Introduction
The Goods and Services Tax (GST) has been one of India’s most significant tax reforms, replacing multiple indirect taxes with a unified system. While GST simplifies taxation, it also presents certain challenges. This article provides an in-depth look at both the advantages and disadvantages of GST to help businesses understand its impact.
Advantages of GST
1. Elimination of the Cascading Effect of Taxes
- GST replaces multiple indirect taxes such as VAT, Service Tax, and Excise Duty, eliminating the “tax on tax” effect.
- Businesses can claim Input Tax Credit (ITC), reducing their overall tax burden.
2. Higher Threshold for Registration
- Previously, small businesses had to register for VAT if their turnover exceeded Rs. 5 lakh (varied by state). The threshold for Service Tax was Rs. 10 lakh.
- Under GST, the registration threshold has increased to Rs. 20 lakh (Rs. 10 lakh for North Eastern states), exempting many small traders and service providers.
3. Simplified Compliance and Return Filing
- GST has a centralized online process for registration, return filing, and payments.
- Fewer compliance burdens compared to previous tax systems (Excise, VAT, Service Tax).
- Common GST return forms (GSTR-1, GSTR-3B, GSTR-2A/2B) enable transparency.
4. Composition Scheme for Small Businesses
- Businesses with turnover between Rs. 20 lakh and Rs. 75 lakh can opt for the Composition Scheme, allowing them to pay a lower tax rate and reducing compliance requirements.
5. Standardized Rules for E-Commerce Businesses
- Before GST, e-commerce businesses faced complex state-wise VAT regulations.
- GST introduced a uniform tax system across India, easing operations for online marketplaces like Amazon, Flipkart, and Shopify.
6. Increased Efficiency in Logistics and Supply Chain
- Before GST, businesses maintained multiple warehouses across states to avoid Central Sales Tax (CST) and state entry taxes.
- With free inter-state movement of goods, businesses can now optimize their supply chain, reducing logistics costs.
7. Regulation of the Unorganized Sector
- Industries such as construction and textiles, which previously operated in an unregulated manner, are now integrated into the formal economy through online tax compliance.
Disadvantages of GST
1. Increased Compliance Costs for Businesses
- Businesses must update their accounting software to comply with GST rules.
- Training employees or hiring GST consultants adds to operational costs.
2. Higher Tax Burden for SMEs
- Previously, manufacturers with turnover below Rs. 1.5 crore were exempt from excise duty.
- Under GST, any business with turnover above Rs. 20 lakh is liable to pay GST.
3. Challenges in Being GST-Compliant
- Businesses must file GST-compliant invoices with mandatory details like GSTIN, place of supply, and HSN codes.
- Delayed or incorrect filings attract penalties.
4. Transition Issues in the Initial Years
- Businesses had to run dual tax systems when GST was introduced in 2017, leading to confusion.
- Small traders and service providers faced difficulties in switching from offline to online tax filing.
5. Ineligibility for Input Tax Credit (ITC) Under the Composition Scheme
- Businesses opting for the Composition Scheme pay lower tax rates but cannot claim ITC.
- They also cannot engage in inter-state trade, limiting their market reach.
Conclusion
GST has revolutionized India’s taxation system by simplifying compliance, eliminating tax cascading, and promoting transparency. However, challenges such as higher compliance costs and tax burden on small businesses still exist. As GST continues to evolve, businesses must stay GST-compliant to leverage its benefits.
For expert GST registration, compliance, and tax planning services, consult Saptax Hub LLP, a trusted CA Firm in Delhi specializing in taxation and business advisory.
