What is GST and How Will You Be Impacted By It?

What is GST

The Indian government implemented GST, also known as Goods and Services Tax, on July 1, 2017, with the goal of reducing the number of indirect taxes such as VAT, service tax, and so on, as well as unifying the Indian market. It applies to every product and service sold in the country. Each industry was affected differently by the implementation of GST. Few people were in favour of it, and even fewer were opposed to it.

As per the tax legislation, each authorised regular taxpayer is required to pay GST on the 20th of each month. It is done by submitting the GSTR-3B form. This form is also used to record the company’s ITC (Income Tax Credit). Furthermore, the current GST return filing system requires the submission of one GSTR-1 form every month. This method is used to report the company’s sales. You can also claim the tax return by completing the ITR (Income Tax Return) application form.

What is the Current Structure of India’s Tax System

The Constitution has assigned the centre and the states different taxing authorities. The current tax structure is divided into two parts:

  1. Direct Tax

A direct tax is paid by a person or group of people straight to the organisation that imposed it. Personal property, assets, real estate, and income taxes are just a few types of taxes that are paid directly to the government by an individual taxpayer.

  1. Indirect Tax

Taxes imposed on the manufacturing of products, the delivery of services, and consumption are known as indirect taxes. Indirect taxes levied on the production of commodities or the rendering of services in India are the sole responsibility of the federal government. Consumption taxes are entirely the responsibility of state governments.

Although the GST represents a substantial tax reform in India, it also has a number of disadvantages. Both elements affect individuals and businesses in numerous ways. Let’s look at the benefits and downsides of GST in this article to better comprehend it.

What are the Drawbacks of GST

Here are some of the disadvantages of GST.

  • With the implementation of GST, businesses are now required to update their accounts using the costly GST-compliant software, which has inflated the cost of operations.
  • It has exacerbated burdensome regulations. Every business in the state is required to register on the GST site. Small enterprises operating in small towns or cities that are not digitally savvy, on the other hand, will confront compliance issues.
  • A company will incur significant fines if it fails to register on the GST website.
  • Until recently, only businesses with annual revenues greater than ₹1.5 Crores were required to pay excise duty. But as of today, GST must be paid by any company with a turnover of more than ₹20 Lakhs.
  • In the banking sector, the price of GST service fees has increased from 15% to 18%.
  • Increased insurance costs are another significant drawback of the GST in India.

What Significance does GST Play

Below are some of the advantages of GST:

  • Numerous indirect taxes have been combined under the GST into one tax. As a result, it is now simpler to tax a variety of goods and services.
  • The tax cascading impact is abolished.
  • Businesses with annual sales of less than ₹20 Lakhs are not required to pay GST.
  • Small businesses (with a turnover of ₹20 to ₹75 Lakhs) can benefit from GST since it enables them to employ the composition scheme to reduce their taxes.
  • The fact that the GST has reduced the tax and regulatory expenses for numerous small enterprises is one of the GST’s most significant advantages.
  • GST has brought transparency and accountability to unorganised sectors like the textile and construction industries by requiring payments and compliances to be done online.
  • GST has reduced taxes on a select few goods, such as smartphones and vehicles, by 2%.
  • The whole GST process, from GST registration to filing GST returns, may be accomplished online without visiting any offices. It will thus save you time.
  • One of the main benefits of GST in India is that it has increased logistics productivity by reducing unnecessary logistical costs like border tax.

How GST is Calculated

To commence, you must determine the HSN (Harmonised System of Nomenclature) or SAC (Services Accounting Code) code of the taxable goods and services. GST is levied on services in five slabs: 0%, 5%, 12%, 18%, and 28%. Identifying the code will help you calculate the proportion of the imposed tax.

Here’s a step-by-step approach to help you calculate your GST payments.

  • As the first step, the Input Tax Credit (ITC) must be reduced from the external tax responsibilities to establish the total GST payments that a firm owes to the proper governmental authorities.
  • Following that, in order to compute the net amount owed by the firm, the Tax Deducted at Source (TDS) will be subtracted from the Tax Collected at Source (TCS).
  • Lastly, interest and late fees (if any) will be added to the total to determine the ultimate value.

Furthermore, you may also use GST calculator to do the same. You can use any third-party search engine to do the same. Using a GST calculator will assist you in knowing the precise amount of your GST.

Concluding Comments

Over the course of this article, several important aspects of GST have been discussed. All indirect taxes imposed on goods and services by the Central and State governments of India have been eliminated by the GST. The new tax regime has a tremendous influence on the economy, affecting several industries in various ways. GST offers both advantages and disadvantages that vary depending on the industry you operate in. The government’s only motivation for putting this into place was to encourage openness and streamline the taxes procedure.