Incorporating GST, a combination of multiple indirect taxes on goods and services, was a much-needed step forward. But since its implementation on July 1, 2017, the debate still continues on the advantages and disadvantages of GST in India and how it is affecting the Indian economy.

Goods and services tax in India contains 4 slabs for all types of products and services: 5%, 12%, 18%, and 28%. Jewelry, cut gems, precious metals, and certain cars fall within the 1.5% and 3% slabs, respectively. So there are a total of 6 slabs under the GST tax regime in India.

Following the establishment of the Goods and Services Tax (GST), the government received several comments on the advantages of GST. The GST, also known as the Value Added Tax (VAT), is a national indirect tax levy on the manufacture, sale, and consumption of goods and services. Though the objective was to achieve a singular tax regime all over India, there are still some disadvantages of GST that people faces on a day-to-day basis. 

According to the new tax regime, GST would replace all indirect taxes levied by the Indian Central and State governments on goods and services. Though GST is a historic tax reform in India, still there comes a strong debate every time someone is discussing the advantages and disadvantages of GST in India.

Top 10 Advantages of GST

Here in this list, you will find some of the major advantages of GST that have embarked on the Indian economical ecosystem.

Increase in Foreign Investment 

With the implementation of GST, India has become a single market, and foreign investment has surged in the country. Because of their lower costs, commodities created in India have become more competitive in the worldwide market, resulting in increased exports. The implementation of the Goods and Services Tax brings India in line with worldwide tax regulations, making it easier for Indian enterprises to sell on a global scale.

One Tax System

One of the primary goals of implementing GST was to eliminate various forms of taxes from the Indian tax structure. Prior to the establishment of GST, there were several taxes such as VAT, service tax, and so on. With the implementation of GST, all such levies have been eliminated. There is now only one tax. Although there are several slabs, GST charges for different commodities vary, which often leads to confusion.

Less Compliance to be Followed

Before the GST act was implemented in 2017, we had several different indirect taxes. Naturally, there were various compliance rules associated with each of these taxes which made things complicated. Since the implementation of the new tax regime, there has been only a single unified return to be filed by the taxpayers. The GST has around 11 returns, only 4 of which are basic taxes that apply to all registered taxpayers regardless of their business type. For ease of filing these returns, only the main GSTR-1 is manually populated while GSTR-2 and GSTR-3 are automatically populated.

Simple Access

Anyone sitting anywhere at any time can access the GST portal. This simplifies the filing of returns. This is extremely beneficial to all types of organizations.

Efficiency in Logistics

GST has replaced various earlier tax systems, such as VAT. As a result, because the business already pays to the center and state before the transportation of goods, there is no need to pay state-level taxes during interstate movement, which improves logistics and operations.

Lift for the Lesser Developed States

The 2% interstate levy remains in place, with the majority of production remaining within the state. However, under the new laws, the tax amount can be distributed across the country, providing a greater boost to the less developed.

The Make In India Initiative

One of the primary objectives for instituting the Goods and Services Tax was to promote ‘Make in India’ products. The GST facilitates competitive product manufacture. However, the government has yet to explain how GST contributes to this campaign

Removal of cascading

A system of seamless tax credits across the value chain and across state lines would ensure that there is minimum tax cascading. This would lower the unintentional costs of conducting business.

Boosting of Revenue

Consider this: with the new GST in place, there will be no more evasion than there is now with the current tax regulations. A simplified taxation term will encourage more suppliers to pay the tax amount, resulting in an increase in revenue levels.

Transparency

The tax administration has begun working without corruption. Transparency has also resulted from allowing sales invoices to disclose the tax applied.

Top 10 Disadvantages of GST

Let us see some of the major disadvantages of GST and its effects on the citizens of India.

Increased Costs

GST requires firms to upgrade their current accounting software to ERP or GST-compliant software in order to keep their operations running. However, firms should keep in mind that purchasing, installing, and training staff to utilize GST-compliant software can be costly. Furthermore, the expenses of conducting business have risen significantly for both large and small enterprises, since they must now hire tax professionals in order to become GST-compliant.

