COMPARISION BETWEEN PRE-GST AND POST GST

CHAPTER 1- INTRODUCTION

TAX

A tax is a mandatory financial charge or some other type of levy imposed upon a
taxpayer (an individual or other legal entity) by a governmental organization in order
to fund various public expenditures. A failure to pay, along with evasion of or
resistance to taxation, is punishable by law. Taxes consist of direct or indirect
taxes and may be paid in money or as its labour equivalent.

TYPES OF TAX

 Direct Tax
 Indirect Tax

DIRECT TAX

A direct tax is a tax that is paid by an individual or an organization to the imposing

entity, or to be precise, Direct Tax is the one which is paid to the Government by
taxpayers. These taxpayers include people and organization both. Also, it is directly
imposed by the Government and cannot be transferred for payment to some other
entity .With Direct Taxes, especially in a tax bracket system, it can become a
disincentive to work hard and earn more money, as more money you earn, the more
tax you pay.

TYPES OF DIRECT TAXES IN INDIA

The following taxes are imposed directly and applicable to all Indian citizens.

Income Tax
• This comes across as the most important and common tax that every Indian
must pay.

• This tax is directly charged on the income of the person.

• The rate at which income tax is charged depends on the level of income.

• Income Tax is chargeable to individuals, corporate houses, firms, companies,

trusts, Hindu Undivided Families (HUF’s), and any artificial judicial person.

• Income tax is chargeable on taxable income

ie: Taxable income = (total income) – (applicable deductions and exemptions)

Also, the different heads of Income under which income tax is chargeable are as
follows:

• Income from a profession or business

• Income from property or house

• Income from salaries

• Income that is in the form of capital gains

• Income from other sources

Note: Income Tax is levied differently for different people depending on their
residency status.

Wealth Tax

• This tax is charged on the benefits derived from property ownership.

• The same property is taxed every year depending on its current market value.

• There is no difference for a tax that is levied on the Individuals, HUF’s and
companies.
Note: Income tax on wealth is chargeable depending on the residential status

Corporate Tax

• Corporate tax is applicable to companies who exist as separate entities from

their shareholders.

• Foreign companies are also taxed on the income that arises or that is
considered to arise in India.

• This type of tax is charged on gains from the sale of capital assets located in
India, royalties, interest, fees for technical services and dividends.

• Corporate tax includes Minimum Alternative Tax (MAT) which was

introduced to bring Zero Tax companies under the income tax bracket and whose
accounts were made as per the Companies Act.

• Fringe benefit (it is an extra benefit supplementing an employee's salary) is

included in Corporate tax that is paid by the companies on the fringe benefits
provided (or deemed to have been provided) to employees.

• Lastly, it also includes Securities Transaction Tax (STT) which is a tax levied
on taxable securities transactions. However, there is no surcharge applicable to this.

Capital Gains Tax

• Capital gains tax is taxed on the income derived from the sale of assets or
investments.

• Capital investments will cover farms, businesses, homes, work of arts etc.

• Capital Gains = (money received from sales) - (cost of capital investment).

• Capital Gains are categorized as short term gains (ie: gains on assets sold
within 36 months of acquisition) and long-term gains (ie: gains on assets sold after 36
months of acquisition and holding).
• Also, Voluntary tax is paid by the taxpayer when the asset is sold.

INDIRECT TAX

An indirect tax (such as sales tax, per unit tax, value added tax (VAT), or goods and
services tax (GST), excise, tariff) is a tax collected by an intermediary (such as a retail
store) from the person who bears the ultimate economic burden of the tax (such as the
consumer). The intermediary later files a tax return and forwards the tax proceeds to
government with the return. In this sense, the term indirect tax is contrasted with a
direct tax, which is collected directly by government from the persons (legal or
natural) on whom it is imposed. Some commentators have argued that "a direct tax is
one that cannot be charged by the taxpayer to someone else, whereas an indirect tax
can be.

