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Although GST is a significant tax reform in India, there are GST benefits and disadvantages that can, and did, come up.

 

To understand it, let's take a look at the advantages and disadvantages of GST in this article.

Advantages of GST in India

1. Effective Against Cascading Tax Effect

GST has consolidated a slew of indirect taxes into a single tax. As a result, taxation of various services and products has become easier. Further, it has eliminated the tax-on-tax effect also known as cascading effect.

 

To understand that with an example, consider the example of getting your car repaired. 

 

In the pre-GST era, the mechanic provides a service worth ₹30,000 with 15% service tax, i.e., tax amount will be ₹4,500. Now, to fix your car, you need to purchase parts worth ₹15,000 with 5% VAT. This amounts to ₹750 as tax. Hence, your total expense will be ₹4,500 + ₹750 = ₹5,250

 

With GST laws, the tax for the service of ₹30,000 will be 18%, which is ₹5,400. The tax on machine parts will also be 18%, i.e. tax amount will be ₹2,700. Now, the tax amount on machine parts is deducted, so the net amount will be ₹5400 – ₹2700 = ₹2700. 

 

Amount

Tax

Total

In Pre-GST era

Mechanic Provides the Service

₹30,000

15%

₹4,500

Machine Parts

₹15,000

5%

₹750

In Post-GST era

Mechanic Provides the Service

₹30,000

18%

₹5400

Machine Parts

₹15,000

18%

₹2700

2. Raises the Registration Threshold Higher

Many small firms and companies that have revenue of less than ₹20 Lakhs are exempted from paying GST. Earlier, small firms (with a turnover of ₹20 to ₹75 Lakhs) had to pay multiple taxes, as the threshold limit on all taxes was lower. 

 

Here is a snapshot of the threshold limit of taxes compared to GST. 

Tax

Threshold Limits

VAT

₹5 Lakhs in most states

Service Tax

₹10 Lakhs 

Excise Duty

₹1.5 Crores annually 

GST

₹20 Lakhs (₹10 Lakhs for NE states)

3. Small Businesses Get Composition Scheme

One of the most substantial advantages of GST is that it has lessened the tax and regulatory costs of various small businesses. Small businesses can profit from GST since it allows them to use the composition scheme to cut their taxes. 

 

All businesses dealing with goods and products can opt for this scheme. However, dealers trading in intrastate and e-commerce are not applicable for the plan. 

4. Simple Digitised Procedure

From GST registration to submitting GST returns, the GST procedure can be completed online without visiting any office. As a result, it will save time especially if you are a small business owner. You can then invest this time towards the growth of your business.

5. Lesser Number of Compliances

With GST, there is no need to make multiple filings to stay compliant. Under one unified tax system, 11 returns can be filed at once. 

Tax

Filing Frequency 

VAT

Monthly (as per the state law)

Service Tax

₹5 Lakhs in most states

Excise Duty

Month or Quarterly (for Partners)

6. Standard Rule for E-Commerce Operators

Since GST came into effect, clear well-defined rules and regulations are set for the e-commerce sector. With no uniform rule across all states, it was difficult to ensure compliance with international and national ecommerce companies. 

 

Now, with the new rule, there is no difference in treatment and taxation on the online brands dealing with interstate transport of goods

7. Improved Logistics Efficiency

One of the key merits of GST in India is that it has boosted logistics efficiency by cutting excessive logistical expenditures. Before GST, logistics had to maintain multiple warehouses to cut the cost of interstate movement. Now that goods transport across boards have uniform rules and taxation criteria, transport is better managed. 

8. Regulation of Unorganised Sector

By mandating payments and compliances to be made online, GST has introduced transparency and regulation to unorganised sectors like textile and construction. Further, the GST is assisting in the promotion of tax transparency. 

 

It has also contributed to beneficial adjustments by providing greater clarity and organising the system.

 

Now that you know about the GST and its benefits, let’s talk about the demerits of GST.

Disadvantages of GST in India

1. Additional Software Cost 

With the introduction of GST, companies are now mandated to update their accounts with the expensive GST-compliant software, which has increased the cost of operations. Moreover, the employees now have to operate as per the latest billing systems.

This adds further to training expenses. For many small to medium size businesses, this cost has created an unexpected financial burden. 

2. Penalties on Non-Compliant With GST 

Learning the new system and taxation laws can be time-consuming, especially for firms with limited workforce. Since GST mandates all the processes to be digitised, from registration to issuing GST-compliant invoices, maintaining a digital record, and filing returns. 

 

It has become a cumbersome process, and if any firm fails to register at the GST site, the company will have to pay hefty penalties.

3. Increased Operational Costs

It has escalated the administrative burdens. Every firm in the state of operation is obligated to register on the GST portal. However, small businesses which are operational in small-town or cities that are not technologically adept will have to face compliance challenges for businesses.

4. Midyears GST Effect

Since GST came into effect in the middle of the financial year, i.e., from the 1st of July 2017, there was some confusion. Businesses had to file tax returns for the 1st quarter as per the old regime and by the new rules from July onwards. 

 

Since noncompliance can invite heavy penalties, small and medium-sized enterprises can face a lot of difficulty and disarray.

5. Complete Online Taxation System

Previously, only companies with revenue of more than ₹1.5 Crores had to pay excise duty. But now, any firm having a turnover of more than ₹20 Lakhs is obligated to pay GST. Adapting to these new compliances has been difficult, and added to the demerits of GST.

 

Furthermore, the cost of GST service fees in the banking industry has increased from 15% to 18%. Increased insurance rates are also one of the major disadvantages of GST in India.

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