The SME sector is rightly regarded as the backbone of the Indian economy. This is because it accounts for over 45% of India's entire manufacturing output and employs over 40% of the whole workforce. Indian SMEs have a tremendous impact on the country's economy, which is why it is critical for SMEs to understand how GST implementation affects the sector.
Let us look at how SMEs can benefit from GST.
- Lowered logistics expenses: By abolishing various entry taxes levied at various interstate toll booths, GST (Goods & Service Tax) has reduced the expense of transporting goods across the country. SMEs can now move their goods quickly and deliver products faster at a lower cost.
- One market, one nation, one tax: Earlier SMEs would find it challenging to reach potential customers across the country. For instance, a cloth trader had access only to a limited market around Maharashtra. Due to the taxes on interstate sales, it was expensive for them to send finished products to other states. Now, with GST, new markets are easily accessible due to the simplified tax structure.
- Reduced tax burden: Previously, SMEs would have to pay different taxes and adhere to various tax-related documentations in numerous departments. The total tax imposed by the Central and State governments was approximately 32%, through various indirect taxes. With GST, SMEs now pay a lower fee of around 18 to 22%, without having to visit departments. GST ensures that every indirect form of tax comes under one roof.
Additional Read: How to calculate GST
- Easy to launch a new business: Any small and medium enterprise can now easily set up a company in India through the simplified GST process. Earlier, every company would need to register for VAT, which was different in each state, as were their rules and regulations. The procedure was complicated, leading to delays. Under the GST regime, small and medium enterprises can now register for GST, which is a centralised system similar to service tax.
- Enhanced compliance: SMEs would have to pay VAT if their annual turnover exceeded Rs. 5 lakh, in some states, and Rs. 10 lakhs in others, thus confusing most SMEs. However, under GST applicable across the country and in every state, it is not required to register or collect tax if annual turnover is over Rs. 10 lakh. This benefits SMEs that have a turnover between Rs. 5 lakh and Rs. 10 lakh to avoid applying for GST returns. With the distinction between services and goods eliminated, tax compliance can be effortless for SMEs. Moreover, all compliance procedures under GST must be done online. This includes registration fees, payments, and refunds as well as returns.
Conclusion
GST has given a shot in the arm to the SME sector thanks to its simplified processes and ease of use. Given its numerous benefits, GST can boost aspiring entrepreneurs to focus on productivity and business expansion rather than on tax burdens.
Related Post
DISCLAIMER:
While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent inaccuracies or typographical errors or delays in updating the information. The material contained in this site, and on associated web pages, is for reference and general information purpose and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Subscribers and users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. In case any inconsistencies observed, please click on reach us.
*Terms and conditions apply
