The GST Bill and the GST Return – The Eight Pros and Cons of It

The GST or Goods and Service Tax is the tax which is applied whenever a consumer purchases either a service or a good. It is the replacement of all indirect tax that the Central and State governments levy on the good and services. The single comprehensive law brings all charges under one umbrella, i.e., it is applied to manufacture, sale, and consumption. By utilising a sole indirect tax, the cascading effect on the prices of goods and services due to production and distribution is eradicated.

What are the Benefits of GST?

For a long time, in India, the tax had a cascading effect. In simpler words, the tax liability was transferred to the next person at every stage of the transaction. This tax-on-tax system kept increasing the price of the good or service. With GST replacing the pre-existing scheme, the burden of the tax is shifted towards the consumer. It implies that the industry has better control of working capital and greater cash flow. The elimination of this tax on tax effect is the most notable advantage of GST Bill.

Besides this, there are 8 other paybacks a business can get after GST registration online.

  • Creditable input tax:

When a service provider (or manufacturer) is paying tax on their output, they can subtract the tax that was levied on their inputs. The final tax payable is the reduced amount which means the burden of the tax is greatly diminished on the service provider.

  • Control on tax evasion:

The input tax is creditable to a service provider only if the input supplier in their return mentions the detail of the same. It signifies that the supplier of services or goods needs to be truthful on their tax returns which curtail evasion.

  • More transparency:

Because availing the benefits of the GST requires complete dissemination of information, registered retailers cannot have hidden costs and taxes.

  • Support to smaller businesses:

The burden of tax has significantly reduced for small companies along with compliance. Moreover, under GST entities that have 20 to 75 Lakh rupees turnover can utilise composition schemes.

  • Greater turnover threshold:

Under VAT, any business that had a turnover of 5 lakhs was required to pay it. (The limit varies state to state) GST has increased the threshold to Rs. 20 lakh which makes all small business exempt.

  • Fewer compliances:

Before GST, for every tax levied there was separate compliance. For example, service tax had to be filed every month or in four months, and excise returns were on a monthly basis. After online GST registration, a company only has to file one return.

  • Better logistics:

With GST in place, the restrictions placed on transporting goods from one state to another have been lessened. It means that warehouses need only be set up in a few locations instead of every city or state. Unlike the previous tax system, the operational cost has reduced, and logistics have become better.

  • Improved organisation of sectors:

With the imposition of one nation, one tax, industries like textile and construction are getting more regulated. They have to meet with compliance and payment provisions which makes them better organised and more accountable.

What are the Drawbacks of GST?

  • The most prominent disadvantage of GST is short-term. While it is implemented, it can significantly interrupt the working capital of a firm because the input credit will be in lock-up. Once the transition phase is up, this drawback is eliminated.
  • Another short-term con is that every business will have a higher operational cost because they will have to train employees in the rules and regulations of GST alternatively hire professionals. The latter course will be equally expensive.
  • For small business, who had been free of the shackles of tax regime, it means begin quick on their feet. They have to grasp the nuances of GST because every invoice they generate has to be compliant.
  • The tax exemption on indigenous manufacturing units has been prominently decreased from a turnover of Rs. 1.5 crores to Rs. 20 lakhs.
  • While the tax is touted as a single umbrella that reduces effort, it is still is hindered from achieving the goal due to the division of:
  1. Central GST
  2. State GST
  3. Integrated GST

A similar downside is for companies who have pan-India presences. Though said to be one tax system, each state still has its own compliances. It means for every state business has a branch in, they have to register and learn its individual procedures of GST.

  • GST Return are filled online. While for a majority of the nation this is seen as a principal advantage, for some it is a drawback. The earlier tax was done on pen and paper which was easy for small businesses who are not tech-savvy. The online system now requires people to upload invoices and the returns which can be difficult.
  • Prior to GST a good on discount was taxed on the price after the discount was deducted. Now, the tax is on pre-discount price. Therefore, all discount and rewards programs will be affected.
  • The control of the business is now in the hands of the central and state government because of the GST Act because the owner is bound by laws. It seeds more complexities for business owners.
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