TYPES OF INDIRECT TAX

.
1 Service tax

Service Tax is a tax which is levied on the Services provided by an entity. If an entity
is providing any service, they are required to levy Service Tax on the same. This
service tax is collected from the recipient of service and deposited with the Central
Govt. Service Tax is levied on all services except the Services specified in the
Negative List of Services. Apart from this, Service Tax Exemption is allowed to
Small Scale Service Providers if the Total Value of Services provided by them during
the year is less than Rs. 10 Lakhs.

2. Excise duty

Excise Duty is an indirect tax levied on those goods which are manufactured in India.
The taxable event in this case is manufacture and the liability of central excise duty
arises as soon as the goods are manufactured. It is a tax on manufacturing which is
paid by the manufacturer, who passes its incidence on to other customers and recovers
the same from them.

The rules and provisions as mentioned in the Central Excise Act, 1944 are
applicable for -the levy of excise duty in India. This tax is also levied by the Central
Govt.

3.VAT

VAT is a kind of tax levied on sale of goods and services when these commodities are
ultimately sold to the consumer. VAT is an integral part of the GDP of any country.

While VAT is levied on sale of goods and services and paid by producers to the
government, the actual tax is levied from customers or end users who purchase these.
Thus, it is an indirect form of tax which is paid to the government by customers but
via producers of goods and services.

VAT is a multi-stage tax which is levied at each step of production of goods and
services which involves sale/purchase. Any person earning an annual turnover of
more than Rs.5 lacs by supplying goods and services is liable to register for VAT
payment payment. Value added tax or VAT is levied both on local as well as imported
goods.

Features of Value Added Tax in India:

 Similar goods and services are taxed equally. So a similar television from
all brands will be taxed the same
 VAT is levied at each stage of production and hence makes the taxation
process easier and more transparent
 VAT reduces chances of tax evasion and fosters compliance
 Encourages transparency in sale of goods and services at the tiniest level

4. Custom duty

Customs” means the Government Service which is responsible for the

administration of Customs law and the collection of duties and taxes and which also
has the responsibility for the application of other laws and regulations relating to
the importation, exportation, movement or storage of goods. Each country has its
own laws and regulations for the import and export of goods into and out of a
country, which its customs authority enforces. The import or export of some goods
may be restricted or forbidden. A wide range of penalties are faced by those who
break these laws. A customs duty is a tariff or tax on the importation (usually) or
exportation (unusually) of goods. Commercial goods not yet cleared through
customs are held in a customs area, often called a bonded store, until processed. All
authorized ports are recognized customs areas.

5.STT

STT is kind of financial transaction tax which is similar to tax collected at source
(TCS). STT is a direct tax levied on every purchase and sale of securities that are
listed on the recognized stock exchanges in India. STT is governed by Securities
Transaction Tax Act (STT Act) and STT Act has specifically listed down various
taxable securities transaction i.e., transaction on which STT is leviable. Taxable
securities includes equity, derivatives, unit of equity oriented mutual fund. It also
includes unlisted shares sold under an offer for sale to public included in IPO and
where such shares are subsequently listed in stock exchanges. STT is an amount to
be paid over and above transaction value and hence, increases transaction value.As
already mentioned STT is leviable on taxable securities transaction. STT Act has
also provided for value of transaction on which STT is required to be paid and
person who is responsible to pay STT i.e., either buyer or seller. However, rate of
STT will be decided by Government and modified from time to time if
necessary.Provisions of collection of STT works similar to TCS or TDS. STT is
required to be collected by the recognised stock exchange or by the prescribed
person in the case of every Mutual Fund or the lead merchant banker in the case of
an initial public offer, as the case may be, and subsequently payable to the
Government on or before the 7th of the following month.

In case the above persons fail to collect the taxes, they are still obliged the
dischargean equivalent amount of tax to the credit of Central Government within
7th of the following month. Further, failure to collect or, remit whatever has been
collected will result in levy of interest and penal consequences too.

6. Stamp Duty

It is a tax imposed by the government on the transfer of ownership of real

estate/property. It is payable under Section 3 of the Indian Stamp Act, 1899 The
extent of the stamp duty will be based on the value of the house/property at the time
of registration. It further varies based on the state or area in which the property is
located and if it is a new or old construction. Stamp Duty will be additional cost
you incur when you set out to make a real estate buy and therefore it is important to
understand its implication on the type and area of the house you intend to purchase.
Historically, this included the majority of legal documents such as cheques,
receipts, military commissions, marriage licences and land transactions. A physical
stamp (a revenue stamp) had to be attached to or impressed upon the document to
denote that stamp duty had been paid before the document was legally effective.
More modern versions of the tax no longer require an actual stamp.

