Overall Impact Of GST on Indian Economy

What are the Objectives and Impact of GST on Indian Economy?

The existing tax laws were complicated and required lots of compliance. GST was introduced to simplify the indirect taxes. Here are the objectives of GST and their impact -

• Uniform Taxation
  The Goods and Services Tax (GST) unifies India’s market under a single tax system, replacing the complex state and central taxes that differed across states. It created a uniform tax structure, simplifying the system and allowing goods and services to move across state borders without extra tax burdens.
  Impact - GST helped reduce compliance requirements by bringing uniformity in the indirect taxation system. It created a more inclusive environment, making it easier for businesses to expand across the country without having to struggle with varying tax laws in different states.
• Eliminating the Cascading Effect of Taxes
  Before GST, businesses dealt with the problem of ‘tax on tax,’ where multiple layers of taxes were added to the cost of goods and services, ultimately affecting the final consumer. GST resolved this by introducing an input tax credit system, allowing businesses to claim credits for taxes paid on input services. This reduces the cascading effect, ensuring tax is applied only on the value added at each stage of the supply chain. As a result, consumers face lower costs, and the taxation process becomes more transparent.
  Impact - GST has reduced the overall cost of goods and services for consumers by removing the duplication of taxes, i.e., tax on tax. It has led to a more transparent and equitable pricing system.
• Simplifying Taxation System
  GST has streamlined the taxation system by consolidating multiple indirect taxes into a single tax. This has reduced the administrative burden on both businesses and the government, making tax compliance simpler and more efficient.
  Impact - The simplification of the tax system under GST has greatly improved the ease of doing business in India. The digitization of tax processes has reduced paperwork, minimized errors, and made tax compliance more efficient and less time-consuming. This has been especially helpful for SMEs, which typically have fewer resources to handle complex tax regulations.
• Subsuming Other Indirect Taxes
  GST was introduced with the main objective of combining various indirect taxes into a single unified tax system. Some of the taxes replaced were VAT, excise duty, and service tax.
  Impact - This subsumption has reduced the possibility of duplication of taxes. It has led to a more stable and predictable tax environment and has encouraged both domestic and foreign investment.
• Reducing Tax Evasion
  GST establishes a more transparent and straightforward tax system. Every transaction is recorded through a unified platform, making it difficult for businesses to hide or manipulate sales figures to evade taxes. To claim tax credits, businesses must accurately report their sales and purchases, promoting honest record-keeping and accountability.
  Impact - Reducing tax evasion through GST has had a significant impact. It promoted fairness by ensuring everyone pays their share, lessening the burden on honest taxpayers. It also boosted government revenue without the need to increase tax rates.

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Which Taxes are Subsumed Under GST?

The below-mentioned taxes are subsumed in GST -

Central Taxes Subsumed

• Central Excise Duty
• Additional Excise Duty
• Duties of Excise (Medicinal and Toilet Preparations)
• Additional Duties of Excise (goods of special importance)
• Additional duties of excise (Textile and textile products)
• Additional duties of customs
• Service tax
• Central surcharge and Cess

State Taxes Subsumed

• State VAT
• Central Sales Tax
• Luxury tax
• Entry Tax
• Entertainment and Amusement Tax
• Tax of Advertisements
• State surcharge and cess

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What are the Benefits of GST?

The introduction of GST has had various benefits for the Indian economy. Listed below are some of them -

• The threshold limit on services under GST has been increased to Rs.20 lakhs.
• Small firms with turnovers between 20-75 lakhs can opt for the composition scheme and reduce taxes.
• The entire GST process is online. This makes it extremely easy to access GST services, from GST registration to GST filing.
• The number of returns to be filed has decreased as only one consolidated return is required under GST.
• Before the implementation of the GST tax system, many Indian businesses, particularly in the construction and textile sectors, operated in a disorganized manner. However, with the new system, companies must electronically file and make payments, and they can only claim input credit after receiving payment authorization from their suppliers.

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What are the Components of GST?

There are several components of GST that can streamline taxation. It is important to understand these components for both businesses and individuals -

• Central Goods and Services Tax (CGST) - It deals with the Central Government taxation. The revenue collected under CGST is given to the Central Government.
• State Goods and Services Tax (SGST) - SGST deals with GST at the state level. The revenue collected from SGST is given to the respective state governments.
• Integrated Goods and Services Tax (IGST) - This is used for interstate transactions. The Central Government collects IGST and later distributes it to the states. In other words, IGST is divided into two parts CGST and SGST. Each government receives its respective parts.
• Union Territory Goods and Services Tax (UTGST) - This is similar to SGST. The only difference is that it is applicable in union territories. The tax collected under UTGST is given to the Union Territories.
• Cess - It is an additional tax imposed on further government initiatives like education, healthcare, etc.

The introduction of GST has had a profound impact on the Indian economy and has brought about transparency in the Indian taxation system. However, understanding the provisions of GST can be complicated. If you are also struggling with taxes, you can consider seeking professional help. Tax2win tax experts can help you with GST compliance right from GST registration to GST filing. Book a tax expert now!

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