The Goods and Services Tax (GST) system is a new system of indirect taxation system introduced by the Government of India on 1st July 2017. It has been considered as a landmark reform in the country’s indirect tax regime with the objective of simplifying the taxation system as well as ensuring ease of doing business and transparency. Implemented with the idea of ‘one nation, one tax’, the GST system removes the cascading effects of multiple indirect taxes such as VAT, Excise Duty & Service Tax levied by the central & state government on the supply of goods & services in India. It has been conceptualized with the purpose of ultimately reducing the tax burden on the common taxpayers of India.
Know the basics of GST
Here are some facts about GST:
- Under the GST regime, only one single tax is applicable at variable rates on different items under various slabs.
- For tax collection, goods and services are classified under five tax slabs viz. 0%, 5%, 12%, 18% and 28%.
- The GST tax rates and all rules and regulations are governed by the GST council which comprises of the finance ministers of the centre and the states.
- All dealers or entities having turnover above a specified threshold limit are required to get GST Registration. They are the taxable persons under GST and are required to comply with all GST regulations.
- Both the Central Government as well as the State Governments levy taxes on the goods and services, which is referred as IGST or CGST and SGGST, respectively.
- The GST rates have been modified several times since its launch. The revised rates were implemented on 22nd December 2018.
- Service provider companies with turnover lower than Rs. 20 lakh (Rs.10 lakh in North Eastern states) are exempt from GST payment.
To support business achieve GST compliance, GST consultants like Alankit Limited deliver assistance through customised GST solutions. Having over two decades of industry experience, Alankit is a leading e-Governance service provider in India that facilitates online GST registration for all individuals and entities.
Advantages of GST in India
The Goods and Services Tax was introduced with the primary objective of boosting India’s economy. Besides simplifying the indirect taxation system, GST has helped in clearing away the hidden costs on commodities/services, thus benefitting the end users. Some major advantages of the GST system are:
Easier classification :
The GST system has facilitated in creating a transparent system with easier classification of products & services. However, the taxation under GST is based upon the concept of supply rather than on this classification. That is, if a transaction does not fall under the realm of supply, it will not be taxable under GST. Moreover, litigation, arising from cases whether a particular item or activity is goods or service, is not likely to occur.
Better compliances :
The implementation of the GST system has paved way for simpler procedures and compliances as well as aided in easy monitoring and tracking of defaults or non-compliances. Furthermore, there had been multiple legal compliances under different legislatures. But now, taxpayers have got things easier as legal norms only under one statue need to be adhered to. GST is supported by the Goods and Service Tax Network (GSTN), a fully integrated tax platform, to help manage all aspects of GST.
Benefits for SMEs and start-ups :
SMEs and start-ups in India have a host of benefits awaiting them under the GST system which includes:
- Ease of starting business by lower compliances. Companies that have business in different states & territories were earlier required to comply with multiple laws. However, the centralised registration under GST has eased the process of setting up new businesses while also reducing the costs.
- Minimised tax burden on new businesses. Earlier, it was mandatory for companies with turnover more than Rs 5 lakhs to register themselves under VAT. However, the limit under GST has now been extended to Rs 20 lakhs. This has provided relief to over 60 percent of the SMEs.
- Efficient logistics leading to efficiency in delivery & cost savings. The entry tax for goods manufactured and sold in any part of India has been done away with under GST. Thus, it has paved way for smother transportation of goods by minimising waiting time on check posts. A direct result of this would be significant savings on transportation costs.
- Uniformity in the taxation process. Through a simple online mechanism, small businesses find it extremely easy to file their tax returns every quarter.
Product competitiveness:
Becoming at par with the international tax standards, the introduction of the GST system has ensured reduction in overall costs of production, thereby making Indian products much more competitive in the global market. Furthermore, inflation is likely to remain under control under the GST regime.
Benefit to the government :
The GST system has ensured better revenue generation for the government as the cost of tax collection has reduced. And, the government is seeing an increase in taxpayer registration. Also, with the systematic rules under GST, malpractices like corruption and sales without receipts are kept under check.
Disadvantages of GST in India
Although the various aspects of the GST system prove to be advantageous on the whole, yet there are certain aspects that can be regarded as minor drawbacks. They are discussed below in detail.
Increased implementation cost :
The overall process of ensuring GST compliance and tax filing has led to an increase in the implementation cost for the businesses. This cost refers to the expenditure or investment in resources like computers, accounting (GST), software or training initiatives for GST experts. Moreover, the overall cost of doing business mounted in the initial few months of GST implementation.
Burden of compliances :
Businesses who operate in a particular state are required to file returns 3 times in a month. This implies, minimum of 36 filings in a year per state. This is seen as a slight inconvenience for the taxpayers.
Rise in operational costs :
GST has transformed the way in which taxes are paid. Moreover, to achieve compliances, businesses are required to depend on services by professional GST consultants. This has led to an additional cost for smaller businesses for hiring GST consultants leading to operational costs.
Implementation of GST has led to shortage of available funds. Traders have been facing issues in claiming tax refunds or transitional refund owing to complicated procedures.
Burden on SMEs :
Smaller business set-ups, especially in the manufacturing sector, are faced with some challenges under the GST system. Earlier, those having turnover of Rs 1.5 crore had to pay excise duty. However, now any business with turnover exceeding Rs 20 lakh is required to pay GST. SMEs with a turnover up to Rs 75 lakh have the option to choose the composition scheme and pay only 1 percent tax on turnover in lieu of GST and experience lesser compliances. But the only thing which might bother SMEs is the fact they may not be able to claim input tax credit. Hence, the decision to choose between higher taxes or composition scheme (leading to no claim on input tax credit) is a difficult one.
Impact on some industries :
Some tax experts believe the GST system could have negative effects as certain products have become costlier. For instance, GST would add up to as much as 8 percent to the cost of new homes and minimise the demand by about 12 percent. Similarly, the tax levied on some retail products at present is only four percent tax. However with GST, garments and clothes are likely to get expensive.
Similarly, service sector like banks also feel the pinch. The banking industry is instrumental in the process of export of services or goods. Before the GST regime, a service tax @ 14% was levied on the banking transactions. However after the GST implementation, the rate has increased to 18%, thereby increasing the transaction costs, especially in those imports or exports with huge transactions.
Many goods are not covered under GST :
Certain items like petroleum products - petrol and diesel - do not come under the GST ambit. This is being seen as a major disadvantage for oil companies who are unable to get input tax credit on fuel products as those are not taxed under GST.