According to the Goods and Service Act 2017, a replacement taxation scheme, i.e., the GST, is introduced to declutter the taxation regime and curb the cascading tax effect. Under the ‘One Nation One Tax’ initiative, the govt. of India (GOI) has extended a comprehensive and unified consumption tax scheme to exchange multiple indirect taxes on goods and services. GST could be a multistage tax because it is levied on various stages of production. But, it’s also a destination-based tax scheme which means all the taxes imposed on the assembly process are going to be refunded besides the ultimate customer. GST is often levied from the consumption point, not from the origin.
In India, there are 5 different tax slabs under the GST law: 0%, 5%, 12%, 18% and 28%. Since the GST scheme was introduced on July 01, 2017, by the 105th amendment, the first of July is well known as GST Day. there’s a GST Council consisting of finance ministers of the centre and also the states who take care of the tax rates and regulation of the GST. So with no further ado, let’s have a detailed observe the benefits and downsides of the GST.
Advantages of GST
1. Elimination of cascading tax effect
One of the foremost prominent benefits of GST is the unification of multiple taxes under an identical roof. It eliminates the many taxes on identical products and enhances the fluidity of tax processing. Let’s understand the cascading tax effect, i.e., the “tax on tax” effect within the pre and post-GST era with an example.
2. Enhanced threshold limit
In the Pre-GST era, businesses had to pay Value Added Tax after crossing the maximum limit of Rs. 5 Lakh. Again, the number varies from one state to a different one. However, after the implementation of GST, the edge amount has been increased by 15 Lakh, and also the new threshold limit is Rs. 20 Lakh. the rise within the VAT threshold limit has come as an enormous relief for tiny and medium businesses (SMBs).
3. Minimised compliances
Earlier, there have been separate compliances for every tax. as an example, if you had to file excise returns, it had been done monthly. the businesses and LLPs need to file service tax monthly, and partnership and proprietorship should file them quarterly. Similarly, the amount of filing the worth Added Taxes was also variable for various entities. However, with the GST coming into being, taxpayers have to file returns on just one occasion.
4. Using Composition Scheme Pay GST at fixed rates.
Did you recognize that the GST includes a provision for lowering the taxes for businesses? If your annual turnover is Rs.20 lakh and Rs.75 lakh, you’ll be able to go for the Composition Scheme to minimize your taxable income. The Composition Scheme allows you to pay GST at a hard and fast rate no matter your income if you fall within the bracket mentioned above of turnover. four basic conditions of the Composite Scheme:
The Composite Scheme is simply applicable to businesses dealing in goods, not services. However, restaurant owners can get the advantage of the scheme.
The scheme isn’t applicable to dealers who supply goods across the states and also not applicable to e-commerce dealers.
Dealers can’t collect Composite Tax from their clients or charge Input reduction (ITC).
The rates of Composite Tax are:
- 1% for traders
- 2% for manufacturers and
- 5% for restaurant owners
The Composite Tax Scheme has eased out the compliance burden and reduced the charge per unit, especially for the MSME businesses. it’s one of the foremost promising pros of GST.
5. Smooth and quick online processing
The big advantage of the new GST reign is the online filing of tax returns. you simply must visit the GST Portal, create your new account, log in, and begin filing GST returns. The interface of the portal is fairly smooth and easy. you’ll be able to file your GST on your own with basic knowledge of computers and therefore the internet. you’ll get all the main points regarding the GST jurisdictions, GST laws that you just need to fits, and every one the relevant information regarding filing the GST on the portal itself.
One of the most important beneficiaries of this new GST portal is startups. With the assistance of a web GST portal, it becomes easy to determine transparency among tax jurisdictions between State and Central governments.
6. Ease out the matter of warehousing for e-commerce and logistics companies
Before implementing GST, the logistic firms were accustomed to founding multiple warehouses within the state to waive off CST and state entry taxes. Moreover, because of the non-availability of a lot of products, the inventory was always below the optimum capacity in warehouses.
With the new GST regime in situ, logistics companies and e-commerce vendors can now find their warehouses at any location that suits their operability. it’s eliminated the unnecessary cost of warehousing for such businesses. The GST rule has also brought unorganized sectors like textile and construction under its umbrella and enhanced their accountability.
7. Takes e-commerce operators under consideration
Before GST regulations, e-commerce vendors weren’t explicitly defined under any law. They were charged variably under different taxation schemes. There was an excessive amount of confusion about these businesses as every state had separate provisions for e-commerce companies. In states like Rajasthan Kerala and West Bengal, e-commerce companies were treated as mediators and didn’t require paying VAT. In the province, they were treated as VAT compliant firms and registered their delivery vehicles for taxation.
With the new GST Scheme, these confusions are decluttered. The GST rules have defined e-commerce companies as separate entities and have extended specific provisions for them.
Disadvantages of GST
1. GST has increased the cost of operation
With the GST in place, businesses have to update their books and accounting with the latest GST-compliant software to keep their business afloat. ERP software is expensive, and it takes proper training to manage and run this software, thereby increasing the price to companies. Moreover, compliance with GST norms has drastically increased the operational cost of SMBs, they need to hire professionals to assist them out with the GST laws.
2. Tax liability Increased on SMBs
According to the prior scheme, the excise duty was levied only on businesses with an annual turnover of more than Rs.1.5 cr. However, now businesses with an annual turnover of more than Rs.40 lakhs must have to pay taxes under the new GST Scheme.
3. Enhance burden of compliance
Every company must register on the GST portal within the state of its operation. The entire process of registering, maintaining documents, invoices, and filing returns is tiresome. It unessential increased the burden on companies that had already been facing too many bureaucratic hurdles in India. On top of that, most states aren’t that savvy when it comes to technology, increasing the hurdles of compliances for the companies. All of these leads to enhanced difficulties for companies. especially for new businesses.
4. Penalties for non-GST-compliant firms
Every company has to register themselves with the GST portal, and if they don’t do so, they’ll have to pay penalties. It’s quite possible for MSMEs not to understand the nuances of the GST tax regime.