Advantages and Disadvantages of GST


Date: 25 Oct 2022

Advantages and Disadvantages of GST 

Implementing the goods and services tax in 2017 is one of the most historic decisions the Government has taken during its tenure. It aimed at promoting the concept of one nation, one tax. Along with acting as a value-added tax (VAT), GST replaced indirect taxes imposed on goods and services on both the central and state levels. 

As with each Act or legislation created for the nation's benefit, it has its pros and downsides; a thorough summary follows.

Advantages of GST

  • Demolishing the cascading effect of taxes is a phenomenon that can be best explained as the tax on tax. E.g., earlier in the absence of GST, a consultant earning about 50,000 had to pay about 7000 in service tax, and if he went on to buy supplies worth 20,000, then he would have to pay about 1000 VAT on it, so that the total outflow would amount to about- 8500. However, with the adoption of GST, the same sum will be reduced to about 7000 because GST attempts to combine all indirect taxes. 

  • In the absence of GST, every business owner had to pay a value-added tax of up to five percent, provided the turnover of the said business was above five lakhs. It differed from state to state. Now, after the introduction of goods and services tax, the registration threshold has increased from an annual turnover of ten lakhs to twenty lakh exempting small business owners and service providers. 

  • One can register for the composition scheme, which assists in minimizing taxes and relieves small businesses of heavy tax levies. 

  • The entire process of registering and filing for GST is entirely online, making it an easy and efficient process which doesn’t hinder business hours. 

  • Businesses had to pay VAT and service taxes before GST, which had different processes and smaller compliances and returns. For example, one had to pay for proprietorship quarterly under service tax, and LLPs were paid monthly. VAT differed in each state and was to be paid monthly, respectively. GST allows a business to only file for one unanimous return, so the number of the same has significantly lowered. There are eleven returns under GST, four of which apply to all taxable persons under the Act. 

  • The e-commerce sector also benefits from the introduction of GST because earlier, there were no specified tax laws, and VAT was variable. Each state had its policy on e-commerce platforms, such as amazon, snapdeal which led to confusion and chaos. Still, once GST has been implemented, these rules and regulations have been adequately fleshed out, eliminating any extra hassle that the earlier indirect taxes caused. 

  • Logistics had become more efficient under GST as opposed to earlier when manufacturers had to resort to setting up warehouses in different states to botch CST; often, these establishments functioned on decreased capacity. A reduction in wasteful spending like this has resulted in a more significant profit margin for enterprises that dabble in transportation. 

  • The Indian business sector has an unorganized subsection which was highly unregulated earlier, but with the advent of GST, which provides avenues for online compliance and payments. It has propagated a much-needed sense of accountability in the said sector. 


Disadvantages of GST

  • Increased costs due to purchasing GST-compliant software lead to expenditure in employee training which eventually impacts the profit margin. 

  • Failure to comply with GST can lead to penalties, especially for small and medium-sized enterprises, which may still be unable to understand the nuances of filing returns. The invoice must have all the necessary details, such as GSTIN, HSN codes etc. Busy accounting software can come in handy during this entire process. 

  • The implementation of GST means there would be additional operational costs, which will put a particular financial strain on small businesses because they will have to depend on experts for GST-compliant software and later train employees for the same. 

  • For most small businesses, there is a higher tax burden due to a lower turnover threshold because earlier enterprises with an annual turnover of about one crore were liable to excise duty. However, small businesses with a turnover of even twenty lakhs have to pay GST. However, one relief function is in place: enterprises with a turnover of around 75 lakhs can opt for the composition plan and pay only 1% tax on turnover, but they cannot claim input tax.



Change is the law of nature, and no matter how difficult or impossible it may seem to adhere to it, one has to get used to it eventually. The administration is working hard to smooth out the bumps in the path to GST through constant dialogue. It is clear that, like any other implementation, the law has both pros and cons. Looking outward at economies that have managed well-oiled tax machinery is imperative. A GST compliant accounting software such as Busy helps to ease the process of making your business GST compliant.