GST- Types, Advantages and Limitations

Goods and Services Tax (GST) is an indirect tax in India on the supply of goods and services. GST is seen at every step in the production process but is returned to all parties in different stages of production except the final consumer. Goods and Services Tax is divided into five groups for the collection of tax such as 0%, 5%, 12%, 18%, and 28%. But Petroleum products, alcoholic drinks, electricity, are taxed separately by the individual state governments and do not come under GST. GST came into effect from July 1, 2017. The tax rates, rules, and regulations are looked by the Goods and Services Tax Council. GST is expected to improve the overall economic growth of the nation.

Types of Goods and Services Tax

There are 160 countries in the world that have GST including India. As it is a destination based tax and it has adopted Dual GST model in which both States and Central charge tax on Goods or Services.

  • SGST – State Goods and Services Tax, tax by the State Govt.
  • CGST – Central Goods and Services Tax, tax by the Central Govt.
  • IGST – Integrated Goods and Services Tax, tax by the Central Govt.

Advantages of GST

|-| GST eliminates the effect of tax

GST is an indirect tax which was designed to bring indirect taxation under one umbrella and most importantly, it is going to eliminate the effect of tax which was evident earlier and the tax effect can be described as ‘Tax on Tax’

|-| Higher limit for registration

In the VAT structure, business with a turnover of more than Rs 5 lakh was eligible to pay VAT. But under GST, this limit has been increased to Rs 20 lakh, which benefitted many small traders and service providers.

|-|  Composition scheme for small businesses

Under GST, small businesses can be benefited since it gives an option to lower taxes by utilizing Composition scheme. Therefore, it has brought down the tax and compliance burden on many small businesses.

 |-| Simple and easy online procedure

The entire process of GST is now online, and it is very simple. It is beneficial for start-ups especially, as they do not have to run around to get different registrations such as VAT, excise, and service tax.

|-| The number of compliance is lesser

The number of returns that are to be filed has decreased. There are about 11 returns under GST, out of which 4 are basic returns that apply to all taxable persons under GST.

|-| Defined treatment for E-commerce

Earlier, online websites delivering to Uttar Pradesh had to file a VAT declaration and mention the registration number of the delivery truck goods. If the documents were not produced, then the Tax authorities would seize the goods. But all these have been removed under GST.

|-| Unorganize sector is regulated under GST

In olden age, certain industries in India like construction and textile were unorganized. But under GST, there must be a supply for online compliances and payments, and also for availing input credit only when the supplier has accepted the amount.

Limitations of GST

|-| Increased costs due to software purchase

Businesses have to update their existing accounting or buy GST software so that they can keep their business running. But both the options could lead to increased cost of software purchase.

|-| GST will bring an increase in operational costs

As we already know that GST is changing the way how the tax is paid, businesses will now have to employ tax professionals to be GST-complaint. This will increase costs for small businesses as they will be a burden to bear the additional cost.

|-| GST came into effect in mid of the financial year

Businesses find it hard to adjust to the new tax, and some of them are running these systems parallel, consequently resulting in confusion and compliance issues.

|-| GST is an online taxation system

In this modern era, businesses are switching from paper invoicing and filing to online return filing and making payments. This will be tough for some smaller businesses to adapt to it.

|-| Small Business will have a higher burden

In the manufacturing sector, small businesses will face difficulties under GST. Since any business whose turnover exceeds Rs 20 lakh will have to pay GST.

Goods and Services Tax will bring a corruption-free tax administration and will remove the current indirect tax structure and GST is business friendly and also consumer friendly.

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