Benefits of GST In India

List of Major Benefits of Goods and Services Tax

The benefits of GST are multi-faceted. They include reducing tax complexities, increasing compliance, fostering economic growth, promoting ease of doing business, curbing tax evasion, and enhancing the competitiveness of Indian businesses in the global market. The benefits of GST are discussed in detail below:

Elimination of Cascading Effect of Tax

1. The most significant advantage of GST is the elimination of the cascading effect of taxes, also known as ‘tax on tax’.

1. In the pre-GST regime, different taxes were levied at various stages of the supply chain. This led to taxes being calculated on the value that already included taxes, resulting in higher tax costs for businesses and end consumers.
2. With GST's input tax credit mechanism, businesses can claim credit for taxes paid on inputs, thus preventing double taxation and reducing the final price of goods and services.

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Higher Registration Threshold

Under the previous tax structure, businesses with relatively low turnovers were required to register for and comply with VAT, service tax, and other taxes. GST raised the registration threshold, exempting many small businesses from the tax burden. This reduces compliance costs and administrative burdens for these enterprises, fostering growth.

For example, In the previous VAT system, businesses with a turnover exceeding Rs.5 lakh were required to pay VAT, although the threshold varied across states. Additionally, service providers with a turnover below Rs.10 lakh were exempt from service tax.

Under the GST regime, there is a significant change. The threshold for registration has been raised to Rs.20 lakh, benefiting numerous small traders and service providers. This means that businesses with an annual turnover of up to Rs.20 lakh are now exempt from GST registration. In the case of excise tax, Businesses with turnover over Rs.1.5 crores are subject to taxation. 

Composition Scheme Under GST for Small Businesses

GST introduced the Composition scheme for small taxpayers. Businesses with turnovers up to a specified limit can opt for this scheme, where they pay a fixed percentage of their turnover as tax and have simplified compliance requirements. This eases the tax burden and administrative complexities for small businesses, encouraging their participation in the formal economy.

Illustration: GST introduces a Composition scheme for businesses with a turnover between Rs.20 lakh and Rs.75 lakh. Businesses under this scheme can pay a fixed percentage of their turnover as tax, simplifying their tax compliance.

Simplified Online Process

The GST regime digitized and streamlined various processes, including registration, return filing, and tax payment. The Goods and Services Tax Network (GSTN) provides a user-friendly online platform for businesses to manage their tax-related activities efficiently. This particularly benefits startups and businesses that previously had to navigate complex and time-consuming offline procedures.

Reduced Number of Compliances

GST consolidated various returns required under the earlier tax system into a unified return format. This reduces the number of returns that businesses need to file and simplifies the compliance process. For instance, businesses had to file separate returns for excise, VAT, and service tax, whereas under GST, there are about 11 returns, out of which only four are basic returns applicable to all taxpayers.

Impact of GST on E-commerce Sector

1. The previous tax regime lacked clarity on the taxation of e-commerce transactions. Different states had varying regulations for e-commerce operators, leading to confusion and non-uniform taxation. GST introduced clear provisions for e-commerce taxation, ensuring uniformity and transparency in the treatment of such transactions across states.

Improved Efficiency of Logistics

1. Before GST, interstate movement of goods incurred multiple taxes and entry barriers at state borders. GST streamlined these processes, reducing the need for maintaining warehouses in various states to avoid tax costs. This has led to more efficient logistics operations, lower warehousing costs, and faster movement of goods.

How GST Brings Unorganized Sector into Formal Economy

GST introduced online compliance and payment provisions, bringing accountability and regulation to industries that were previously unorganized, such as construction and textiles. By making compliance more transparent and accountable, GST encourages businesses to operate within the formal economy.

Uniform Taxation and Integration

GST's implementation unifies the tax structure across India, replacing numerous state and central taxes. This promotes economic integration, as goods and services are now taxed uniformly across the country. This integration also benefits businesses engaged in inter-state trade.

Enhanced Government Revenue

GST's expanded tax base, improved compliance mechanisms, and growth in economic activity contribute to higher government revenue. Additionally, GST's transparency reduces opportunities for tax evasion, ensuring that more taxes are collected.

Input Tax Credit (ITC)

GST allows businesses to claim credit for taxes paid on inputs used in the production or provision of goods and services. This input tax credit mechanism reduces the tax liability for businesses and promotes cost savings.

