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HOME GST GST-TERMS GST BENEFITS &…

GST Benefits – Advantages and

Disadvantages of GST
By Annapoorna

Updated on: Jul 12th, 2022 | 12 min read

CONTENTS [ Show ]

Hailed as one of the biggest tax reforms of the country, the Goods and Services Tax
(GST) subsumes many indirect taxes which were imposed by Centre and State
such as excise, VAT, and service tax. It is levied on both goods and services sold in
the country

GST Day is celebrated on July 1st every year: As of 1st July 2018, let’s look back at
how GST has done past one year-“One year of GST : A Look Back”
Any reform is bound to have advantages and disadvantages. In this article, we will
talk about both the advantages and disadvantages of GST:

One year of GST : A Look Back

Being the Biggest tax reform in India, GST will allow the real GDP growth of
the Indian economy to hit 6.75 per cent in this fiscal year with expectations
of 7 to 7.5 per cent real GDP growth in 2018-19. SMEs and small taxpayers
have benefitted from the GST system with a number of relaxations.

Some of the Hits of GST

1. GST Council plays principled diplomacy & and the statesmanship shown
by the members is surely a hit!
2. Technological Support to the Structure of GST law: The new GST system
runs under a canopy of strong technological support and we can expect
more GST services to be digitalised in the months to come.
3. GST -A boon to Micro, Small & Medium Enterprises: MSMEs are now less
dependant on tax experts when compared to the earlier regime, due to a
simplified return filing system in place. Rationalisation of the composition
scheme and introduction of quarterly filing option for taxpayers having
turnover below Rs 1.5 crores was a wise decision.

Few Misses of GST: Need for recovery

1. Delayed IGST refund has hit Exporters and caused a slowdown: Although
efforts are being made by the department towards timely sanctioning of
refund, yet over a few months, we can expect a slowdown in the Export
sector in India.
 2. Sentiments around claiming of Input Tax Credit: admission of ITC is
currently being allowed on a provisional basis to the recipient of the credit.
Authorities are in process of reconciliation between Different GST returns
and hence, many taxpayers are receiving mismatch notices for ITC claimed
as per GSTR-3B and allowed as per GSTR-2A supplier data. Development
of recon. tools on the GST portal will help a buyer be cautioned before
claiming any wrong ITC, thus avoiding the interest or penalties that follow

Let us look at the advantages to start with:

Advantages of GST

GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring 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.

Under GST
Products

GST on service of Rs 50,000 @18% 9,000

Less: GST on office supplies (Rs 20,000*5%) 1,000

Net GST to pay 8,000

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 Limits

Excise 1.5 crores

VAT 5 lakhs in most states

 Service Tax 10 lakhs

GST 20 lakhs (10 lakhs for NE states)

Composition scheme for small businesses

Under GST, small businesses (with a turnover

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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.

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

The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had its own returns and
compliances. Below table shows the same:

Tax Return Filing

Excise Monthly

Proprietorship / Partnership – Quarterly

 Service Tax Company / LLP – Monthly

* Different for different states *

VAT Some states require monthly returns over a threshold limit.
Some states like Karnataka require a Monthly return

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 that apply to all taxable persons under GST. The
main GSTR-1 is manually populated and GSTR-2 and GSTR-3 will be auto-
populated.

Defined treatment for E-commerce operators

Earlier to the GST regime, supplying goods through the 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.
Read a more detailed analysis of the impact of GST on e-commerce.

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 for
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.

Visit here to read more about the impact of GST on logistics.

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.
Let us now look at the disadvantages of GST. Please note that businesses need to
overcome these disadvantages to run the business smoothly.

Disadvantages of GST

Increased costs due to software purchase

Businesses have to either update their existing accounting or ERP software to GST-
compliant one or buy GST software so that they can keep their business going. But
both the options lead to the increased cost of software purchase and training of
employees for 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.

Not being GST-compliant can attract penalties

Small and medium-sized enterprises (SME) may still not be able to grasp the
nuances of the GST tax regime. They will have to issue GST-complaint invoices, be
compliant with 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 its customers. These same invoices can then be used for return filing
through the ClearTax GST platform.

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.

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.

Adapting to a complete 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.

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.

Conclusion

Change is definitely never easy. The government is trying to smoothen the road to
GST. It is important to take a leaf from global economies that have implemented
GST before us, and who overcame the teething troubles to experience the
advantages of having a unified tax system and easy input credits.

The key is to be GST-compliant at any time. We at ClearTax have an All-in-one

GST kit specially designed for CAs. Please feel free to read our articles and watch
our GST tutorial videos.
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Annapoorna
Assistant Manager - Content

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a
passionate content writer having 4+ years of hands-on experience in deciphering jargon
in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I
love curating content in various forms to the interest of tax professionals, and
enterprises, both big and small. While not writing, you can catch me singing Shāstriya
Sangeetha and tuning my violin ;). Read more

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