Hailed as one of the country’s biggest tax reforms, the Goods and Service Tax (GST) subsumes many indirect taxes that Centre and State have imposed such as excise, VAT and Service Tax. They are levied on goods and service sold in the country. Any law must have both benefits and disadvantages. In this post, We’ll discuss both GST advantages and disadvantages:
As India’s largest tax reform, GST would allow the Indian Economy’s real GDP growth to reach 6.75% in this fiscal year with real GDP growth estimates of 7 to 7.5 percent in 2018-2019. SMEs and Small taxpayers benefited with a variety of relaxations from the GST Scheme.
Some of the Hits Advantages & Disadvantages of GST:
- GST Council plays Moral Diplomacy & member statesmanship is definitely a success!
- Technical support to GST law structure: The current GST Software is operating under a canopy of strong technological support and we should expect more GST Service to be digitized in the coming months.
- GST – A boon for Micro, Small & Medium Enterprises: MSMEs are now less dependent on tax experts compared to the previous scheme due to a simplified system for Filing Returns. It was a wise decision to rationalize the composition scheme and to introduce a quarterly Filing option for taxpayers with turnover below the Rs. 1.5 Crores.
Few Misses of GST: Need of recovery
- Delayed IGST Refund has hit Exporters and triggered a slowdown: While the department is making efforts to punish refund on a timely basis, We can still expect a slowdown in India’s Export Sector over a few months.
- Feeling regarding receiving Input Tax Credit: ITC admission is currently provisionally permitted to the credit recipient. Authorities are in the process of reconciling Different GST Returns and therefore many taxpayers are receiving mismatch notices for ITC claimed according to GSTR-3B and permitted according to GSTR-2A supplier data. Recon development. Tools on the GST platform should allow the buyer to be careful before reporting any wrong ITC, thus preventing any subsequent interest or penalties.
Advantages of GST
Advantages of GST eliminates the cascading effect of tax
GST is an integral indirect tax designed to bring indirect taxation under one umbrella. More specifically, the cascading impact of the tax which was evident earlier would be removed. It is best to describe the cascading tax effect as “tax on tax”. Let’s take this example to see what Tax is:
Before GST regime:
A contractor providing services for instance, Rs. 50,000 and paid a 15% service tax (Rs. 50,000 x 15% = Rs. 7,500).
Then say he’d buy Rs. 20,000 of office supplies paying 5% as VAT (Rs. 20,000 x 5% = Rs. 1,000).
He had to pay Rs. 7,500 Sales Service Tax without having any Rs. 1000 VAT deduction already charged on the stationery.
Its outflow totals Rs. 8,500.
|GST on service of Rs 50,000 @18%||9,000|
|Less: GST on office supplies (Rs 20,000*5%)||1,000|
|Net GST to pay||8,000|
Higher threshold for Registration
Previously, every company that had a turnover of more than Rs. 5 Lakh (in most states) was liable to pay VAT in the VAT System. Please notice this cap varied from State to State. Service Tax for Service provider with a turnover less than Rs. 10 Lakh was also exempted. However, under the GST regime this threshold was raised to Rs. 20 Lakh, which exempts many small traders and service providers.
Let us look at this table below:
|VAT||5 lakhs in most states|
|Service Tax||10 lakhs|
|GST||20 lakhs (10 lakhs for NE states)|
Composition scheme for small businesses
Under GST, Small businesses (with a turnover of Rs. 20 to 75 Lakh) will benefit from using the composition Scheme as it gives an option to lower taxes. The change has reduced the burden of tax and enforcement on many small businesses.
Simple and Easy Online procedure
Most of the GST process (from Registration to Filing Returns) is done Online, and it’s super easy. It has been of particular benefit to start-ups as they do not have to travel from pillar to post to get various approvals such as VAT, Excise and Service Tax.
The number of Compliance’s is lesser
Previously there was VAT and Service Tax, each with its own returns and compliance. The table below shows exactly the same:
Nevertheless, under GST, there is only one, single return that must be submitted. The number of returns to be filed has therefore descended. There are approximately 11 GST Returns out of which 4 are specific GST Returns that apply to all taxable persons. The central GSTR-1 is manually populated, with auto-populated GSTR-2 and GSTR-3.
