After a lot of back and forth, the GST bill was passed in April this year, and in what can only be called a true show of grit and determination, the Prime Minister and the Finance Minister have worked hard to ensure a roll out as smooth as can be expected in country of a billion plus individuals with as many aspirations.
The two facts that really elucidate the benefits of GST the most are the increased employment because of the boost in production, stimulated by the increased demand for products nationwide, and reduced prices actuated by lower cost of interstate commerce [due to the abolition of interstate taxes] and increased competition among the small and medium businesses. Naturally, with the growth in demand and production, will come the growth in GDP – a growth that could be as much as 4.2%.
While the benefits of the GST are expected across the board, entities that stand to gain the most are the start-ups and the SMBs, which, for quite a long time, have been considered to be the chief development agent of the Indian economy. They are not only the leading source of employment, but also contribute more than half of the nation’s production and over 40% of its exports. Thus it’s a given that the advantages of actualising GST on SMBs will have a serious impact on India’s economy in the coming years.
To begin with, GST has made starting a business a whole bunch easier, simpler, more standardized by eliminating the need to register for VAT. VAT was particularly problematic for business with operations in multiple states, as it required registration in all the states where the business had operations. Moreover, online registration further eases and improves the efficiency of the process, while also making it a whole lot cheaper.
Secondly, while VAT required registration fee to be paid by all business with annual turnover of more than INR 5 Lacs, GST has increased this limit to INR 20 Lacs – meaning, any business making less than INR 20 Lacs per annum can enjoy exemption from the tax. While the monitory benefits of this are apparent, the benefit that is less apparent is that SMEs can now enjoy expedited delivery of goods at interstate check points, thus making interstate trading a lot less financially taxing. Considering the fees, octroi charges, logistics expenses, and customer charge-backs [for delayed deliveries] and DSO costs, an SME can now expect cost savings of as much as 20%.
Added transparency in the taxation process is another benefit that small businesses can expect after the GST roll-out. This will be enabled by the digitization of the compliance and refund process. By removing the more manual and complicated processes of the yesteryear’s, GST mandates all tax returns to be filed electronically, and all input tax credits and tax liability adjustments to happen automatically. This mandate will not only expedite the process, but will also improve liquidity for small businesses.
GST has also raised the bar on total amount of input tax credit that can be claimed in the year of the purchase itself from the earlier 50% to 100% now; a move that will help free-up much needed capital for small business. But the biggest advantage of them all, perhaps, is the clarity of what constitutes products and services. By removing the distinction between sales and services, the GST greatly simplifies simplifying the tax assessment process, which in turn boosts tax compliance.
About the only complication for the small and medium businesses that has increased because of GST is the number of filings that will now have to do in a year. It might seem like a lot of work at the first glance, and the draft GST return format provided by the government is not easily comprehensible by those who have little or no accounting knowledge. That said, at the end of the day, it is a compliance issue, and, besides, a lot of automation has gone into the system to make things easy for the small business. But a lot of people might still find the process cumbersome and confusing, and understandably so.
Experts at RevMyStartup have extensively studied the GST law, and will be more than happy to answer any questions you may have on GST Registration or GST Return Filing to ensure you are fully GST compliant. To know more, call RevMyStartup today to get your GST registration and filing done in the right and best manner, at reasonable prices.
About the Author – This article is contributed by Vaibhav Tripathi, content writer at RevMyStartup.
[If you would like to contribute to this blog as a Guest Writer, please email us at himanshu.sheth@gmail.com with the relevant content].