The Goods and Services Tax (GST) is one of the biggest tax reforms in the country. Introduced on July 1, 2017, this single indirect tax replaced various indirect taxes imposed by Centre and State such as excise duty, service tax and VAT. GST Day is celebrated on this day every year to commemorate its launch which will finally lead to One Nation One Tax.
Whenever a major tax reform is introduced, it comes with its share of pros and cons. The Goods and Services Tax (GST) is no different. While it has streamlined the indirect tax system as we know it today, it also has a few shortfalls which make it slightly less desirable than what was initially expected.
Advantages of GST
1. No tax on tax
In the previous system of indirect taxation, there were several points where taxes were levied. For example, if a tax was levied on a good at the manufacturing level, then again at the wholesale level and again at the retail level. The total tax liability would be the sum of all these taxes or in other words, it was “tax on tax”. This cascading effect results in too many levels of taxation.
GST will replace all existing indirect taxes levied by the Centre and the States. There will be no cascading effect of taxes under GST. Thus, it is referred to as a ‘comprehensive’ indirect tax. For a business this is extremely profitable when you calculate the time value of money in financial management. This is because due to the cumulative effect the prices of products will go down and consumers will spend more and companies in turn will earn more. Click here to get more information.
2. Higher threshold for registration
In the VAT structure, a business needed to register if the turnover was more than 5 lakhs and this too varied across states. However, now a service provider needs to register only if the annual turnover exceeds Rs. 20 lakh and Rs. 10 lakh in case of special category states. This is a relief for many small traders and service providers.
3. Simpler registration process
The registration process for GST is also much simpler and easier than it was under VAT. In the VAT regime, you had to apply for a provisional ID, then a final ID and then get your VAT number. For GST, all you need to do is apply for one single GSTIN.
4. Composition scheme
Small businesses have been given a big tax break with the introduction of GST. The composition scheme for small businesses under GST provides an option to lower taxes by utilizing the composition scheme. Due to this the tax payable amount has decreased. Additionally, it has significantly reduced the compliance burden on small and medium scale businesses.
5. Better planning for E-commerce companies
The e-commerce sector will be a key beneficiary of the new regime. All businesses in the e-commerce industry will now be under a uniform tax regime. This will remove uncertainty about taxation which was earlier prevalent in different states. Unifying the tax and compliance requirements has given a much-needed boost to the inter-state movement of goods. Additionally, the e-commerce companies will get input credit making it arguably the benefit of GST that is most potent in terms of streamlining and simplifying trade across India.