The benefits of GST or Goods and Services Tax are plenty. It is a multi-stage taxation system introduced in India as a comprehensive means to replace previous indirect taxes like excise duty, value-added tax, service tax, purchase tax, and similar others. It impacts various manufacturers, service providers, consumers, and retailers. It is imposed to eliminate the negative effects of multiple indirect taxes and is the only tax applicable in the country.
Benefits of GST in India
GST is a standardized taxation system that aims to keep taxpayers' information private, secure, and safe. It became effective on 1, July 2017 and renewed the indirect tax structure of the country. The tax is imposed on the country's supply of goods and services.
The impacts of GST in India are expected to reduce the overall price a consumer may pay for the products, boost the economy's domestic and international growth, and encourage Indian goods to compete and dominate as a strong competitor in the market overseas.
GST Mechanism
This is how the GST mechanism operates with various benefits of GST in India:
- Service Providers - Service providers are required to pay GST on both the purchase price and the value-added. However, the manufacturer's tax can be deducted.
- Consumers - GST is paid on the products and services purchased by consumers. There are many benefits of GST to consumers.
- Manufacturer - Manufacturers must pay GST on raw materials and value added to make a product.
- Retailer - Retailers must pay GST on the product they purchased and the margin they added, but their tax payment can be subtracted from the total amount.
List of People Who Must Register for GST
Here is the list of the individuals and businesses who must register for taxation:
- Aggregators of electronic commerce
- Individuals who sell via e-commerce aggregators
- Businesses with revenue that exceeds the threshold limit
- Individuals who registered before the GST law was implemented
- Individuals who pay taxes in full compliance with the reverse change framework
- Input service distributors and suppliers' agents
- Individuals who do not reside in India but pay taxes
Benefits of GST
Let's look at over 10 benefits of GST in India covering its positive impact on the Indian market:
1. Uniformity in Taxation
GST enables uniformity in taxes by following a single structure for taxation and its rates throughout the country, and it improves the ease of operating a business. GST aims to push India into becoming a standardized economy through uniform tax rates and removing economic barriers.
It aids the government's 'Make in India' campaign, as goods produced or supplied in the country are competing for domestic and international markets. The Integrated Goods and Services Tax or IGST equals the sum of the state GST and the central GST, aligning the taxation for domestic and foreign goods.
2. Aiding the Government Revenue With Higher Efficiency in Revenue
GST is anticipated to increase government income by broadening the tax base and improving tax compliance. It is also expected to reduce the cost of collecting tax revenues, resulting in higher revenue efficiency. It is also predicted to improve the country's ranking on the 'Ease of Doing Business Index' by 1.5% to 2%.
3. Eradicate the Cascading Effect of Tax
GST is a comprehensive indirect tax designed to unify indirect taxation, and it eliminates the cascading tax effect, also known as 'Tax on Tax'.
Example - A consultant offering services for INR 50,000 and charging a 15% service tax. If he buys office supplies for INR 20,000, he has to pay 5% VAT and INR 7,500 as output service tax. However, The consultant would pay 18% GST on services and less on office supplies under GST, for a net outflow of INR 8,500.
4. Easy Compliance
The foundation of India's GST regime is a comprehensive information technology (IT) system. All taxpayer services, including registrations, returns, and payments, are available online, making compliance simple and transparent.
5. Higher Business Threshold
In the previous taxation system, businesses with a turnover worth more than INR 5 lakhs had to pay VAT. However, the exemptions and limits varied location-wise, it is important to note that GST eases the threshold manifold. GST regime has increased the overall threshold to 20 lakhs and benefits small traders, retailers, etc.
6. Improved Efficiency and Effectiveness of Logistics
The GST regime has reduced the number of inter-state movements of goods and services. Under the previous taxation system, the logistics industry fostered the maintenance of various warehouses to avoid the current Central Sales Tax (CST) and state entry taxes for interstate allocation. The warehouses were forced to operate below their capability to avoid further operating costs.