Simpler Compliance

The harmonization of tax rates, procedures, and laws under GST simplifies compliance for businesses. Uniform formats and common definitions make it easier for businesses to understand and adhere to tax requirements. In the pre-GST era, both VAT and service tax functioned independently, each with its distinct set of returns and compliance procedures.

Conversely, the GST regime has ushered in a unified approach, consolidating these into a single return filing requirement. This transition has significantly reduced the number of obligatory returns. Presently, the GST system mandates around 11 returns to be filed. Among these 11 returns, four fundamental returns are applicable to all taxable entities under GST. The primary GSTR-1 necessitates manual input, while GSTR-2 and GSTR-3 are auto-populated, streamlining the reporting process.

Common Procedures and Portal

The GSTN provides a common online platform for all tax-related activities, ensuring consistency and ease of use for taxpayers. Processes like registration, return filing, and payment are automated and simplified, reducing manual efforts and errors.

Lowered Tax Burden and Increased Consumption

GST's efficiency in reducing tax barriers and eliminating tax on tax contributes to lower prices for consumers. This, in turn, encourages increased consumption, which stimulates production and economic growth. As businesses expand to meet rising demand, job opportunities increase.

Destination-based Tax

GST is a destination-based tax, levied at the point of consumption. This ensures that the tax revenue goes to the state where the final consumption occurs, aligning with the principle of fiscal federalism.

Enhanced Centre-State Financial Relations

The dual structure of GST, involving both the Central and State Governments in tax collection, promotes coordination and cooperation between these entities. The GST Council plays a pivotal role in decision-making, leading to greater harmonization and uniformity.

GST Exemptions for Key Sectors

To ensure affordability and accessibility of essential goods and services, certain sectors like healthcare, education, and food grains are either exempt from GST or subject to reduced tax rates. This benefits consumers and promotes social welfare.

Anti-Profiteering Measures

The establishment of the National Anti-Profiteering Authority ensures that businesses pass on the benefits of reduced taxes and input tax credits to consumers. This prevents unfair pricing practices and supports consumer interests.

Increased Compliance and Transparency

The transparent and digitized nature of GST processes reduces opportunities for tax evasion. The online record-keeping and reporting mechanisms enhance transparency, making it easier for tax authorities to track transactions and detect discrepancies.

With the advent of GST, a range of new measures were introduced to bolster the integrity of the taxation system. These initiatives included the synchronization of GST registration with PAN, the implementation of invoice-level reporting and matching for enhanced accuracy, the facilitation of credit reconciliation to address discrepancies, and the introduction of e-way bills to closely monitor the movement of goods.

Furthermore, tracking mechanisms for goods transportation were fortified, and a dedicated GST Commissioner for Investigation was appointed. The establishment of the Directorate General of Analytics and Risk Management further underscored the commitment to creating a corruption-resistant tax framework.

GST Revenue Sharing Between Centre and States

The mechanism of transferring funds between the Centre and States based on information from taxpayers' returns ensures proper allocation of revenue and maintains fiscal equilibrium.

The table outlines the advantages of GST in India, covering reduced consumer taxes, economic growth, and simplified business procedures:

 Disadvantages of GST

There are a few disadvantages of GST. Addressing them is crucial for the smooth transition and functioning of businesses within the new tax framework. The disadvantages of GST of are as follows:

1. Higher Tax Burden for SMEs: Previously, only businesses with a turnover above Rs.1.5 crore paid excise duty, but now businesses with a turnover exceeding Rs.20 lakh must pay GST. SMEs with turnover up to Rs.75 lakh can opt for the composition scheme, paying 1% tax on turnover instead of GST, though this comes with the trade-off of forfeiting input tax credit, presenting a challenging decision.
2. Increased Costs from Software Purchase: Businesses need to update existing software or acquire new GST-compliant software, incurring costs for both software and employee training, impacting their operational expenses.
3. Not Being GST-Compliant Attracts Penalties: SMEs need to understand the complexities of GST, issuing compliant invoices with details such as GSTIN, place of supply, and HSN codes.

1. Rise in Operational Costs: Businesses will need to hire tax professionals and train employees to ensure GST compliance, leading to increased overheads for small businesses.
2. Adapting to an Online Taxation System: Transitioning from traditional invoicing to online return filing can be challenging, particularly for smaller businesses.
3. Mid-Year Implementation of GST: The mid-year implementation of GST led to businesses following both old and new tax structures within the financial year, causing confusion and compliance issues.