7. Entertainment Tax

One essential feature of the governance model of any country is taxation. Different
kinds of taxes are applicable on services and goods, bought and sold by people as
well as enterprises. Income earned by individuals and business houses also attract
tax in India. By definition, entertainment tax is a type of tax which is levied by the
government on entertainment aspects like movie tickets, large scale commercial
shows and other private festival celebrations. With the implementation of the
Goods and Services Tax (GST), the entertainment tax is no longer applicable.

 Features of Entertainment tax

 Entertainment tax is inclusive of the tickets we buy to watch movies or large

scale entertainment shows.
 A few prominent features of entertainment tax are as followsThis tax is
applicable for any form of entertainment all over the country and is a part of
the different costs borne by customer
 The authorities responsible for collection of entertainment tax from customers
are the State governments
 In the country, entertainment tax is different for different states as it falls
under the purview of the state governments
 All the rules and guidelines that are applicable to the entertainment tax in
India are listed in Article 246 of the Indian constitution
 Paid television services such as Tata Sky, Airtel TV, Dish TV etc. have led to
even more taxes being levied on entertainment
 Entertainment tax is also applicable on the below mentioned categories of
entertainment as well:
 o Exhibitions

o Arcades

o Celebrity Stage Shows

o Theatre Shows

o Video Games

o Activities related to sports

o Amusement Parks

Launched during the time when British ruled the country, entertainment tax came
into existence so as to curb public gatherings. However, the application of
entertainment tax continued in the post-independence era as well and currently, still
exists in all states of the country.

7. GST

Goods and Services Tax (GST) is an indirect tax (or consumption tax) imposed in
India on the supply of goods and services. GST is imposed at every step in the
production process, but is meant to be refunded to all parties in the various stages of
production other than the final consumer.

Goods and services are divided into five tax slabs for collection of tax - 0%, 5%, 12%,
18% and 28%. 32% However, Petroleum products, alcoholic drinks, electricity, are
not taxed under GST and instead are taxed separately by the individual state
governments, as per the previous tax regime.[citation needed] There is a special rate
of 0.25% on rough precious and semi-precious stones and 3% on gold.In addition a
cess of 22% or other rates on top of 28% GST applies on few items like aerated
drinks, luxury cars and tobacco products.[2] Pre-GST, the statutory tax rate for most
goods was about 26.5%, Post-GST, most goods are expected to be in the 18% tax
range. The tax came into effect from July 1, 2017 through the implementation of One
Hundred and First Amendment of the Constitution of India by the Indian government.
The tax replaced existing multiple flowing taxes levied by the central and state
governments.

The tax rates, rules and regulations are governed by the GST Council which consists
of the finance ministers of centre and all the states. GST is meant to replace a slew of
indirect taxes with a federated tax and is therefore expected to reshape the country's
2.4 trillion dollar economy, but not without criticism.[3] Trucks' travel time in
interstate movement dropped by 20%, because of no interstate check posts.

 DIRECT TAX VS INDIRECT TAX

Direct and indirect taxes include all the different types of taxes levied by the
government. Direct taxes include the taxes that cannot be transferred or shifted
to another person, for instance the income tax an individual pays directly to
the government. In this case, the burden of the tax falls flatly on the individual
who earns a taxable income and cannot shift the tax to others.Indirect taxes, on
the other hand, are taxes which can be shifted to another person. An example
would be the Value Added Tax (VAT) that is included in the bill of goods and
services that you procure from others. The initial tax is levied on the
manufacturer or service provider, who then shifts this tax burden to the
consumers by charging higher prices for the commodity by including taxes in
the final price.

Both direct and indirect taxes are critical components of governmental

revenue and consequently the economy. The variations in the indirect taxes
may come down in the future once the Goods and Services Tax bill is passed
by the parliament, probably by next year.

