After its introduction in 2017, Goods and Services Tax, or GST, has consolidated and simplified the ever-so-complicated Indian indirect tax structure. However, this is not a new proposal, and it can be traced half a decade back, before its final implementation. Nonetheless, the successful implementation of this taxation structure has been a noticeable boon particularly for small businesses across the country.
The application of the Goods and Services Tax has helped businesses by reducing the cascading effects of taxation. Additionally, it has simplified the process of paying taxes under a uniform structure. Hence, under GST, fewer companies feel the need to skip taxes, and small businesses and start-ups can benefit from this taxation method.
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5 advantages of GST for small Indian businesses
Following are 5 benefits of the Goods and Services Tax that helps small businesses in this country to flourish –
Upper threshold for registration
The previous VAT (Value Added Tax) structure mentions that any business with a yearly turnover in excess of Rs.5 lakh needs mandatory VAT registration and pay taxes accordingly. Whereas, in this new system, this threshold has been moved to Rs.20 lakh. Hence, small businesses can enjoy the benefits of tax exemptions.
Additionally, the current system also includes a scheme where organisations with an annual income between Rs.20 lakh and Rs.1 crore pay lower taxes. However, it is discretionary. This facility is known as the ‘composition scheme’, and it will reduce the tax burdens of small businesses across India.
2. Receive tax advantages on purchases
The application of GST has also brought a noticeable change in the payment of service tax. Previously, organisations, for instance, in the service industry needed to pay taxes on their purchases, say office supplies, alongside taxes on their services as well. Whereas now they can set off the taxes paid on their purchases with that on the final service.
Here is an example to clarify this concept –
A company procures office supplies amounting to Rs.20,000 and pays a VAT of 5%, i.e., Rs.1,000. It registers a sale of Rs.1 lakh with a service tax of 15%, i.e., Rs.15,000. Companies used to pay taxes on both ends in the earlier system, but it has changed in the case of Goods and Services Tax.
Let’s presume that the GST here is 18%; so, a company will pay Rs.18,000 on its sales. Similarly, the tax paid previously on office supplies (Rs.20,000 x 18% = Rs.3600) will be deducted. Hence, the ultimate tax amount will be Rs.18,000 – Rs.3,600 = Rs.14,400.
So, the implementation of GST means companies can now save on their yearly tax payment. In addition, it will help small businesses lower costs and reduce the burden on their working capital.
3. A less-complicated structure
Since the Goods and Services Tax has subsumed almost all other indirect taxes, it has curated a considerably straightforward tax structure. This has introduced two benefits –
- For small-business owners just starting their journey, paying taxes will not be challenging anymore. Also, instead of managing VAT, service tax, excise, CST, etc., one can only focus on Goods and Services tax regulations and pay accordingly.
- Furthermore, paying taxes has become straightforward as well. With online accessibility, one can now apply for GST registration online and file returns from that same website. Therefore, business owners and executives need not run around from one office to another to get their VAT, excise, and other registrations done. Moreover, companies with operations in goods and services have also benefitted from this new taxation system. Instead of paying service tax and VAT individually, they can now simply pay GST.
4. Free movement of goods
Formerly, the application of CST and other state-specific taxes often hindered the fast and free movement of goods between state boundaries. Also, such region and state-specific taxation meant maintaining lengthy documentation, proving to be challenging for small businesses.
The implementation of the Goods and Services Tax has reformed this practice significantly. With a uniform structure and single tax payment system, companies can now pay their required tax and move goods from one state to another without hassle. This has improved the logistical part of any business significantly.
5. Regulated the unorganised sector
Businesses operating in the unregulated sector often faced challenges regarding their business documents, especially when they want to apply for a business loan.
With GST, the government aims to improve regulations and accountability that will ultimately help small businesses in these sectors to have the required legal stance. Tax papers will be part of company documents and aid them to avail of a loan easily.
Borrowers can also skip this hassle of loan application with assistance from pre-approved offers extended by leading financial institutions like Bajaj Finserv. These offers are available on several financial products, including business loans, personal loans, etc. Simply provide essential contact details and check your pre-approved offer online.
The impact of GST on businesses across all sectors has been significant. It has eased the hassle of conducting business in this country and especially supported small organisations to grow.