The Goods and Services Tax came into effect on 1st July 2017, with an aim to unify the Indian taxation system by merging a number of indirect taxes.
Despite being a significant reform, there are debates about its effectiveness over the older tax regime. Taxpayers interested must read this article to know about the GST bill advantages and disadvantages.
What are the GST bill advantages and disadvantages?
Take a look at the following advantages and disadvantages of GST:
Top 4 advantages
- Reduces the cascading effect of older tax regime
GST aims to bring the number of taxes under a comprehensive system and reduce the cascading effects of the older regime. Take a look at this example mentioned below for a clear understanding:
Under older tax regime
An individual provides a service worth Rs.50,000 and charges 15% as a service tax. Additionally, that individual purchases essential products for the office worth Rs.20,000 and pays 5% of VAT (without deduction). The total expenditure is equivalent to Rs.8500.
- (Rs.50,000×15%) + (Rs.20000×5%)
- Rs.7500 + Rs.1000
For instance, the applicable GST rate on services offered by an individual is equal to 18%. The products for the office are subject to deductions. Thus, individuals need to incur a total of Rs.8000 as tax liability.
- (50,000×18%) – Rs.1000
- Rs.9000 – Rs.1000
2. Fewer compliances
As a taxpayer, you only need to file your GST return once. Conversely, individuals followed different compliances to file a return under service tax and VAT. For example, individuals filed monthly excise duty returns. Individuals owning Limited Liability Partnership filed service tax monthly, and proprietorship companies filed it quarterly. This increased the confusion, which GST aims to reduce to some extent.
- Simple GST online registration process
Individuals can file their GST returns and register for GST online. This has significantly helped start-ups to avail this facility in one place without visiting anywhere.
- Improve the operational efficiency of the logistics industry
Indian logistic companies used to establish multiple warehouses in several states to avoid state entry and other state-wise tax liabilities. This new GST reform eliminates any restrictions on inter-state movement. Consequently, companies can now maximise profit by eliminating the need to set up warehouses at different locations, and paying taxes at multiple points.
3 notable disadvantages
- Increases the operational cost
Under this new tax reform, business owners need to update their existing account to ERP or GST-compliant software. However, purchasing this high-end software increases the overall business expenditure. Several companies who do not understand this new tax reform are also forced to recruit professionals to evaluate GST in order to remain tax compliant. To meet these additional expenses, individuals can opt for a business loan.
Leading financial institutions like Bajaj Finserv extend pre-approved offers that streamline the loan application process and save time. Such offers are available with a host of financial products like business loans, personal loans, credit cards, and many others. Individuals can now check their pre-approve offers by providing their essential contact information.
- Increases the taxation burden for SMEs
Businesses with an annual turnover above Rs.1.5 crore paid excise duty under the older regime. However, in this new regime a firm with an annual turnover of up to Rs.40 lakh needs to pay GST. Thus, tax liabilities under this new system occupy a substantial share of the overall business expenditure of small traders and businessmen.
- Increase in compliance burden
Small business owners still find it challenging to maintain digital records, file timely returns, issue GST invoices, etc.
Taxpayers must remember that every new reform comprises its set of advantages and disadvantages and has a wide impact on each sector. Experts recommend weighing the GST bill advantages and disadvantages, keeping long-run benefits in mind.