Direct taxes are paid in entirety by a taxpayer directly to the government. It is

also defined as the tax where the liability as well as the burden to pay it resides
on the same individual. Direct taxes are collected by the central government as
well as state governments according to the type of tax levied. Major types of
direct tax include:

i. Income Tax: Levied on and paid by the same person according to

tax brackets as defined by the income tax department.
ii. Corporate Tax: Paid by companies and corporations on their profits.
iii. Wealth Tax: Levied on the value of property that a person holds.
iv. Estate Duty: Paid by an individual in case of inheritance.
v. Gift Tax: An individual receiving the taxable gift pays tax to the
government.
vi. Fringe Benefit Tax: Paid by an employer that provides fringe
benefits to employees, and is collected by the state government.

vii. Indirect tax, as mentioned above, include those taxes where the
liability to pay the tax lies on a person who then shifts the tax
burden to another individual.
 Some types of indirect taxes are:

i. Excise Duty: Payable by the manufacturer who shifts the tax burden
to retailers and wholesalers.
ii. Sales Tax: Paid by a shopkeeper or retailer, who then shifts the tax
burden to customers by charging sales tax on goods and services.
iii. Custom Duty: Import duties levied on goods from outside the
country, ultimately paid for by consumers and retailers.
iv. Entertainment Tax: Liability is on the cinema owners, who transfer
the burden to cinemagoers.
v. Service Tax: Charged on services rendered to consumers, such as
food bill in a restaurant.

Therefore, the prime difference between direct tax and indirect tax is the ability of the
taxpayer to shift the burden of tax to others. Direct taxes include tax varieties such as
income tax, corporate tax, wealth tax, gift tax, expenditure tax etc. Some examples of
indirect taxes are sales tax, excise duty, VAT, service tax, entertainment tax, custom
duty etc. However, this is not an exhaustive list of taxes and more types of taxes are
levied by the government on specific cases.

a. Direct tax is levied and paid for by individuals, Hindu undivided

Families (HUF), firms, companies etc. whereas indirect tax is
ultimately paid for by the end-consumer of goods and services.
b. The burden of tax cannot be shifted in case of direct taxes while
burden can be shifted for indirect taxes.
c. Lack of administration in collection of direct taxes can make tax
evasion possible, while indirect taxes cannot be evaded as the taxes
are charged on goods and services.
d. Direct tax can help in reducing inflation, whereas indirect tax may
enhance inflation.
 e. Direct taxes have better allocative effects than indirect taxes as
direct taxes put lesser burden over the collection of amount than
indirect taxes, where collection is scattered across parties and
consumers’ preferences of goods is distorted from the price
variations due to indirect taxes.
f. Direct taxes help in reducing inequalities and are considered to be
progressive while indirect taxes enhance inequalities and are
considered to be regressive.
g. Indirect taxes involve lesser administrative costs due to convenient
and stable collections, while direct taxes have many exemptions and
involve higher administrative costs.
h. Indirect taxes are oriented more towards growth as they discourage
consumption and help enhance savings. Direct taxes, on the other
hand, reduce savings and discourage investments.
i. Indirect taxes have a wider coverage as all members of the society
are taxed through the sale of goods and services, while direct taxes
are collected only from people in respective tax brackets.

Additional indirect taxes levied on harmful commodities such as cigarettes,

alcohol etc. dissuades over-consumption, thereby helping the country in a
social context.

Direct and indirect taxes are defined according to the ability of the end
taxpayer to shift the burden of taxes to someone else. Direct taxes allow the
government to collect taxes directly from consumers and is a progressive type
of tax, which also allows for cooling down of inflationary pressure on the
economy. Indirect taxes allow the government to expect stable and assured
returns and brings into its fold almost every member of the society –
something which the direct tax has been unable to do.
 Both direct and indirect taxes are important for the country as they are
intricately linked with the overall economy. As such, collection of these taxes
is important for the government as well as the well-being of the country. Both
direct taxes and indirect taxes are collected by the central and respective state
governments according to the type of tax levied.

