The GST or Goods and Services Tax has been regarded as India’s biggest indirect tax reform post-independence. After a long session of debate and deliberation, this new taxation method was introduced on April 1st, 2017.
GST aimed to consolidate India’s rather extensive indirect tax system and simplify it to help businesses in their operations. In this move, GST’s impact has been significantly noticed on SMEs and start-ups, who are considered the backbone of this country’s economy. Before moving on to its impact, it is crucial to understand what is GST.
GST is a consumption tax applicable on different stages of manufacturing and distribution of goods and services. It combines multiple indirect taxes, namely VAT, state and local taxes, surcharges, entertainment tax, etc. GST impact on small and medium-sized businesses has been largely positive. Read along to learn more about the same.
Impact of GST on businesses
Here some impacts of GST on small businesses:
- More savings on tax payments
In the previous regime, companies with an annual turnover above Rs.5 lakh were responsible to register under VAT (Value Added Tax) and paid taxes accordingly. However, under this new regime, the Government has increased that cap to Rs.20 lakh. Thus, small and medium scale businesses can enjoy this relaxation and save on their tax payment.
- No more different taxation system for goods and service
In the former taxation structure, companies were liable to pay service tax and VAT separately depending on the purchase of services and goods. However, GST has altered this practice, and there are no ambiguities between goods and services. Now, everyone is liable to pay tax at a predetermined rate on their purchases.
- Simplification of the existing taxation system
The complexity of the taxation structure in India has often resulted in tax evasion, which GST aims to curb. So, it has subsumed almost every indirect tax and simplified this structure. As a result, businesses can now forego the hassle of filing for VAT, services tax, excise, CST separately and manage that paperwork. Instead, they can focus on GST and its regulations, making things simpler.
Moving ahead, GST services are also available online. Starting from registration to acquiring GSTIN and filing returns, entrepreneurs can complete this process through one website, improving convenience.
Financial institutions have also made GST calculators available on their websites to help streamline the process.
- Offset tax liability
During the previous tax regime, companies were liable to pay taxes on their purchase and revenue separately. However, they will use a similar method in the current system, but they can offset their previous tax payment from the final GST amount.
- Improves business logistics
In the previous regime, CST and other state-specific taxes hampered the free movement of goods between states, which was a major logistical hurdle, increasing the cost for companies. However, with GST, this system will be revised.
A uniform taxation structure in place will reduce the paperwork for companies and expedite the movement of goods at state boundaries. Companies can now pay their taxes once and ensure free movement across the country. Hence, an improved logistical system will only benefit companies across the country.
According to a recent survey, this is likely to reduce logistical costs for companies by almost 20%. Also, one should know the latest impact of GST for a better understanding.
Besides these, GST will improve regulations and accountability that will help small businesses in securing business loans, as tax papers will be a part of business documents.
Additionally, with leading financiers like Bajaj Finserv, one can skip such hassle by accessing pre-approved offers. These offers are applicable on various financial products, including business loans, personal loans, etc. Borrowers can check their pre-approved offers online.
GST impact on India’s SME sector has been significant. Moreover, with this simple and convenient taxation structure, the ease of conducting business in this country has also improved.