value addition.
Eliminates the cascading effect (tax on tax).
Promotes ease of doing business by subsuming multiple
indirect taxes into one.
Ensures common procedures, common returns, and
uniform tax rates.
Removes geographical barriers and makes India a
unified common market.
🔹 Possible Exam Questions
Define the term 'Supply' under GST.
What is included and excluded from the scope of
supply?
✅ 4.7 Meaning and Scope of Supply
Supply includes all forms of supply of goods/services
such as sale, transfer, barter, exchange, license, rental,
lease or disposal.
Scope of supply under Section 7 of CGST Act includes:
All forms of supply for a consideration in the course or
furtherance of business.
Import of services for a consideration, whether or not
in the course of business.
Specified activities in Schedule I (supply without
consideration).
Activities listed in Schedule II to be treated as supply
of goods or services.
Schedule III lists activities that are neither supply of
goods nor services (e.g., services by employee to
employer in course of employment).
🔹 Possible Exam Questions
What are the different types of supply under GST?
Define composite supply and mixed supply with
examples.
✅ 4.8 Classification of Supply
Taxable Supply: Supply that is chargeable to GST.
Exempt Supply: Includes NIL rated, wholly exempt, and
non-taxable supply.
Composite Supply: Supply of 2 or more taxable supplies
naturally bundled and supplied in conjunction. Example:
Hotel with breakfast.
Tax rate of principal supply applies.
Mixed Supply: Supply of 2 or more individual supplies
combined for a single price but not naturally bundled.
Example: Diwali gift box (perfume, sweets, etc.).
Highest tax rate applicable to any individual item
applies to the entire supply.
🔹 Possible Exam Questions
What is the scope of Section 9 of CGST Act?
On which supplies is GST levied?
✅ 4.9 Charge of GST
Section 9(1): CGST shall be levied on all intra-State
supplies of goods/services except alcoholic liquor for
human consumption.
Rate: Not exceeding 20%, as notified by the government
on recommendation of the GST Council.
Section 9(2): Tax on petroleum products shall be levied
from date notified by government.
Section 9(3): Reverse charge mechanism (RCM) for
specified categories of supply (e.g., GTA services).
Section 9(4): RCM on inward supply of goods/services
from unregistered supplier (for notified persons only).
Section 9(5): E-commerce operator deemed liable to
pay tax for certain notified services (e.g., cab
aggregators).
🔹 Possible Exam Questions
What is the composition scheme under GST?
Who can opt for the composition levy and what are the
conditions?
✅ 4.10 Composition Levy
Section 10 of CGST Act allows eligible registered
persons to pay tax under composition scheme.
Eligibility:
Aggregate turnover in preceding FY should not exceed
₹1.5 crore (₹75 lakhs for special category States).
Should not be engaged in inter-State supplies, e-
commerce, or supply of non-taxable goods/services.
Cannot collect tax from recipient nor claim ITC.
Tax Rates (approx):
Manufacturers: 1%
Traders: 1% (0.5% CGST + 0.5% SGST)
Restaurants (not serving alcohol): 5%
Returns: File quarterly return CMP-08 and annual return
GSTR-4.
Benefits: Simplified compliance, reduced tax liability.
Drawbacks: No ITC, not applicable for inter-state supply.
🔹 Possible Exam Questions
What supplies are exempt from GST?
What are the different types of exemptions under GST?
✅ 4.11 Exemptions from GST
Exempt supply means supply that attracts NIL rate of
tax or is wholly exempt under Section 11 of CGST or
Section 6 of IGST.
Types of exemptions:
1. Absolute Exemption – Granted without any condition
(e.g., unbranded goods).
2. Conditional Exemption – Available on fulfilling
specific conditions.
3. Partial Exemption – Available to certain taxpayers like
small service providers up to a limit.
Section 11 (CGST Act):
Government can exempt goods/services on
recommendation of GST Council.
May be absolute or conditional via special order.
Not liable to tax: Certain items like alcohol for human
consumption, electricity, petroleum products (till
notified) fall outside GST scope.
