The Goods and Service Tax or GST is one of the greatest monetary changes in India since Independence. All businesses, small or large, will be affected by this new indirect tax regime.
The merchandise and ventures charge, a radical stride towards India’s change into a typical market, was propelled on Friday night. PM Modi,at the launch event, said GST was not just about taxation reform that would help businesspersons by putting an end to tax terrorism, but is a measure that will help in the fight against corruption and black money.
Here’s a look at GST’s benefits:
1) Increased efficiency in logistics
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. Most of the times, these warehouses were forced to operate below their capacity thus increasing their operating costs.
When GST goes live, these restrictions on inter-state movement of goods will be lessened and the logistics sector might start consolidating warehouses across the country. As an outcome of GST, warehouse operators and e-commerce players have already 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 will increase profits for businesses involved in supply of goods through transportation.
2) Defined treatment for e-commerce
Many Indian businesses provide goods and services through the internet. Earlier, there were no specific provisions for treatment of the e-commerce sector. Currently, states have variable VAT laws for this sector. For example, online websites (like Flipkart and Amazon) delivering to Uttar Pradesh have to file a VAT declaration and the registration number of the delivery truck. Tax authorities can sometimes seize goods when there is a failure to produce documents.
Again, these e-com brands are treated as facilitators or mediators by states like Kerala, Rajasthan, and West Bengal which do not require them to register for VAT.
All these differential treatments and confusing compliances will be removed under GST. For the first time, GST clearly maps out the provisions applicable to the e-commerce sector and since these will apply all over India, there should be no complication regarding inter-state movement of goods anymore.
3) Composition scheme for small businesses
GST also has an optional scheme of lower taxes for small businesses with turnover between Rs. 20 to 50 lakhs. It is called the composition scheme. It has now been proposed to be increased to 75 lakhs. This will bring respite from tax burdens to many small businesses.
4) Simpler online procedure under GST
The entire GST process – starting from registration to filing returns and payment of GST tax – is online. Startups do not have to run around to tax offices to get various registrations under excise, VAT, service tax.
5) Removing cascading tax effect
An important benefit of the introduction of GST will be the removal of the cascading tax effect. In simple words, “cascading tax effect” means a tax on tax.
Under the current regime, the service tax paid on input services cannot be set off against output VAT. Under GST, the input tax credit can be availed smoothly across the spectrum of goods and services, thus reducing the tax burden on the end user and removing cascading effect.
Let’s take the following example to understand how removing the cascading effect will reduce taxes.
A trader buys office supplies for Rs. 20,000 paying 5% as tax. It charges 15% service tax on services of Rs. 50,000. Currently, he has to pay Rs. 50,000*15% = Rs. 7,500 without getting any deduction of Rs. 1,000 VAT already paid on stationery.
Under GST (assuming GST= 18%)
|GST on service of Rs. 50,000 @18%||9,000|
|Less: GST on office supplies (20,000*18%)||3,600|
|Net GST to pay||5,400|
This will be especially beneficial to industries that involve both goods and services (like restaurant business) and pay both VAT & Service Tax under the current regime.
6) Regulating the unorganized sector
Certain industries in India like construction and textile are largely unregulated and unorganized. GST has provisions for online compliances and payments, and availing of input credit only when the supplier has accepted the amount, thereby bringing accountability and regulation to these industries.
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