Increased Software Expenses

Prior to the implementation of the GST regime, most Indian businesses relied on basic ERP or accounting software to manage their day-to-day operations. These software and solutions were developed in compliance with the tax rules and structures in place at the time. Businesses are now compelled to switch to more expensive GST-compliant software or specialized GST software as a result of the implementation of GST. This indicates that operating costs will rise as a result of software acquisitions and employee training.

Increased Tax Burden on SMEs

One of the most significant downsides of GST is that it has increased tax burdens for small and medium-sized firms. This is because, under the previous tax structure, enterprises with annual sales of more than Rs. 1.5 crores were required to pay excise. However, under the new tax structure, any company with a total yearly turnover of more than Rs. 20 lakh is subject to taxation.

This tax system, however, includes a composition scheme for SMEs with a revenue of less than Rs. 1 crore. SMEs are simply required to pay 1% of their annual revenue under this system. However, if a company decides to take advantage of this composition benefit, it cannot claim the input tax credit.

Difficult Migration to Online Filing System

Since the implementation of the new tax system, practically every part of the tax has been handled online, from registration to filing tax returns. With the advancement of modern technology, organizations are gradually adopting digital solutions. However, such solutions for tiny enterprises receive little attention. Although the government’s online system is incredibly convenient for business owners, it still has a steep learning curve that can be difficult for small enterprises.

Compliance Burden

Companies must now register with GST in all states where they operate under the new taxing regime. Businesses must issue GST-compliant invoices, keep electronic records, and file returns as part of the registration procedure. The expense of all of these services has significantly raised the strain on the country’s small and medium-sized businesses. Furthermore, numerous firms are finding it difficult to adjust to GST because all Indian states’ infrastructure is not ready to embrace e-governance.

Loss in the real estate sector

The advent of the GST has had a significant impact on the real estate industry. It has resulted in an 8% increase in real estate prices. This has resulted in a 12% drop in property demand. However, it is possible that this is a short-term trend that may not persist forever.

Standard Tax Rates and Multiple Rates of CESS

Instead of a simpler tax system, India’s GST Council implemented GST with five standard rates. Many economists believe that this complicates rather than simplifies the structure.

Given India’s many states, each had its own challenges with GST rates. Each wants lower rates to be implemented for certain items produced. As a result, the GST Council was forced to introduce numerous tax rates under GST. Furthermore, GST was initially implemented with a tax rate as high as 28%. Despite this, the GST Council has been steadily lowering rates, and most items of daily use now fall into the 0% to 5% tax category.

Dual Control 

GST is referred to as a single taxation system, but in reality, it is a dual tax because both the state and the center will collect separate taxes on a single sale and service transaction.

Hurried Implementation of GST

GST was implemented on July 1, 2017, in the midst of the fiscal year. This made it difficult for firms to swiftly transition to a new tax framework. Following the prior regime’s tax laws for the first quarter of 2017 and sticking to the newly implemented GST for the remaining quarters posed compliance challenges.

Income Tax Credit Mismatch

As the tax guard changes, the first few occurrences of application will result in large tax-paying at the outset. However, when the loop is activated, they will only be allowed to use the tax input in the latter phases. With such in place, there would be an ITC mismatch during the initial application of GST Tax.

Conclusion 

The advantages of GST on the manufacturing sector, as expected, have been favorable by reducing the cascading effect of taxes, resulting in lower production costs. Prior to the advent of the GST, many taxes paid by manufacturers on purchases were not creditable.

Credit for taxes paid on services (such as warehouse rent, logistics costs, retail outlets, and so on) was also non-creditable at the dealer/distributor level. Manufacturers and dealers/distributors generally had little choice but to incorporate such charges into the sale price of the items because they were costs to the business. Manufacturing expenses have decreased once the credit restriction has been lifted. 

