Goods and Services Tax is an abbreviation for “GST.” It’s a replacement tax for old indirect taxes in India. Like excise duty, value-added tax, service tax, etc.
On 29th March 2017, the GST Act was passed by the Parliament; it became law on 1st July 2017. The article highlights how the GST can help India’s nascent businesses. In the short term, GST hs positive and negative effects on Indian SMEs. The long-term effects are expected to be much more beneficial and value-adding.
Almost 40 per cent of India’s exports are by MSMEs. And 70 per cent of the country’s total employment is generated by the country’s MSME sectors. In a way, they have some valid concerns. Many previously tax-exempt businesses and organisations will now be subject to GST, significantly increasing the compliance burden.
What are the advantages of GST?
Indian taxpayers have received advantages thanks to the new GST act passed by the government.
1. There is a drastic reduction in tax.
With the introduction of the new GST act, all other taxes have been drastically reduced. The new regime based on “One Nation, One Tax” has made it simpler for the Indian government to bring all taxpayers on their radar. This was previously difficult due to the inadequacy of the tax collection system.
Among the many areas where GST has been instrumental, creating jobs and opening up new opportunities for startups and entrepreneurs is at the forefront. GST is seen as a more enlightened ease-of-doing-business index. It can increase the number of people employed across borders and much more.
2. It prevents the tax snowball effect.
The snowball effect happens when you’ve paid off your debt, but the surplus left is higher than what you began. The implementation of GST centralised all indirect taxes in one place. The input tax credit (ITC) was introduced as a benefit to businesses to reduce the cascading effect, also known as “Tax on Tax.”
3. The minimum threshold is lower.
GST raised the minimum revenue threshold required to register as GST for smaller businesses. The GST Council mandated that a business needs to have annual earnings of Rs. 20 lakhs to be registered under GST. The threshold is expected to reduce the conformity press gang on smaller businesses.
For this reason, businesses with a yearly revenue under Rs. 20 lakh are not required to register for GST. Naturally, in the case of the North Eastern states, this limit is condensed to Rs.10 lakhs. It’s important to factor in both guaranteed sales + sales made possible through sample offers when figuring out your turnover.
4. GST supports various sectors.
GST support has significantly boosted several subsectors of the Indian economy. GST can be beneficial depending on the field you work in. In the long run, GST benefits the Indian budget despite its low registration costs.
Businesses with annual sales of up to Rs 75 lakh can benefit from the composite scheme’s flat tax rate of 1% to 5%. Only qualifying small businesses can enrol in this plan. This annual cap was originally Rs 1.5 crore but has since been reduced to Rs 75 lakh.
5. It helps save money.
Companies can save on cross-border shipping costs now that GST is in effect. Small businesses can expand their footprint. This can happen without incurring high additional costs for transportation owing to improved management and fewer checkpoints.
There is no domino effect, which is an important point. The taxation structure had a cascading effect. This means that the same product was taxed at different production levels. This lead to higher costs and less pricing efficiency. Value-added taxes like GST, which only tax the difference between the original price and the new one, are the answer.
What are the disadvantages of GST?
Both technological obstacles and a lack of working capital pose problems for small businesses.
1. Businesses can face problems with technology.
This affects companies that lack the necessary infrastructure to operate within the online GST system. They have to hire someone else to do their online GST filing because they don’t understand how it works. The cost of filing and registering is increased because of this. Additionally, if a company’s annual turnover is Rs 20 lakh or more, it must register for GST in each state it conducts business in.
2. It can bring a halt to the flow of operating funds.
There are rarely any instances of this issue. Exports used to enjoy tax exemption on the goods exported, but this perk is no longer available under the GST regime. Delays in receiving tax refunds disrupt business operations. Although this situation is unusual, it hinders a company’s ability to function.
Business owners and companies have a lot on their plates, but registering for GST should be at the top of that list. Ignoring the initial stress of GST registration will help business owners reap additional benefits.
Having a GST number will make several things easier, such as applying for loans and streamlining general operations. Therefore, business owners should consider registering their businesses if they meet the minimum threshold.
What is the eligibility for GST registration?
- Businesses in the manufacturing sector with a turnover of Rs 40 lakh or more are required to have a GSTIN.
- Service-sector businesses with a turnover of Rs 20 lakh or more are required to have a GSTIN (this includes those that provide online shopping only).
- Businesses from northeastern India should have an annual turnover of Rs 10 lakh.
Which documents are required for GST registration?
- Passport-sized photographs of the business owner.
- Company Identification Number Card.
- Aadhaar cards, passports, or driver’s licences are acceptable forms of identification.
- Certificate of Incorporation for Limited Liability Partnerships, Organisations, and Corporations.
- Bank account details.
- Partnership agreements (if applicable)
Now that you know about how small businesses benefit from GST registration, keep reading more on the subject. Reading about this topic will improve your knowledge. GST registration (as a whole) has many perks. Therefore, registering your business under the GST Act is important.
As the Indian government moves to simplify the tax structure for the end-users and businesses, such laws will help bring change. You can read more articles on GST registration before registering your business.
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