Goods and Services Tax (GST) are imposed on the majority of goods and services that are sold for domestic use. Although customers pay the GST to the government, the companies that sell the goods and services are the ones who deduct it on behalf of the government.
The GST, however, is a regressive tax since it may disproportionately affect those whose self-reported income falls into the lowest and medium income bands.
Thus, according to many critics, the GST may worsen income disparity and increase social and economic inequalities. To mitigate these issues, India has implemented good GST exclusions or lowered GST rates on necessities like food and medical care. To lessen the burden of bad GST on lower-income households, several state governments have instituted GST credits or rebates. Here are few Tax planning strategies for small businesses.
Advantages of Good GST
Growth in International Investment
After the GST was put into place, India became a lucrative market with a single tax system and saw a sharp increase in foreign investment. For more details deep dive into the impact of investors on businesses. India’s goods are more competitive on the global market due to their lower costs, which has led to a rise in exports. Exporters now expand their business with NIRVIK Scheme.
With the Goods and Services Tax in place, India is now compliant with international tax laws, which facilitates international sales for Indian businesses.
A Single Tax Structure
The removal of numerous levies from the Indian tax system was one of the main objectives of GST implementation. There were several taxes in place before the GST was established, including service tax and VAT.
All of these fees were removed when the GST was implemented. There is just one tax now. GST rates for various commodities vary despite the existence of multiple slabs, which frequently confuses.
Less Obligation to Conform to
There were various indirect taxes in place before the 2017 implementation of the GST laws. Of course, each of these taxes had a different set of compliance requirements, which further complicated matters. There has only been a single, consolidated return that taxpayers must file since the new tax system went into effect.
Out of the approximately eleven returns for the GST, only four are basic taxes that apply to all registered taxpayers, irrespective of their business type. GSTR-2 and GSTR-3 are automatically populated, however only the primary GSTR-1 is manually populated to make submitting these reports easier.
Easy Access
The official GST login portal is available to everybody at any time. This makes filing returns easier. This is quite advantageous for all kinds of enterprises.
Disadvantages of GST
Rising Expenses
To continue operating, GST compels businesses to replace their present accounting software with ERP or GST-compliant software. Businesses should be aware, though, that it can be expensive to buy, install, and educate employees to use software that complies with GST laws. Furthermore, since hiring tax professionals is now necessary for businesses of all sizes to become GST-compliant, operating costs have increased dramatically for all of them.
A Rise in Software Costs
The majority of Indian firms used simple accounting or ERP software to run their daily operations before the GST regime was put into place. The tax laws and regulations in effect at the time were followed in the development of these programs and solutions.
The advent of GST has forced businesses to move to more expensive GST-compliant software or specialized GST software. This suggests that software purchases and staff training will result in higher operating costs.
A Higher Tax Burden for SMEs
The fact that small and medium-sized businesses now have heavier tax obligations as a result of the GST is one of its biggest drawbacks. This is because businesses with yearly sales over Rs. 1.5 crores were obligated to pay excise under the previous tax system.
But under the new tax system, any business that generates more than Rs. 20 lakh in revenue annually is liable to pay taxes. For SMEs with income under Rs. 1 crore, this tax system offers a composition program. Under this method, SMEs just have to pay 1% of their yearly revenue.
Difference Between Good GST and Bad GST
| Good GST | Bad GST |
| Tax rates and compliance processes are easy. | An excessively intricate tax framework that features numerous rates and severe compliance requirements. |
| Wide base at modest to moderate rates | High tax rates that limit economic growth and deter competition. |
| Comprehensive tax base that includes a large number of products and services. | Significant exclusions and exemptions from the tax base. |
| Robust system to stop taxes that overflows. For example, the GST system in India enables companies to claim, avoiding double taxation and cutting down on compliance expenses. | Ineffective system resulting in escalating taxes. For example, initially, it was difficult to claim input tax credits in India because of systemic intricacies and technical issues, which led to cascading taxes and higher expenses for companies. |
| Stable flow of income for the government. For example, consider how India’s GST helps to provide steady revenue streams for the financing of infrastructure and public services. | Unstable income, difficult budgetary planning. For example, the government faces difficulties in budget planning and fiscal management due to fluctuations in GST collections in India. |
FAQs
- What effects has the implementation of GST had on India’s taxation of goods and services?
Since the implementation of the Goods and Services Tax (GST), products and services have been divided into five tax slabs, with rates ranging from 0% to 28%. This has altered the tax rates on a range of goods and services, which has an impact on both government revenue and consumer spending.
- What were the main goals of the GST introduction in India?
The main goals of the GST implementation in India were to reduce tax evasion rates, increase the number of taxpayers, increase transparency, decrease the cascading effect of taxes, and eliminate uncertainty surrounding many indirect taxes.
- How has the tax-on-tax system benefited from GST?
Companies are no longer required to pay tax on top of tax under the GST system. The GST system ensures that businesses don’t have to spend extra money needlessly by combining all applicable taxes under one roof.
- What is the GST composition scheme?
The GST composition scheme is a tax-paying mechanism that is eligible for businesses having an annual turnover below ₹1.5 crore. It aims to effectively reduce the compliance costs and tax burdens of small businesses, by allowing them to pay GST at fixed rates instead of the value addition that occurs at each stage of their supply chain. Explore details of how small businesses are eligible for GST Business Loan.