GST Benefits – Advantages and Disadvantages of GST

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 -

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 a 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 for the taxes already paid.

Classification has become easier

One of the persistent issues in old tax practices was the classification of a product as good or service. The tax implications and liability were mainly dependent upon this classification.

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 Compliance and tracking

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, and as a result, reduced the compliance burden on the taxpayer. Also, enabled easy monitoring and tracking of defaults or non-compliances.

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 textiles were largely unorganized in India in the pre-GST era. However, GST provides provisions for online compliance and payments and the 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 the introduction of GST a complex set of procedures was being followed for the 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.

Keeps a Check on Tax Evasions

GST has proved to be a helping hand for the government in keeping effective and improved control on tax evasions. One of the prominent evidences of the same are increased numbers of tax revenue. Evasion tracking has been made simpler with the 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

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Disadvantages 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

Earlier, only businesses exceeding a turnover of Rs. 1.5 cr had to pay excise duty. However, after GST, businesses exceeding a turnover of Rs. 20 lakhs have to pay GST.

However, SMEs with a turnover of Rs. 75 lakhs can opt for the composition scheme and pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. However, businesses opting for the composition scheme cannot claim the benefits of ITC. Therefore, taxpayers must choose between a higher tax rate and the composition scheme.

Higher tax rates

Previously, on service, the service tax was levied at a 15% tax rate, but now if the same falls under the GST tax rate category of 18%, then the resultant payout from 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 started from 1st April 2017. The implementation of GST has led to huge inconvenience for taxpayers. Businesses found it hard to adjust to the new GST regime.

Taxation becoming Online

Unlike earlier, businesses had to switch from the pen and paper model to the online model for return filing and payments under GST. Small businesses found it hard to adapt to the online system.

Excessive compliance burden:

The number of tax returns to be filed under GST is enormous. Three periodic returns are required to be filed monthly. If a person is doing business in multiple states, then it needs to obtain multiple registrations for each state, and separate GST returns sneed to be filed for each state.

Increase in Costs Due to Software Purchase

They need to ensure that their accounting or ERP software gets updated in real time for GST legal and portal updates. Otherwise, they can go for a GST compliance solution to ensure continuous GST compliance. For both options, you need to invest money and also spend time training employees to ensure the efficient utilization of the GST software.

Not Being GST Compliant can Attract Penalties

Not being compliant with the GST provisions under the new GST regime attracted penalties. Despite the fact, that it was a new law which required people to adjust their existing tax systems, its non-compliance still attracted hefty penalties.

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