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Advantages and Disadvantages of GST in India

  • Highlights

  • GST aims to reduce corruption and tax evasion in India

  • GST will positively impact the country’s GDP in the long-run

  • GST's price hike has negatively impacted the real estate market

  • Several segments are seen to witness a trade-off and complexity

The Goods and Services Tax aims to reduce the number of indirect taxes and unify the Indian market. Though it was implemented midway in the last financial year, it has its fair share of proponents and critics. Here’s a look at the advantages and disadvantages associated with GST.

1. Advantages of GST in India

  • GST has brought together a number of indirect taxes under one umbrella, simplifying taxation for service and commodity businesses.

  • Experts believe that costs of products and services will be reduced in the long run with the introduction of GST. This is because the cascading effect of a series of VATs and taxes has now been erased.

  • Service provider companies with a turnover lower than Rs.20 lakh are exempt from paying GST. In case of North Eastern states, the threshold is at Rs.10 lakh. This will help the small businesses avoid lengthy taxation procedures.

  • Companies with a turnover up to Rs.75 lakh under the GST taxation process can benefit from composition schemes and pay only 1% tax on their turnover. This will help them follow a simplified taxation process.

  • GST is aimed at reducing corruption and sales without receipts.

  • GST reduces the need for small companies to comply with excise, service tax and VAT.

  • GST brings accountability and regulation to unorganised sectors such as the textile industry.

  • With GST replacing multiple state and central taxes, the tax collected is likely to be distributed across the country, providing funds for development to the developing or underdeveloped pockets in India.

  • GST has reduced taxes on certain goods by 2% and others by 7.5%, such as smartphones and cars.

  • GST brings uniformity in the taxation process and allows centralised registration. This gives a chance to small businesses to file their tax returns every quarter via an easy online mechanism. This reduces the multiplicity of taxes as they do not have the resources to hire tax experts.

  • GST reduces logistics cost by eliminating border taxes and resolving check-post discrepancies. A 20% price drop in logistics cost for non-bulk goods is clearly an expected outcome.

  • GST points toward a positive impact on India’s GDP. It is expected to increase by at least 80% within the next couple of years.

  • The possibility of tax evasion is minimised completely with GST coming into action.

Additional Read: How to Register for GST

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2. Disadvantages of GST in India

  • Increased costs of software purchase that can assist in GST filing process leads to higher operational costs for many businesses.

  • GST has given rise to complexity for many business owners across the nation. SMEs with a total income of Rs.75 lakh could avail the composition scheme, pay a mere 1% tax on turnover and abide by less compliances; however, the trade-off is that they cannot claim credit for input tax.

  • GST has received criticism for being called a ‘Disability Tax’ as it now taxes articles such as braille paper, wheelchairs, hearing aid etc.

  • The complexities in taxation for products have seen manufacturers suspend their reward programs, which are sure to affect consumers.

  • The GST transaction fees within the financial sector have become more expensive increasing from 15% to 18%.

  • With GST, insurance premiums have become more expensive.

  • The impact of GST on the real estate market caused an 8% increase on real estate price leading to 12% fall in demand closely after it was brought into action in June, 2017. This however, may be a short-term trend.

  • Petrol is not under GST, which goes against the ideals of unification of commodities.

Additional Read: How To Calculate GST

The impact of GST is profound and affects different areas of the economy differently. Depending upon the sector you work in, GST has its own advantages and disadvantages. In the long run, we are looking at lower inventory costs that will benefit the economy on the whole.

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