GST and Its Benefits for Small Businesses
The Goods and Services Tax or GST was launched in 2017, and since its introduction, rules and regulations have kept changing. It aims to streamline the indirect tax system in the country and bring the cascading effect of the previous tax regime down. The taxation system before the GST was a “tax on tax” type of regime where goods or services or both were taxed several times, making it hard for the taxpayers, especially the ones who have small-sized businesses. This article will talk about how GST has impacted the emerging and small-sized businesses, whether national or international.
Features of GST
The GST has eliminated the multiplicity of indirect taxes. For example, excise duty by the central government, sales and value-added tax by the state governments, and central sales tax on the inter-state sale of goods by the central government negatively impacted the businesses. GST Returns brought uniformity in the indirect tax domain in India. It has some special features, and these are as follows
- Destination-based tax: The State where the goods are consumed or services utilized will charge GST
- Dual GST: Dual GST refers to a system where both the central and state governments can charge separate taxes on particular goods and services. The central government charges the CGST, whereas the state government charges the SGST
- Input Tax Credit: ITC reduces the tax liability, and taxpayers can set off CGST liability with CGST input tax credit, while the SGST liability would be set off with SGST input tax credit. No cross-utilization would be permitted
- Multiple tax rates: different goods and services are taxed at various rates based on their nature and usability. The evident rates are 5%, 12%, 18%, and 28% along with others.
GST Benefit for Small Businesses
Better logistics
Now, there is no GST on the movement of goods across various states, and the cost of logistics has been largely reduced. GST is applicable in the state where the goods are consumed and services are utilized; therefore, businesses no longer need to maintain multiple warehouses across the states.
Ease of business with a single registration
Businesses have to get registered on the GST Composition Scheme portal if the annual threshold limit crosses a certain specified amount in any financial year. There is no further need for multiple registrations across different states and union territories.
Input Tax Credit
The availability of input tax credit allowed businesses to maintain better cash flow. ITC refers to the taxes paid on the purchase and can later be claimed as deductions at the time of paying tax on output tax.
Easy-to-use online procedure
Navigating under GST has become easier as most of the procedure is completed online, reducing the need for being in touch with multiple tax departments. The registration can be done online on the GST portal, and returns are filed through the portal as well. There are easy to use manuals available so that businesses can comply easily.
Composition Scheme, a savior for small businesses
Under the composition scheme, small businesses can get rid of GST formalities and pay the taxes at a specified rate. Businesses whose annual turnover is less than Rs 1.5Cr can opt for this scheme. The rates of GST for E Commerce & Online Seller under this scheme are as low as 1%.
Disadvantages of GST for Small Businesses
The cost of compliance is comparatively high for small businesses under GST. Maintaining online records requires GST-compliant software, which may be costly for small units.
Businesses are required to file returns regularly, and for that, they need to hire experienced professionals, which has increased the cost.
The composition scheme worked as a savior, but the registered entities under this scheme have to face the crunch of GST drawbacks. The entities registered under this scheme are not eligible for ITC, which prevents them from enjoying the major benefits.
Earlier, businesses whose annual turnover is more than Rs 1.5Cr are liable to pay excise duty, now, under the GST, businesses whose annual turnover is more than Rs 20 lakhs or Rs 40 lakhs have to be registered.
Get Started with TaxDunia
GST may have some drawbacks, but it is still beneficial for small and large businesses. The most important salient feature of GST is that it has eliminated the cascading effect of taxes and brought uniformity to taxes. The small businesses may be grappling with increased compliance costs, yet they can enjoy better logistics facilities and improved transportation of goods and services across different states in India. Get started with TaxDunia to overcome the teething problems in your business. Personalized advice from our experts will ensure that you can utilise the best of the incentives provided by the government.