 GST

GST is an Indirect Tax which has replaced many Indirect Taxes in India. The
Goods and Service Tax Act was passed in the Parliament on 29th March 2017.
The Act came into effect on 1st July 2017; Goods & Services Tax Law in
India is a comprehensive, multi-stage, destination-based tax that is levied on
every value addition.

In simple words, Goods and Service Tax (GST) is an indirect tax levied on the
supply of goods and services. This law has replaced many indirect tax laws
that previously existed in India.

GST is one indirect tax for the entire country.

 ADVANTAGES OF GST

1. GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring the indirect
taxation under one umbrella. More importantly, it is going to eliminate the
cascading effect of tax that was evident earlier.
Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this
example to understand what is Tax on Tax:

Before GST regime:

A consultant offering services for say, Rs 50,000 and charged a service tax of
15% (Rs 50,000 * 15% = Rs 7,500).

Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT (Rs
20,000 *5% = Rs 1,000).

He had to pay Rs 7,500 output service tax without getting any deduction of Rs
1,000 VAT already paid on stationery.

His total outflow is Rs 8,500.

2. Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more than Rs 5
lakh (in most states) was liable to pay VAT. Please note that this limit differed
state-wise. Also, service tax was exempted for service providers with a
turnover of less than Rs 10 lakh.
 Under GST regime, however, this threshold has been increased to Rs 20 lakh,
which exempts many small traders and service providers.

Let us look at this table below:

Tax Threshold limit

Excise 1.5 crores
VAT 5 Lakhs in most states
Service tax 10 Lakhs
GST 20 Lakhs (10 lakhs for NE states)

3. Composition scheme for small businesses.

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it

gives an option to lower taxes by utilizing the Composition scheme. This move has
brought down the tax and compliance burden on many small businesses.

4. Simple and easy online procedure

The entire process of GST (from registration to filing returns) is made online, and it is
super simple. This has been beneficial for start-ups especially, as they do not have to
run from pillar to post to get different registrations such as VAT, excise, and service
tax.Our ClearTax GST software is already on a roll filing GST returns.

5. The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had their own returns and
compliances. Below table shows the same:
Under GST, however, there is just one, unified return to be filed. Therefore, the
number of returns to be filed has come down. There are about 11 returns under GST,
out of which 4 are basic returns which apply to all taxable persons under GST. The
main GSTR-1 is manually populated and GSTR-2 and GSTR-3 will be auto-
populated.

6. Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector was not defined.
It had variable VAT laws. Let us look at this example:

Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a
VAT declaration and mention the registration number of the delivery truck. Tax
authorities could sometimes seize goods if the documents were not produced. Again,
these e-commerce brands were treated as facilitators or mediators by states like
Kerala, Rajasthan, and West Bengal which did not require them to register for VAT.
All these differential treatments and confusing compliances have been removed under
GST. For the first time, GST has clearly mapped out the provisions applicable to the
e-commerce sector and since these are applicable all over India, there should be no
complication regarding the inter-state movement of goods anymore.

7. Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across
states to avoid the current CST and state entry taxes on inter-state movement. These
warehouses were forced to operate below their capacity, giving room to increased
operating costs.Under GST, however, these restrictions on inter-state movement of
goods have been lessened.

As an outcome of GST, warehouse operators and e-commerce aggregators players

have shown interest in setting up their warehouses at strategic locations such as
Nagpur (which is the zero-mile city of India), instead of every other city on their
delivery route.Reduction in unnecessary logistics costs is already increasing profits
for businesses involved in the supply of goods through transportation.

8. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction
and textile were largely unregulated and unorganized.Under GST, however, there are
provisions for online compliances and payments, and for availing of input credit only
when the supplier has accepted the amount. This has brought in accountability and
regulation to these industries.

7.Common Portal

Since technology will be used heavily to drive GST, taxpayers will have a common
portal (GSTN). The procedures for different processes like registration, tax payments,
refunds, returns, etc., will be automated and simplified. Whether it is the filing of
returns, filing of refund claims, payment of taxes, or even registration, all processes
will be done online via GSTN. The verification of input tax credit will be done online
too, and input tax credit across the country will be matched electronically, thereby
turning the process into an accountable and transparent one. As a result, the process
will also be much quicker since the taxpayer will not have to interact with the tax
administration.

