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The GST, or Goods and Services Tax, is a new taxing scheme created by the Goods and Services Act 2017 to streamline the indirect tax regime and reduce the cascading tax effect. The Government of India (GOI) has implemented a comprehensive and unified consumption tax structure to replace several indirect taxes on goods and services under the 'One Nation One Tax' policy. GST is a multistage tax since it is levied at several stages of the manufacturing process. <br>However, it is a destination-based tax structure, which means that, aside from the final client, all taxes imposed on the manufacturin
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What is GST? The GST, or Goods and Services Tax, is a new taxing scheme created by the Goods and Services Act 2017 to streamline the indirect tax regime and reduce the cascading tax effect. The Government of India (GOI) has implemented a comprehensive and unified consumption tax structure to replace several indirect taxes on goods and services under the 'One Nation One Tax' policy. GST is a multistage tax since it is levied at several stages of the manufacturing process. However, it is a destination-based tax structure, which means that, aside from the final client, all taxes imposed on the manufacturing process will be repaid. GST is always collected at the point of consumption, not at the place of origin.
Advantages of GST 1. Elimination of cascading tax effect The unification of multiple taxes under one roof is one of the most apparent benefits of GST. It eliminates several taxes on the same item and improves tax processing efficiency. Let's look at an example of the cascading tax effect, sometimes known as the "tax on tax" effect, in the pre- and post-GST era. • Pre-GST era: Suppose a hotel owner charges a sum of Rs. 60,000 for a 5-day stay at his hotel. He will have to pay a service tax at a rate of 15%, which will be 9,000 (60,000 x 15%). At the same time, he sold some toiletries for Rs. 25,000. He will have to pay a VAT of Rs. 1250 (25,000 x 5%). The total sum paid by him will be Rs. 9000 and Rs. 1250 i.e. Rs. 10,250 in the Pre-GST era. • Post-GST era: Since the GST levied on services at the rate of 18%, the new tax amount will be Rs. 10800 (60000×18). The tax levied on the toiletries will be deducted, i.e., (10800 – 1250). So the net taxed amount will be Rs. 8,550.
Advantages of GST 2. Enhanced threshold limit Businesses had to pay Value Added Tax after exceeding the Rs. 5 lakh threshold in the pre-GST era. The amount differs from one state to the next. The threshold amount has been increased by Rs. 15 lakh with the adoption of GST, and the new threshold limit is Rs. 20 lakh. Small and medium-sized firms would be relieved by the increase in the VAT threshold limit (SMBs). 3.Minimised compliances Previously, each tax had its own set of compliances. If you had to file excise tax returns, for example, you had to do so every month. Companies and LLPs must file service tax monthly, whereas partnerships and sole proprietorships must file quarterly. Similarly, the period for reporting Value Added Taxes varied depending on the entity. With the implementation of the GST, taxpayers will only have to file one return.
Advantages of GST 4. Pay GST at fixed rates using Composition Scheme Did you know that the GST includes a provision that allows businesses to cut their taxes? You can use the Composition Scheme to reduce your taxable income if your yearly turnover is between Rs.20 lakh and Rs.75 lakh. If you fall into the above-mentioned turnover group, the Composition Scheme permits you to pay GST at a fixed rate regardless of your revenue. The Composite Scheme, on the other hand, has four basic conditions: The Composite Scheme only applies to enterprises that sell goods rather than services. Restaurant proprietors, on the other hand, can take advantage of the programme. The plan does not apply to dealers who ship goods across state lines, and it also does not apply to e-commerce merchants. Dealers are unable to levy Composite Tax or Input Tax Credit to their customers (ITC). The rates of Composite Tax are as follows: 1% for traders, 2% for manufacturers, and 5% for restaurant operators. The Composite Tax Scheme has made compliance easier and cut tax rates, notably for small and medium-sized firms. It is one of GST's most promising advantages.
Advantages of GST 4. Pay GST at fixed rates using Composition Scheme Did you know that the GST includes a provision that allows businesses to cut their taxes? You can use the Composition Scheme to reduce your taxable income if your yearly turnover is between Rs.20 lakh and Rs.75 lakh. If you fall into the above-mentioned turnover group, the Composition Scheme permits you to pay GST at a fixed rate regardless of your revenue. The Composite Scheme, on the other hand, has four basic conditions: The Composite Scheme only applies to enterprises that sell goods rather than services. Restaurant proprietors, on the other hand, can take advantage of the programme. The plan does not apply to dealers who ship goods across state lines, and it also does not apply to e-commerce merchants. Dealers are unable to levy Composite Tax or Input Tax Credit to their customers (ITC). The rates of Composite Tax are as follows: 1% for traders, 2% for manufacturers, and 5% for restaurant operators. The Composite Tax Scheme has made compliance easier and cut tax rates, notably for small and medium-sized firms. It is one of GST's most promising advantages.
Disadvantages of GST 1. GST Scheme has increased the cost of operation Businesses must update their books and accounting using the newest GST-compliant software or Enterprise Resource Planning (ERP) software to stay afloat now that the GST is in force. ERP software is expensive, and managing and operating it requires proper training, which raises the cost to businesses. Furthermore, SMBs' operational costs have skyrocketed as a result of GST compliance, and they now have to pay professionals to assist them with the legislation. 2. Increased tax liability on SMBs According to the earlier scheme, the excise duty was levied only on businesses with an annual turnover of more than Rs.1.5 crore. However, now businesses with an annual turnover of more than Rs.40 lakh have to pay taxes under the new GST Scheme.
Disadvantages of GST 3. Enhance burden of compliance With the GST scheme in place, every company must register on the GST portal in the state of their operation. The whole process of registering, maintaining documents, invoices, and filing returns is tiresome. It unnecessarily increased the burden on companies that had already been facing too many bureaucratic hurdles in India. On top of that, most states are not that savvy when it comes to technology, increasing the hurdles of compliances for the companies. All of these results in enhanced difficulties for the companies, especially new businesses. 4. Increased tax liability on SMBs As previously stated, every company is required to register with the GST system, and failure to do so will result in fines. It's probable that MSMEs are unaware of the subtleties of the GST tax system. In that situation, they'll have to employ an expert or hunt for online assistance. Nonetheless, numerous internet platforms are assisting SMBs by providing free GST-compliant digital invoices.
