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PROS AND CONS OF GST IN INDIA
The Goods and Services Tax (GST) system in India introduced from 1st April 2010. The introduction of the Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India. This 'one nation, one tax' reform absorbed most of the indirect taxes levied at the central and state levels and brought uniformity in tax administration. Let us have a look at the benefits of GST. One of the biggest tax reforms in the country, the Goods and Services Tax (GST) includes several indirect taxes such as excise duty, VAT and service tax levied by the Center and the state.
Benefits of GST
The implementation of GST in India has helped businesses and industry in a very positive way. Many people have experienced the benefits of GST in India. Companies whose turnover is up to ₹75 lakh can benefit from various composition schemes provided under the GST Act.
They now have to pay only 1% of their turnover. Thus, the taxation process has been easy for them. GST has helped reduce corruption and regulates businesses that sell without receipt. GST has also helped in reducing taxes on certain products like cars and smart phones from 2% to 7.5%.
PROS OF GST
CASCADING EFFECT GST:
GST is an all-inclusive indirect tax that was designed to bring indirect taxation under one umbrella. More importantly, it is going to eliminate the cascading effect of the tax which was evident earlier.
The broader tax effect can be best described as 'tax on tax'. To understand what tax on tax, let's take this example
- Before GST
|
PARTICULARS
SELLING PRICE
EXCISE DUTY 12.5%
CST 2%
VẬT S
SELLING PRICE INCLUDING TAX
CREDIT AVAILABLE
TOTAL TAX PAID |
Dealer A
5000
625
112.5
NA
5737.5
0
737.5 |
Dealer B
7000
NA
NA
385
7385
0
385 |
Dealer C
9000
ΝΑ.
180
NA
9180
385
0 |
Dealer D
13000
NA
NA
715
13715
0
715 |
TOTAL
1837.5
|
- Under GST
|
PARTICULARS
SELLING PRICE
GST @18%
SELLING PRICE INCLUDING TAX
CREDIT AVAILABLE
TOTAL TAX PAID |
Dealer A
5000
600
5600
0
600 |
Dealer B
7000
840
7840
600
240 |
Dealer C
9000
1080
10080
840
240 |
Dealer D
13000
1560
14560
1080
480 |
TOTAL
1560 |
GST REGISTRATION THRESHOLD LIMITS INCREASED
Under GST regime, however, this threshold has been increased to Rs 20 lakh, which exempts many small traders and service providers.
Let us look at this table below:
|
Tax |
Threshold Limits |
|
Excise |
1.5 crores |
|
VAT |
5 lakhs in most states |
|
Service Tax |
10 lakhs |
|
GST |
20 lakhs (10 lakhs for NE states) |
Simple Online GST Registration Procedure
The entire process of GST (from registration to filing of returns) has been made online, and it is very easy. This has been particularly beneficial for start-ups, as they do not need to move from one place to another to obtain various registrations like VAT, Excise and Service Tax.
CONS OF GST
INCREASED COSTS DUE TO SOFTWARE PURCHASE
Businesses will either have to update their existing accounting or ERP software to a GST-compliant one or purchase the GST software so that they can continue their business. But both the options increase the cost of software purchase and training of employees for efficient use of new billing software.
NOT BEING GST-COMPLIANT CAN ATTRACT PENALTIES
Small and medium-sized enterprises (SMEs) may still not be able to understand the nuances of the GST tax regime. They have to issue GST-complaint invoices, comply with digital record-keeping, and of course, file returns on time. This means that the GST-complaint invoice issued should contain mandatory details like GSTIN, place of supply, HSN code and others.
GST ENHANCES EFFICIENCY, REDUCES OPERATIONAL COSTS
As we have already established that GST is changing the way tax is paid, businesses will now have to hire tax professionals to be GST-compliant. This will gradually increase the cost for small businesses as they will have to bear the additional cost of hiring specialists.
GST WAS IMPLEMENTED IN THE MIDDLE OF THE FINANCIAL YEAR:
As GST came into effect on July 1, 2017, businesses followed the old GST regime for a few months. Businesses may find it difficult to adjust to the new GST structure, and some of them are following tax systems in parallel, leading to compliance issues.
Businesses can find it difficult to adjust to the new tax regime, and some of them are running these tax systems in parallel, resulting in confusion and compliance issues.
SMES FACE A HIGHER TAX BURDEN
Small businesses, especially the manufacturing sector, will face difficulties under GST. Earlier only businesses with a turnover of more than Rs 1.5 crore had to pay excise duty. But now any business whose turnover is more than Rs 20 lakh will have to pay GST.
However, SMEs with turnover up to Rs 75 lakh can opt for composition scheme and pay only 1% tax on turnover in lieu of GST and enjoy less compliance. However, the catch is that these businesses will not be able to claim any input tax credit. The decision to choose between a higher tax or composition scheme (and thus no ITC) will be difficult for many SMEs.
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