GST Tax Advantages and Disadvantages in India

Do you know one of India’s biggest tax reforms of recent times is the introduction of GST? It is a single tax regime as opposed to multiple indirect taxes such as Value Added Tax (VAT), Service Tax and Excise Duty. It went into effect on July 1, 2017, with the main aim of merging these various taxes consequently resulting in a simplified regime for both citizens and businesses alike. It implies that one is now subjected to a single tax unlike before when they had to pay several others leading to increased ambiguity and bureaucratic requirements. Whether you are a small business owner or a customer, GST is here to simplify the tax payment process without any ambiguity, thereby cutting down costs and enhancing effectiveness in the economy. Therefore, let us understand better about GST tax merits and demerits.

Advantages of GST

1. Goodbye to Multiple Taxes

GST replaced multiple indirect taxes with one single tax to simplify the tax system in India. During production and sale, different taxes used to be imposed hence increasing the cost of items for consumers before GST was enacted. Through the GST regime, however, tax paid on purchases can be deducted from tax payable on sales to arrive at only the final tax. Thus, this translates into lower prices for the consumer and easy administration of businesses.

2. Higher Threshold for Registration

If you own a small business, you will know that, under GST, the threshold for mandatory registration has increased for you. Before, in times past when Rs. 5 Lakhs was exceeded in turnover, businesses had to apply for VAT registration. Now, however, under GST, this figure has been bumped up to Rs. 20 Lakhs and what this means is that numerous small traders as well as service providers no longer have to be concerned with tax registration and compliance problems; instead, they can concentrate on expanding their businesses.

3. Easier Tax Filing for Small Businesses

For individuals who run small-scale firms, GST provides a Scheme of Composition, a simple taxation regime applicable to businesses with a yearly income ranging from 20 lakh to 75 lakh Rupees. In the Composition Scheme, these businesses pay taxes at a lower rate thereby reducing their tax liabilities and the amount of work required to file for them. Small entrepreneurs find it less taxing this way.

4. Online and User-Friendly Process

The full cycle of GST starting from registration to return filing is done online. It is accessible and not difficult as well. No more endless piles of documents one has to deal with daily and trips to revenue authorities’ offices from time to time are over. Alternatively, one can do it from his/her house or at work. The digital solution is advantageous in terms of ease of compliance hence better suited even for start-ups and would-be businesses.

5. Fewer Compliance Requirements

Earlier on in the day when businesses used to have to prepare multiple returns for different taxes like excise duty, service taxes and VAT each with its own set of rules and deadlines. This has been consolidated to a few returns by GST reducing the burden that businesses had. Currently, the main focus is on filing these few returns GSTR-1, GSTR-2A, GSTR-2B, and GSTR-3B only. Consequently, it is easier and takes less time to go along without being submerged in compliance-based paperwork.

6. Better Logistics and Faster Delivery

The GST introduced by the government of India is the impetus that has taken care of the problems such as interstate check posts that led to delays in dispatching consignments as well as driving up transportation costs. Due to the absence of check posts, goods can now move across states’ borders faster translating into shortened delivery times and cheaper shipping rates. This effectiveness favours everyone when companies save money on transport expenses hence leading to improved profit margins for them and quicker deliveries of their goods.

Disadvantages of GST

1. Increased Costs for Software

Adhering to GST requirements necessitates purchasing upgraded software for the affected organizations. The joining, installation and training of employees on how to use the new system requires several costs. Given that these expenditures accumulate, especially among Small to Medium Enterprises (SMEs), they face financial difficulties.

2. Higher Tax for Small Businesses

Businesses with an annual turnover of Rs 20 lakh or more must pay taxes under the GST regime. This is a lower threshold than the earlier excise duty limit of Rs 1.5 crore. However, the composition scheme, while offering some respite has its drawbacks: no input tax credits are allowed, thus posing difficulties for a majority of small enterprises.

3. More Paperwork and Compliance

Companies have to register within every state they operate in and possess detailed digital records for each. Filing numerous returns frequently might be complex and time-consuming. The additional documentation along with the burden of compliance may prove difficult for these smaller firms which may lack either of these resources.

4. Challenges for the Unorganized Sector

Before GST, construction and textile Industries faced major regulation gaps. They are currently experiencing difficulties due to the stringent new tax requirements. There is no doubt that this is not only expensive but also disrupts operations for reasons they cannot avoid.

5. Initial Confusion and Adjustment

There was the introduction of GST during the middle of the financial year, which was not without its complications for a large number of business people. Migrating from the former taxation system to the latter meant running of two parallel systems as with reconciliation of books. It also emerged that this abrupt change posed some compliance difficulties while on another hand organizations were expected to adjust fast.

Quick Advantages and Disadvantages of GST