9. Benefits to the Common Man

a) A good number of products and/or services are either exempt from tax
or charged at 5% or less.
b) The poor will receive their due.
c) Small traders will find themselves on a level playing field.
d) Simplified tax structure with fewer exemptions.
e) Products and services will be allowed to move freely across the
country.
f) Increased competition between manufacturers and businesses will
benefit consumers.
g) Items such as movie-ticket prices, two-wheelers, televisions, stoves,
washing machines, SUVs and luxury cars, two-wheelers, etc. will be
cheap.

10.Benefits to the Economy

a) Creation of a unified common market.

b) Enhancement of exports and investmentso
c) Generation of more jobs through enhanced economic activity.

11. Benefits to Industry and Trade

a) Uniform procedures for registration, filing of returns, payment of

taxes, and tax refunds.
 b) Elimination of cascading of taxes thanks to the seamless flow of tax
credit from the supplier or manufacturer to the retailer or user.
c) Small scale suppliers can make the most of the composition scheme to
make their goods less expensive.
d) Higher efficiency with regards to the neutralisation of taxes so that
exports are globally competitive.

12.Transparent Tax Administration

Previously, tax was levied at two stages in broad manner production and
consumption, i.e., when product moves out of factory. and also at retail outlet. GST is
to be levied only at final destination of consumption and not at various points. This
brings more transparency and corruption free tax administration.Take a look at the
graphic mentioned below. It highlights the fundamentals of GST, a dual concept tax
system. Under this system, tax is administered, collected, and shared by both the
Centre and the State governments, based on the nature of transaction (within the state
or interstate).

13. Broad scheme

Previously, there were separate laws for separate levy. For instance, Central Excise
Act, 1944, respective State VAT laws etc. With GST regime, there will only be one
such law, as GST will subsume various indirect taxes.
 DISADVANTAGES OF GST

1. Increased costs due to software purchase

Businesses have to either update their existing accounting or ERP software to

GST-compliant one or buy a GST software so that they can keep their
business going. But both the options lead to increased cost of software
purchase and training of employees for an efficient utilization of the new
billing software.

ClearTax is the first company in India to have launched a ready-to-use GST

software called Cleartax GST software. The software is currently available for
free for SMEs, helping them transition to GST smoothly. It has truly eased the
pain of the people in so many ways.

2. Being GST-compliant

Small and medium-sized enterprises (SME) who have not yet signed for GST
have to quickly grasp the nuances of the GST tax regime. They will have to
issue GST-complaint invoices, be compliant to digital record-keeping, and of
course, file timely returns. This means that the GST-complaint invoice issued
must have mandatory details such as GSTIN, place of supply, HSN codes, and
others.

ClearTax has made it easier for SMEs with the ClearTax BillBook web
application. This application is available for FREE until the end of September
and is an easy solution to this problem. This will help every business to issue
GST-compliant invoices to their customers. These same invoices can then be
used for return filing through the ClearTax GST platform.

3.GST will mean an increase in operational costs

As we have already established that GST is changing the way how tax is
paid, businesses will now have to employ tax professionals to be GST-
complaint. This will gradually increase costs for small businesses as they
will have to bear the additional cost of hiring experts.Also, businesses will
 need to train their employees in GST compliance, further increasing their
overhead expenses.

4. GST came into effect in the middle of the financial year

As GST was implemented on the 1st of July 2017, businesses followed the
old tax structure for the first 3 months (April, May, and June), and GST for
the rest of the financial year.Businesses may find it hard to get adjusted to
the new tax regime, and some of them are running these tax systems
parallelly, resulting in confusion and compliance issues.

5. GST is an online taxation system

Unlike earlier, businesses are now switching from pen and paper invoicing
and filing to online return filing and making payments. This might be
tough for some smaller businesses to adapt to.

Cloud-based GST billing software like the ClearTax GST Billing Software
is definitely an answer to this problem. The process for return filing on
ClearTax GST is very simple. Business owners need to only upload their
invoices, and the software will populate the return forms automatically
with the information from the invoices. Any errors in invoices will be
clearly identified by the software in real-time, thus increasing efficiency
and timeliness.