GST encourages e-commerce aggregators and warehouse managers to locate warehouses at strategic locations. Reducing logistic costs and improving profits for businesses from the supply of goods.
7. A Standard System for E-commerce Operators
Differential treatment and lack of proper compliance regulations force online or e-commerce websites to follow location-specific guidelines like Value-Added Tax (VAT) declaration for Uttar Pradesh, or often are not allowed to register for VAT like places like West Bengal, Kerala, and Rajasthan.
GST maps out the defined provisions for the E-commerce sector and allows them to operate all over India without restrictions on the interstate movement of goods.
8. Simplified System and Less Number of Compliances
GST has reduced the number of compliances and returns as all the returns are clubbed into a single unified tax regime. The precious tax regimes had multiple taxes, each with its own compliance requirements and returns. There are 11 returns under GST, four of which are general basic taxes applicable to all taxpayers.
9. One Tax System for the Nation
The primary goal of GST was to eliminate the existence of other unnecessary and outdated tax structures from the Indian Taxation System. GST removed other taxes like VAT, excise duty, etc. GST comprises various levels or slabs for different commodities, which might confuse consumers, however, it is convenient in the long run.
10. Regulation of Unorganized Sectors and Industries
Certain sectors, like Textile, Construction, Retail, etc., have been unregulated, and the government has difficulty managing these unorganized sectors conveniently. GST ensures that such industries learn the GST process thoroughly. The industries are regulated as payments, and compliances are conducted online and foster a transparent process.
11. Increase in Foreign Investment
GST propagates a standard price around the nation. A common price converts India into a single market, surging the country's foreign investment level. Lowered costs make the Indian products and market equally competitive internationally. GST complies with worldwide tax regulations and blurs the line of reachability for foreign consumers and traders.
Advantages of GST in India
GST is an indirect tax that has revolutionized the tax regime for India. It is one of the biggest steps undertaken by the country to remove repetitive indirect taxes like service tax, entry tax, custom duty, excise duty, VAT, and sales tax. It is a region-specific taxation system with several advantages to the economy and the general public.
Some of the key features and benefits of GST in India are discussed below:
1. No Hidden Costs
The earlier taxes led to confusion among consumers and traders regarding the multitude of taxes. Various taxes at once lead to non-compliance, whereas a single taxation system like GST allows customers to easily figure out the percentage and ratio of GST on products and services.
2. Make in India Initiative
GST was devised to promote products under the 'Make in India' initiative, and it propagates a competitive market and production culture for Indian goods.
3. Lift for Lesser Developed States
GST is a central tax in the tax regime, allowing the government to allocate taxation benefits evenly throughout the country. It boosts the growth of lesser developed states of India.
4. Simple Accessibility
GST allows consumers and companies to access all the details at a centralized location, i.e., the GST portal. It eases the process of filing returns and assists various organizations along with other features like the benefits of the GST number.
5. Low Prices of Goods and Services
GST is a single tax and is based on an 'Input Tax Credit' or 'ITC'. As there is no unnecessary burden of multiple indirect taxes, there is a reduction in the overall costs for goods and services. It also encourages consumption by customers.
6. Significant Growth in the Economy
Gross domestic product (GDP) contributes to the complete economic growth of the country by optimizing various sectors like boosting exports and trade industry, improvement in employment, exposure to foreign investments and trade, enabling GST returns with minimal hassles, ensuring standard compliance mechanisms, a common system for classification of goods and services, and a unified indirect tax system and rates between central and state government.
7. Availability of ITC Tax Credit
ITC Credit is a seamless tax credit system brought by GST, allowing traders and manufacturers to claim ITC for the supply of goods conveniently. Keep note of the conditions, exemptions, and restrictions that may apply.
8. Promotion of Small Scale Businesses
GST exempts taxes from various goods, simplifies taxation, and offers lucrative schemes for small businesses like exemption from taxes. Small retailers and business owners can promote their goods and services and attract various consumers.
