The GST (Goods & Services Tax) reform has significantly impacted India’s goods and services sector. In India, the Goods and Services Tax (GST) is a multi-stage, destination-based tax imposed on every value addition.
In this article, we talk about 5 ways in which GST impacts your business.
Table Of Contents
An Overview
What are the different parts of GST?
What are the 5 ways in which GST will impact your business?
Conclusion
How can we help you?
Here’s a quick rundown of everything you need to know.
What Is GST?
The Goods and Service Tax Act was passed by the Parliament on March 29, 2017, and was into effect from July 1, 2017. GST (Goods and Services Tax) is a single domestic indirect tax law that applies to the entire country.
The Goods and Services Tax (GST) is a tax that is imposed on goods and services. It is an indirect tax that has mostly substituted several other plethoras of indirect taxes in India like VAT, Service tax, Excise duty, etc.
This will make tax collection easier, minimize double taxation, and improve the efficiency of the process. Further, the consumer is responsible for the final tax in GST.
What are the different parts of GST?
GST is divided into 3 parts:
- Central Goods & Service Tax (CGST)
- State Goods & Service Tax (SGST)
- Integrated Goods & Service Tax (IGST)
Here’s an in-depth explanation for the different parts of GST:
- Central Goods & Service Tax (CGST): Tax collected by the Central Government on an intra-state sale. This portion of the tax compensates the central government for the loss of excise duty and service tax.
In the case of local sales, 50% of GST is transferred to the CGST.
(e.g. a trade that is taking place in Maharashtra) - State Goods & Service Tax (SGST): Tax collected by the State Government on an intra-state sale. This compensates the state government for the loss of VAT or Sales Tax revenue.
In the case of local trade, the remaining 50% of the GST tax amount is redirected to the SGST. (e.g. a trade that is taking place in Maharashtra) - Integrated Goods & Service Tax (IGST): Tax collected by the Central Government for inter-state trade. A portion of the tax goes to the central government, while the rest goes to the state government.
IGST is only applied in the case of interstate sales or transactions involving two states. (e.g. Maharashtra to Delhi)
The following is the tax structure under the new system:
| Trade | New System | Old System |
|---|---|---|
| Trade Inside the State | CGST + SGST | VAT + Central Service Tax / Excise duty |
| Trade Outside the State | IGST | Central Sales Tax + Service Tax / Excise duty |
What are the 5 ways in which GST impacts your business?
Here’s 5 ways in which GST will impact you:
1. Simplified Calculations
- Earlier, a business owner had to keep track of a variety of taxes and payment deadlines.
- You may have even needed to engage in a study to find and handle your tax filing and documents.
- GST makes it much easier for your business to calculate taxes and stay on top of tax payments by combining all indirect taxes under one umbrella.
Use our free GST calculator to determine your tax liability
2. Lower Tax Burden
- Earlier, businesses with a turnover of more than Rs 5 lakh (in most states) were required to pay VAT. Please keep in mind that this restriction was varied state-wise.
- In addition, service providers with a turnover of less than Rs 10 lakh were exempted from paying service tax.
- The government is considering raising the GST exemption level to Rs. 20 lakh which would benefit over 60% of small traders and entrepreneurs.
3. Fraud-Prevention
- GST, as an internet taxing system, substituted the old tax regime’s manual filing processes for the better.
- This means that tax fraud is easier to spot, and transactions are more transparent and accountable.
- Furthermore, any mistakes you make when filing GST returns would be simple to correct.
4. Easier to Start Or Expand Your Business
- Starting a new business involved registrations with various departments like VAT, service tax, excise, etc.
- Further, in the case of VAT, different registration formalities/documents were required at different states. This was made even more difficult if you planned to run your firm in many states.
- Today, registration in various states have to be done if you want to do business from that state. However, it is a simple process.
- The registration of your start-up & expansion is now much easier thanks to a single point of registration.
- Furthermore, GST input credits have been made available for all in-state and out-of-state transactions in an effort to encourage cross-border business.
- Earlier Excise/Service tax credit was not eligible to be offset against VAT liability and vice versa. Also, there was an issue in off-setting CST and VAT.
- These issues have been resolved and the seamless flow of input tax credit is main feature of GST.
5. Distinction Between Goods & Services
- GST guarantees the distinction between goods and services.
- This will make many legal actions easier.
- As a result, tax fraud can be reduced considerably.
Conclusion
GST implementation is one of the greatest decisions the Indian government has made. Until 2017, India was a combination of 29 small tax economies and 7 union territories, each with its own set of taxes.
It is a well-liked and respected system since it eliminates the need for different tax rates at the central and state levels.
How can we help you?
If you own or want to establish a business, you may be wondering how the GST rate will affect you. We at ICI have professionals with in-depth knowledge and broad experience that can help you comply with GST regulations and manage your taxes in a timely manner.
Our service scope includes:
- Application for GST registration
- GST Advisory
- Assistance with GST Filing
- Application for GST Registration For Foreigners
- Assistance with GST Refund