GST proved to be one of the historic revolution in the Indirect tax structure of India as it subsumed all other indirect taxes such as VAT, Service Tax, etc that were imposed by Centre and State. As the name suggests GST is applicable to both goods and services supplied.
However, any change is bound to attract the advantages and disadvantages of GST. So, in this article we will look into the advantages and disadvantages of GST:
Advantages of GST
Here is the list of GST advantages:
1. Removing Cascading Effect
In a layman language cascading effect means when the tax is levied on tax. GST is an indirect tax that has brought all the other indirect taxes under one umbrella. Moreover, it has removed the cascading effect that was apparent before.
2. Higher threshold for registration
Under the GST system, there is a common threshold limit for normal taxable person i.e., 20 lakhs INR. However, prior, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in many states) was subject to pay VAT. However, this threshold limit varied from state to state. Likewise, service providers with a turnover of less than 10 Lakhs INR were exempted from service tax.
3. Composition scheme for Small and Medium business
Under GST, small businesses whose turnover is less than 1.5 Crore INR can bring down their compliance and tax burden by choosing the composition scheme.
4. Simple and easy online access
The whole procedure of GST (from registration to furnishing GST returns) is available online, and it is easily accessible. This has been helpful for new businesses particularly, as they don’t need to run here and there to obtain registration.
5. Logistics efficiency improved
Prior, the logistics business in India needed to keep up different distribution centers across states to maintain to avoid CST and state tax burdens on between inter-state movement.
Under GST, in any case, these limitations on between inter-state movement of goods have been diminished.
As a result of GST, distribution center administrators and web-based business aggregators players have shown enthusiasm for setting up their warehouses at strategic locations.
6. Managed the Unregulated Sectors
In the pre-GST time, it was regularly observed that specific businesses in India like textile and construction were to a great extent unregulated and sloppy.
However, the implementation of GST has managed these unregulated sectors by lessening the burden of compliance and simplifying the indirect tax structure.
Disadvantages of GST
Here is the list of GST disadvantages:
1. Introduction of GST Software
Under the GST regime, businesses either need to update their current accounting or ERP software or purchase a GST software with the aim to prop their business up. Yet, both the alternatives lead to increased expense in terms of purchasing the GST software and training the staff for using the software efficiently.
However, Masters India, one of the leading GSP have created GST software and APIs to simplify the compliance procedures for businesses.
2. Increased operational expenses
As we have just discussed that GST is changing the way how tax is paid, businesses need to take the opinion of the tax experts to remain GST-compliant. This has, however, increase the operational expense as they need to bear the extra cost of employing the tax specialists or hiring the consultancy.
3. The higher tax burden on Small and Medium Enterprises
Small and Medium businesses, particularly in the manufacturing segment has confronted teething challenges under GST. Before the GST regime, businesses whose turnover surpassed Rs 1.5 crore were required to pay the Customs Duty. But under GST any taxpayer whose turnover surpasses 40 lakhs INR needs to pay the tax.
Nonetheless, SMEs with a turnover up to 1.5 Crore INR can choose the composition scheme and pay just a 1% tax on turnover in lieu of GST and enjoy the lesser compliance. However, the catch is that businesses who opt for composition scheme will then not have the option to claim any input tax credit (ITC).