9. Transparency
GST makes the transactions, cashflow, and supply chain flow transparent for traders, wholesalers, retailers, exporters, and importers. Businesses can track their transactions and make note of subsidies, benefits, and discounts. It is transparent as the businesses have to pay GST for the goods purchased through the supply chain. There is clarity in the owners' minds, propagating better allocation of resources and enhanced decision-making.
Disadvantages of GST in India
Industrialization and modernization have led to wonders in the Indian taxation system and GST is one of them. However, certain hindrances and disadvantages relate to GST due to the lack of accountability in specific sectors.
Some of the key disadvantages of GST in India include -
1. Increased Costs Due to Software Upgradation
GST systems brought new technologies and software systems into existence. Businesses and companies may have to update the existing accounting systems to develop strategies that will comply with the GST rules and regulations imposed by the government. It automatically increases the resources, time, and energy spent on training the employees on the new software and effectively utilizing the benefits of the new billing software.
However, various online or cloud-based software quickly capture the market with their simplistic solutions and ready-to-use GST systems, specifically focusing on small sector enterprises.
2. Easy to Monitor Penalties in Case of Non-Compliance
The technical and administrative nuances of the system can lead to mistakes, and create issues in maintaining GST-compliant invoices, maintaining digital records, filing returns timely, and staying available for any changes in the system. This one-stop tax regime system can be difficult for companies that need more flexibility and vigilance to consider the crucial details.
Ensure that the GST-compliant invoice contains the details like Harmonized System of Nomenclature (HSN) Codes, Goods and Services Tax Identification Number (GSTIN), place of supply, and other details. Keeping the invoice in check allows companies to eliminate penalties and long-term losses.
3. Increase in Operational Costs
GST is a complex process and requires businesses to employ financial professionals to stay GST-compliant. It automatically leads to an increase in the operational costs of businesses.
Other expenses like training staff, incorporating the required infrastructure, and higher salaries of well-trained and efficient personnel may lead to a rise in the operational costs of small, medium, or large sector enterprises. It can affect manufacturers and consumers, as companies may increase the prices of goods to meet new expenses.
4. Adapting to an Online Taxation System
GST utilizes modern technologies and digital solutions at every step of the system. The processes from registration for GST to filing tax returns are all handled and operated online. The drawback of this system is that online systems require a learning curve, are prone to security concerns, and need regular updates.
5. Higher Tax Burden for SMEs
Another crucial disadvantage is levied on small and medium-sized firms. It is because, in the previous tax regimes, it was stated that businesses with a turnover of more than INR 1.5 crore had to pay excise duty charges. However, the current taxation system establishes that companies with a yearly turnover of INR 20 lakhs in specific states are liable to pay the applicable taxes.
Under the GST system, SMEs with a turnover of less than INR 1 crore must pay only 1% of their annual revenue under the composition scheme.
Benefits of GST to the Government
Here are some of the key benefits of GST to the government:
1. Improvement in Tax Revenue
GST is the single tax flowing in the market supply chain and eliminates repetitive, inconclusive, and unneeded taxes. The transparency of this system reflects in the total tax revenues for central and state governments. Other benefits of GST to the government are that it is seen to improve the GDP growth of the economy and leads to a decline in the tax collection costs of the government.
2. Better Control on Tax Invasion
The previous taxation system had loopholes infiltrated by the taxpayers, causing tax invasion and a lack of control on the contribution ratio by each individual or sector to different indirect taxes. GST fosters tax compliance and responsibility among everyone, and the Input Tax Credit system promotes better movement of goods for the cause.
3. Better Tax Administration
GST is a robust system operated by end-to-end IT systems and websites like Goods and Services Tax Network and Goods and Services Tax Council. The concept of 'One Tax, One Nation' improves better administration with a centralized tax structure and boosts foreign direct investments (FDIs) and international trade.