6. SMEs will have a higher tax burden

Smaller businesses, especially in the manufacturing sector will face

difficulties under GST. Earlier, only businesses whose turnover exceeded
Rs 1.5 crore had to pay excise duty. But now any business whose turnover
exceeds Rs 20 lakh will have to pay GST.
However, SMEs with a turnover upto Rs 75 lakh can opt for the
composition scheme and pay only 1% tax on turnover in lieu of GST and
enjoy lesser compliances. The catch though is these businesses will then
not be able to claim any input tax credit. The decision to choose between
 higher taxes or the composition scheme (and thereby no ITC) will be a
tough one for many SMEs.

7. Higher tax burden on Small Businesses

Small businesses in the manufacturing sector will bear most of the impact
of GST implementation. Under the existing excise laws, only
manufacturing business with a turnover more than Rs. 1.50 crores have to
pay excise duty. However, under GST the income limit has been
condensed to Rs. 20 lakhs thus increasing the tax burden for many
manufacturing SMEs.

8. Change in business software

Most businesses use accounting software or ERP’s for filing tax returns which have
excise, VAT, and service tax already incorporated in them. The change to GST will
require them to change their ERP’s , too, leading to increased costs of purchasing new
software and training employees.Confusion and observance issues Implementation of
GST is in the middle of the year

The provisional GST implementation date is 1st July 2017. So, for the fiscal year,
2017-18 business will follow the old tax structure for the first 3 months, and GST for
the following months. It is impossible to cross over from one tax structure to the other
in just a day, and hence businesses will end up running both tax systems in parallel,
resulting in more confusion and compliance issues.

9.Increase in taxes will increase prices

Currently, some sectors like the textile industry are freed from taxes or pay low taxes.
GST has only 4 proposed tax rates of 5%, 12%, 18%, and 28%. Thus, for many
sectors, the tax burden will increase which in turn will increase the price of the final
goods.
9.Petroleum products are not part of GST yet

Petroleum products are being kept outside the scope of GST as of now. States will
levy their own taxes on this sector. Tax credit for inputs will therefore not be available
to related industries like the plastic industry which are heavily dependent on
petroleum products. Petrol and diesel are required to run factory machinery and
unavailability of input tax credit on petroleum products will most probably push up
the final price of all manufactured goods.

Recently the Finance Minister Arun Jaitley said that GST will apply on petroleum
only after all the states, through the GST Council, are agreed on it. So, an inclusion of
petrol in GST is expected but there is no deadline on the horiz

10.Registration in different states

GST needs businesses to register in all the states they are operating in. This will
increase the burden of compliance.

11. Problems faced by e-commerce

Nowadays, many SMEs operate through their own online shopping websites or
through third party websites to sell to different parts of India. Under GST, they will be
required to register for all the states. Not only that, they will not be eligible for
configuration scheme and will be required to pay taxes like any large organization. E-
commerce helpers are now required to collect TCS under GST which will lead to
increased complications and agreements.

12. Composition scheme is not available for many businesses

Composition scheme is available for only businesses selling goods. It is not available
to service providers or for online sellers. This sets Small and Medium Enterprises or
SMEs at par with large organizations in a biased move.

13. No anti-inflationary measures

Every country that follows GST experienced a hike in inflation when they first
introduced it. They encountered the inflation by keeping tabs on prices and initiating
anti-profiteering measures at the retail level to protect consumers from price cheating.

While there have been similar discussions in the GST Council, India still does not
have concrete anti-inflationary measures to control the inflation that is an unavoidable
outcome of GST.

 The tax components of GST:-

CGST – Central GST is referred as CGST, applicable on supplies within the state.
Tax collected will be shared to Centre.

SGST – State GST is referred as SGST, applicable on supplies within the state. Tax
collected will be shared to State.

UTGST – Union Territory GST is referred as UTGST, applicable on supplies within

the union territory. Tax collected will be shared to State.
IGST – Integrated GST is referred as IGST, applicable on interstate and import
transactions. Tax collected is shared between Centre and State.

The Indirect Tax Structure pre-GST:-