Advantages and Disadvantages of GST

In this article, we will explore the advantages and disadvantages of GST to understand its impact on Indian businesses.

Advantages of GST in India

The implementation of the  goods and services tax (GST)  has brought numerous benefits to taxpayers. Here are some of the advantages:

1. GST eliminates the cascading effect of tax

GST eliminates the cascading effect of taxes, also known as tax-on-tax. Previously, a consultant earning Rs. 50,000 would have had to pay Rs. 7,000 in service tax, and if they purchased supplies worth Rs. 20,000, they would have had to pay Rs. 1,000 VAT, resulting in a total outflow of around Rs. 8,500. However, with the adoption of GST, the same sum is reduced to approximately Rs. 7,000 because GST combines all indirect taxes.

2. Higher threshold for registration

Before GST, businesses with an annual turnover above INR 5 lakhs had to pay up to 5% value-added tax, depending on their state. However, with the introduction of GST, small business owners and service providers with an annual turnover below INR 20 lakhs are exempt from this tax, which is an increase from the previous threshold of INR 10 lakhs.

3. Composition scheme for small businesses

Businesses can register for the  GST Composition Scheme , which minimises taxes and relieves small businesses of heavy tax levies.

4. Simple and easy online procedure

Registering and filing for GST is online, making it easy and efficient without hindering business hours.

5. The number of compliances is lesser

GST reduces the number of compliances and returns compared to the previous system, where businesses had to pay VAT and service taxes with different processes and smaller returns. Under GST, businesses only need to file one unanimous return, and there are eleven returns under GST, four of which apply to all taxable persons under the Act.

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6. Special treatment for e-Commerce operators

The introduction of GST benefits the e-commerce sector by providing specified tax laws and eliminating confusion and chaos caused by different state policies.

7. Improved efficiency of logistics

Logistics have become more efficient under GST, as manufacturers no longer need to set up warehouses in different states to avoid Central Sales Tax (CST), reducing wasteful spending and increasing profit margins for transportation enterprises.

8. Unorganised sector is regulated under GST

The unorganised section of the Indian business sector is now regulated and accountable, thanks to GST’s avenues for online compliance and payments.

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Disadvantages of GST

The following are the limitations of GST:

1. Increased costs due to software purchase

Increased costs due to the purchase of GST-compliant software and employee training can eventually impact the profit margin of businesses.

2. Not being GST-compliant can attract penalties

Failure to comply with GST regulations can result in penalties, especially for small and medium-sized enterprises that may not fully understand the nuances of  filing returns . Invoices must have all the necessary details, such as GSTIN and  HSN codes , which can be managed using  accounting software .

3. GST brought about a rise in operational costs

Implementing GST adds operational costs, which can be financially burdensome for small businesses that rely on experts to adopt GST-compliant software and train their employees to use it.

4. SMEs have a higher tax burden

Small businesses may face a higher tax burden due to a lower turnover threshold. Previously, enterprises with an annual turnover of about one crore were liable for excise duty, but now small businesses with a turnover of even twenty lakhs have to pay GST. However, 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.

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After reading the advantages and disadvantages of GST, you may have understood how GST impacted the old tax regime. The government is working hard to address any challenges that arise during the implementation of GST through constant dialogue. As with any other implementation, the law has pros and drawbacks. It is essential to look at other economies that have a well-functioning tax system to learn from them. Using  BUSY GST-compliant software  can help simplify GST implementation.