Benefits of GST to Traders
A centralized taxation system enhances efficiency. It has various positive effects on traders and manufacturers, some of which are listed below -
1. Uniform registration process
GST has introduced an easy and efficient procedure for registering businesses, filing returns, and tax payments. It encourages various industries and companies to benefit from this process of neutralizing taxes, with diverse schemes to support new or small manufacturers.
2. Increased Exports
The final manufacturing cost for 'Make in India' products is reduced manifolds as no CST, VAT, etc., are levied on the goods. It increases the competitiveness of Indian goods in the foreign market due to economic costs and great quality.
3. Easy Borrowing
GST promotes easy recording of every financial transaction across industries. Digitalization simplifies the overall flow of transactions from consumers to traders and vice versa. Maintaining the record of each transaction assists businesses in taking loans from banks and businesses. It allows banks to check the business's financial stability and the trader's repayment abilities.
4. Ease of Entry Into the Market
As the market processes are transparent and feasible, businesses gain an edge and can enter the market easier than before.
Benefits of GST to Consumers
The government has devised GST to provide various short and long-term benefits to consumers and improve their purchasing power. The benefits may range from poor to upper-class consumers. The standard taxation module is expected to provide high-quality products at great prices.
Some of the key benefits of GST to consumers include -
- The lower rates of goods and services as a vast majority of necessity goods are exempted from taxes or have a low tax.
- Citizens in the poverty bracket can increase their purchasing capacity and receive what they require.
- Items of entertainment, leisure, and wants like luxury cars, microwaves, two-wheeler, televisions, laptops, stoves, and others experience a decline in overall prices.
- GST creates competition among manufacturers and traders. Thus, they are willing to produce goods at competitive prices.
- Products and services will be able to move freely across the nation.
GST- One Tax, One Nation
GST is created to optimize and coordinate the indirect tax regime, increase the competitiveness of Indian trade and industry, foster a common and seamless Indian market, broaden the tax base, and incentivize tax compliance.
TranZact is a cloud software that supports SME businesses to comply with GST regulations by centralizing all business transactions on a central platform and providing ready-to-use GST-compliant invoices and documentation. This saves significant time and costs for Indian SMEs.
FAQs on Benefits of GST
1. How does GST simplify the tax structure?
GST is a single tax imposed by the government and is taxed as a single price throughout the nation. It reduces tax avoidance and thus simplifies tax structure.
2. How does GST eliminate the cascading effect of taxes?
It eliminates the 'tax on tax' or cascading effect as there is only one tax payable by consumers and others.
3. What are the compliance requirements for GST?
The GST compliance rating is a score the government assigns to businesses to indicate their level of compliance with the tax department. It is calculated using parameters such as the timely filing of returns, and the use of input credits. It requires businesses to submit form GST REG-24 on the GST Portal with other documents as stated under the time limit.
4. How does GST improve efficiency in supply chain management?
It promotes businesses to deliver goods effectively, manage their shipping and delivery schedule, manage inventory, and utilize capital optimally.
5. How does GST facilitate inter-state trade?
GST makes the entire country a single market and encourages consumers to buy goods without the interstate taxes imposed on them. It also makes transactions simpler and easier.
6. Does GST make goods and services cheaper?
GST reduces the burden of taxes from the manufacturing area, does not impose a tax on taxes, lowers manufacturing costs, and reduces the prices of consumer goods.
7. How will GST impact the availability of goods and services?
It promotes better availability of goods and services due to standard prices across the country. GST has multiple implications on the supply chain, like the removal of CST, reconstruction of the distribution network, and limited consolidation.
8. Will GST affect the quality of products and services?
GST improves the quality of goods and services, enabling foreign investors and companies to compete with Indian companies. The streamlined supply chain and reduced costs of production improve the overall production capacity of Indian companies and push them to produce better goods to compete in terms of international goods.