Defined treatment for E-commerce operators
Earlier to the GST regime there was no definition of supplying goods through the e-commerce sector. It had laws on variable VAT. Let us take another look at this example: Online Websites (Such as Flipkart and Amazon) providing to Uttar Pradesh had to file a VAT declaration and mention the delivery truck’s registration number. Sometimes tax authorities could seize goods if they didn’t produce the documents.
Improved efficiency of Logistics
Earlier, India’s logistics industry had to maintain several warehouse across states to prevent new inter-state movement taxes on CST and State entry. Such warehouse were required to operate below their capacity, which gave way to higher operating costs. However, under GST, certain limits on inter-state movement of goods have been reduced.
As a result of GST, warehouse operators and players with e-commerce aggregators have shown interest in setting up their warehouse on their delivery route at strategic locations such as Nagpur (which is India’s zero-mile city) instead of any other city. Reduction of excessive transportation costs is now rising income for companies involved in the delivery of goods by transport.
Unorganized sector is regulated under GST
It was often see in the pre-GST that some industries such as construction and textiles in India were largely unregulated and unorganized.
Nevertheless, GST allows for electronic compliance’s and payments and for the availability of input credit only when the amount has been approved by the manufacturer. This has given those industries transparency and control.
Let’s dig at the inconveniences of GST now. Please notice that to run the company smoothly, companies need to resolve those drawbacks.
Disadvantages of GST
Increased costs due to software purchase
Businesses must either upgrade their current Disadvantages of GST-compliant accounting or ERP Software, or purchase a GST Software to keep their business running. Yet all the solutions lead to an increased cost of purchasing software and educating staff to use the new billing software effectively.
Clear Tax is India’s first company to introduce a ready-to-use GST software called Cleartax GST Software. Currently the app is available for SMEs free of charge, allowing them to move smoothly into GST. In so many ways it has really relieved people’s suffering.
Small and medium-sized enterprises (SMEs) that have not yet signed for GST tax regime quickly. . This ensures that the GST-compliant invoice issued must have compulsory information such as GSTIN place of delivery, HSN codes and others.
Cleartax has made it simpler for SMEs to use the online application ClearTax BillBook. This program is available until the end of September for FREE and is an simple solution to the problem. This will allow each business to give its clients GST-compliant invoices.
GST will mean an increase in operational costs
Since, We have already known that GST affects the way taxes are charged, companies will now have to hire tax professionals to worry about GST. It will raise prices for small companies slowly, because they would have to pay the extra recruiting experts prices.
Companies would also need to train their staff on compliance with GST, further rising their overhead expenses.
GST came into effect in the middle of the financial year
Since, GST was introduced on July-1st-2017 businesses adopted the old tax system for the first 3 months (April, May and June) and GST for the rest of the financial year.
Businesses may find it difficult to adapt to the new tax regime and some of them operate these tax systems in tandem, contributing to uncertainty and compliance issues.
GST is an online taxation system
Like before, the companies are now moving from invoicing and filing pen and paper to electronic return filing and payment. It could be hard for some smaller companies to adapt to.
Cloud-based GST billing Software such as the ClearTax GST billing Software is certainly a solution to this problem. The Return Filing process on ClearTax GST is exremely easy. Business owners just need to upload their invoices and the program will automatically fill the return forms with the invoice information. Any invoice errors would be clearly detected in real-time by the program thereby increasing performance and timeliness.
SMEs will have a higher tax burden
Smaller enterprises would face difficulties under GST, especially in the manufacturing sector. Previously, only companies whose revenue exceeded Rs. 1.5 Crore were expected to pay excise duty. But any company whose revenue is greater than Rs. 20 Lakh will now have to pay GST.
However, Small and Medium-sized companies with a turnover of up to Rs. 75 Lakh will opt for the composition scheme and pay just 1 percent turnover tax instead of GST and benefits from lower compliance. The catch though these businesses would then be unable to claim any input tax credit. Choosing between higher taxes or the compositional scheme (and therefore no ITC) would be a difficult option for many SMEs.
Details of Advantages of GST through Videos
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