Advantages – The pros of GST
Let us take the various benefits as introduced by GST in our indirect taxation system one by one -
It eliminates the cascading effect of taxes
GST is a tax system that subsumed various indirect taxes under one umbrella. It has eliminated the cascading effect of taxes, which can be defined as ‘tax on tax.’ Earlier, the tax was levied on every stage of production, leading to a cascading effect of taxes. Let’s understand ‘tax on tax’ with this example -
A consultant offers services worth Rs.50,000 and charges a service tax of 15% (Rs.50,000*15% = Rs.7500)
Then, he buys office supplies for Rs.20,000, on which she pays 5% VAT (Rs.20,000*5% = Rs.1000).
In this case, the taxpayer had to pay output tax of Rs.7500 + Rs.1000 for VAT already paid on stationery, making the total amount Rs.8500.
However, under GST, the tax will be calculated as follows -
| GST on service of Rs.50,000 @18% |
9,000 |
| Less: GST on office supplies (Rs 20,000*5%) |
1,000 |
| Net GST to pay |
8,000 |
Higher Threshold for Registration
Earlier, under the VAT structure, businesses with turnovers of more than Rs.5 lakhs were liable to pay VAT. However, this limit was different for different states. Further, service tax was payable by businesses having turnover exceeding Rs.10 lakhs.
Under the GST regime, the threshold has been increased to Rs.20 lakhs for services and Rs.40 lakhs for goods. This led to an exemption for many small traders and service providers.
Simple and Easy Online Procedure
The entire GST process is online and extremely simple. This is beneficial for startups as they do not have to get separate registrations for different taxes like VAT, service tax, excise, etc.
This means, under GST, the taxpayer can claim a credit of the taxes already paid.
Classification has become easier
One of the persistent issue in old tax practices was the classification of a product in good or service. The tax implications and liability were majorly dependant upon this classification. Resultantly, it had both, an open route for litigation and huge operational inconveniences.
Gst has sorted all such issues by introducing the one and only concept of supply. The taxation under GST is based upon the concept of supply and not upon the classification into goods or services. If a transaction does not fall into the ambit of supply it will not be taxable under GST.
Better Compliances and tracking
Since the procedures and compliances have radically concised with implementation of GST, it has bought harmony in numerous compliances previously required. Before GST there were many laws each having its own set of procedures, legal requirements and due dates. Gst has subsumed all major taxes and has resultantly reduced the compliance on the taxpayer. Also, enabled easy monitoring and tracking of defaults or non compliances.
Single window clearances (SWC)
Multiple legal compliances under different legislatures required lot of efforts and time. GST being the one indirect tax has opened up a way to single window clearance. Now the taxpayer can focus more on its core business as legal norms only under one statue would be needed to be adhered.
Benefit for E-commerce Operators
Before the GST regime, there were no separate rules for supplying goods through the e-commerce sector. Here’s an example -
Online websites like Amazon, and Flipkart, delivering to Uttar Pradesh, had to file a declaration and mention the registration number of the delivery truck. These e-commerce brands were treated as facilitators by states like Rajasthan, Kerala, etc., and they were not required to register for VAT. GST has removed all these confusing compliances by introducing common provisions applicable to the e-commerce sector across India.
Regulation of Unorganized Sector
Industries like construction and textile were largely unorganized in India in the pre-GST era. However, GST provides provisions for online compliance and payments and availing of the input tax credit. This has led to regulation and accountability of the industries in the unorganized sector.
Complete set off of ITC:
Before introduction of GST a complex set of procedure was being followed for set off of Input tax Credit. Goods and Services Tax being a single tax regime both at
- Central Level (CGST) and
- State Level (SGST / UTGST)
has proved to be a boon for the taxpayers by ensuring maximum input credit set offs.
Example
A teacher provides services of Rs.32000. The service tax would be charged in old taxation system @15% i.e.15% of Rs 32000 = Rs. 4800. Also, he purchased a furniture for his Institute for say Rs 50,000 and paid 5% VAT on Rs. 50,000 i.e. 2500/- on this purchase. Show the benefit or impact the teacher will get after GST.
|
Old Regime
|
Total Tax Amount
|
New Regime (GST)
|
Tax Amount
|
| In Previous indirect tax regime he had to pay output service tax at Rs 4800 without getting credit of furniture purchase and also paid VAT of Rs 2500. |
Total outflow in old regime ( 4800+2500) Rs. 7300
|
But under GST we can get set-off of tax already paid i.e. while paying 4800 benefit of Rs 2500 already paid would be availed and net amount should only be paid. |
Net outflow under GST (4800-2500) i.e. Rs. 2300
|
The Dual GST Model:
India being a federal country has adopted GST in its dual model. Which means the GST is levied simultaneously by both as per central government laws and as per state government laws as well. Currently tax is being imposed on inter state supply by the central government and simultaneously by state and central government on intrastate supplies.