​​On the fifth anniversary of the GST, we are at a critical point in the GST journey since the advantages of GST look strong as the economy recovers and foreign enterprises look for a new base. If the government responds positively to industry demands, India may emerge as a favored place for businesses, and the economy may continue its post-pandemic growth story with strong collections.

Frequently asked questions about GST 

How does GST work?

Manufacturer: The manufacturer is responsible for paying GST on both the raw materials used to make the product and the value added during production.

Service Provider: In this case, the service provider is responsible for paying GST on both the product’s purchase price and the value that has been added. However, the manufacturer’s tax payment may be deducted from the total GST that must be paid.

Retailer: The retailer is responsible for paying GST on both the merchandise they received from the distributor and the margin they added. However, the retailer’s tax payment may be deducted from the total amount of GST that must be paid.

Consumer: GST must be paid on the purchased item.

What are the types of GST in India?

The following list includes each of the four categories of GST:

The Central Goods and Services Tax (CGST) is levied on intra-state supplies of goods and services.

State Goods and Services Tax (SGST): Similar to CGST, SGST is levied on purchases made inside a state.

Interstate sales of goods and services are subject to the Integrated Goods and Services Tax (IGST).

Union Territory Goods and Services Tax (UTGST): In any of the nation’s union territories, including the Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh, UTGST is imposed on the supply of goods and services. UTGST is assessed in addition to CGST.

Who Can Levy GST?

Because GST is a destination-based tax, the Centre and States can impose it on a single tax basis. As a result, it has several parts:

• GST (Central Goods and Services Tax): is the tax levied by the federal government.
• GST (State GST)/UTGST (Union Territory GST): SGST is the state tax, while UTGST is the union territory tax.
• Interstate GST (IGST): This tax is levied on goods supplied between states. The importation of goods is treated as an interstate supply. In addition to IGST, imports may also be subject to customs duties.

How many GST slabs are there?

There are six different GST slabs. For all goods and services, the first four slabs are 5%, 12%, 18%, and 28%. The other two slabs are 1.5% and 3%, respectively, for jewelry, cut diamonds, precious metals, and certain cars. So there are a total of six slabs. There is also a 0% slab, which means that no GST was applied to the service or commodity.

What is the fine for non-filing of GST returns?

Non-filing of GST returns incurs a punishment of Rs 20 per day for Nil returns and Rs 50 for all other filings. This becomes pretty costly.

Does one need to pay quarterly or monthly returns?

Returns can be paid quarterly or monthly, as desired. The options for return period filing can be changed via the GST portal’s Dashboard.

What is the GST Number?

A Goods and Services Tax Identification Number (GSTIN) or GST Number is a unique identifier provided to a registered firm or individual under the GST Act. Tax authorities use GSTIN to keep track of GST dues and payments for people who are registered under the GST Act. The GST Number has superseded previous taxpayer identifying systems such as the Tax Identification Number (TIN), which was used by state taxing authorities to track state tax data such as VAT.

Can one file a Nil return?

There is no problem with filing a Nil return.

How can one file a return using EVC?

To file a return, go to your dashboard, click file returns, select the month’s return to file, and then select the return to file. Then, enter the information and press the file return button. The GST will ask you for the signatory’s name, which you must select from a drop-down menu before clicking on file return with EVC. The GST portal will send you an OTP to your registered mobile number and email address. Fill in the OTP and press the submit button.

What is the due date for GST returns for GSTR 3B?

GST returns are due either on the 20th or 24th of each month.

What is the composition scheme?

The composition plan is available to businesses with an annual revenue of less than or equal to INR 1.5 crore. Using this approach, they can easily lower their compliance. Businesses that participate in this scheme pay GST at lower rates of 1%, 5%, and 6%.

Is opening a GST account free?

Yes, you can open a GST account for free.

Can I skip filing a return in case I have no transactions in a month?

No, a NIL return is required; otherwise, you will be taxed Rs 20 per day.