Keeps a Check on Tax Evasions
GST has proved out to be a helping hand of government in keeping effective and improved catch on tax evasions. One of the prominent evidences of the same are increased numbers of tax revenue. Evasion tracking has been made simpler with reduction in procedural requirements and subsuming of various laws into GST.
Composition scheme for small businesses
Under GST Small businesses with an aggregate turnover of Rs 20 lakh to Rs. 1.5 crores can benefit. Small businesses with the above-mentioned threshold can opt for the composition scheme and pay taxes at lower tax rates. This move has reduced the compliance and tax burden on small taxpayers.
The taxpayer can opt for composition scheme if the turnover does not exceed Rs 1.5 crores. However, the threshold for northeastern states and Himachal Pradesh is Rs.75 lakhs. The lower threshold will be applicable to the states mentioned below -
- Arunachal Pradesh,
- Assam,
- Manipur,
- Meghalaya,
- Mizoram,
- Nagaland,
- Sikkim,
- Tripura,
- Himachal Pradesh
Increased product competitiveness
GST being a welcome step towards reduction in overall costs of production supply and at all stages, will over the time have substantial effect in making the Indian products competitive in international market resulting from reduced prices.
Many countries have already switched their tax models to GST and India being a way forward the same is expected to achieve the incidental benefits in future.
Disadvantages – The cons of GST
Despite the multiple advantages, the GST regime has its own set of disadvantages. Now that we have learned about the advantages of GST let’s now have a look at the disadvantages of GST too -
Higher tax burden on SMEs
The hardship for SME in terms of taxes payout seems to build stronger under GST due to the following reasons
- Registration limits under the previously prevalent excise law ie.. Rs 1.5 Crores was much higher than the current GST threshold of Rs 20 / 40 lakhs
- Although the taxpayers having turnover upot the extent of Rs 1 crore can still opt for composition levy. But, the same brings with itself the in build repercussions like
- Non issue of VAtable invoices
- Non availment of ITC
- Not able to pass on the tax credit etc
Higher tax rates
Previously, on service the service tax was levied at 15% tax rate but now if the same falls under the GST tax rate category of 18% then the resultant pay out form the taxpayers pocket seems to have increased. The same has already shown its effect in the sectors like telecom, airlines, banking etc.
Compliances in the middle of the financial year
GST was rolled out in India from 1st July 2017 and the financial year was started from 1st april 2017. The implementation of GST has led to huge inconvenience taxpayers. As normally it is witnessed that the tax planning is done well in advance for the particular financial year and shifting to a completely new tax regime which is being introduced for the first time is a challenging acceptance in itself. This left the taxpayers confused and a lot of operational difficulties arose.
Not all goods covered
Petrol being the key product still remains out of the ambit of GST. It has become one of the major controversial issue. Because crude oil being a commodity of general and vast usage is still acquainted with higher prices and no relaxation in the same has been provided with the implementation of GST.
Taxation becoming Online
Though with the technology getting pace in all sectors an online taxation reform is welcomed. But, everything comes with a cost. So does this!! Considering the user base online taxation reform has left people helpless and being dependent upon experts. The online form, online registration and all compliances being done online has increased costs of softwares, installations and requisite staff to the businessman.
Excessive compliance burden:
The number of tax returns to be filed under GST is enormous. Three periodic returns are required to be filed monthly. Not only that if a person is doing business in multiple states then it needs to obtain multiple registrations for each state and separate GST returns needs to be filed for each state.
This structure of GST has increased compliance burden and it is causing pain mainly for small businesses which cannot spend high costs on support functions like accounting and taxation etc.
Blockage of Working capital
Working capital is the essence of every business. Implementation of GST has led to shortening of available funds in the hands of business. The exporters are not able to claim the tax refunds till date even after so much time after implementation of GTS has already lapsed. Even the traders are facing issue in claiming their transitional refund due to procedural difficulties and even striving harder to mitigate the shortages of operating funds due to rolling out of this new taxation reform. Also, the increased rate of GST in service sector has further increased the payouts by 3% as GST @18% is payable in exception to the old 15% service Tax.
Accepting change can be difficult in the beginning. The government is continuously upgrading the GST regime to make it easier to adopt, less complex, and remove its inefficiencies. The use of AI and ML in GST filing has further made the GSTR filing process simpler. However, it can be confusing, time-consuming, and complex, especially for laymen. If you are also a small business owner struggling with GST, you can consider seeking professional help. Simply book an online CA from tax2win and get your tax queries solved. Book an expert now!
Quick & Easy Process
Professional Guidance
Legal and Tax Benefits
