The Goods & Services Tax (GST) has had a huge impact on India’s goods and services industry. It is an unified, multi-stage, destination-based tax levied on all value additions in India, which was implemented in 2017. In this article, we talk about 5 ways in which GST affects your business.
TABLE OF CONTENTS
|What are the different components of GST?|
|What are the 5 different ways in which GST will impact your business?|
|Why do you need GST registration?|
Here’s a quick rundown of what you should know.
What Is GST?
On 29 March 2017, the Indian Government passed the Goods and Service Tax Act, and on 1st July 2017 it came into force. GST is a common domestic indirect tax law that applies throughout the country.
The GST (Goods and Services Tax) is a tax that applies to both goods and services. It is an indirect tax that has largely replaced many indirect taxes in India, including VAT, service tax, excise duty, and so on.
This will enable smooth tax collection, reduce double taxation, and improve process efficiency. Furthermore, the customer is responsible for the final GST tax.
Dive into the best practices with our GST advisory portal.
What are the different components of GST?
GST is divided into 4 parts:
- Central Goods & Service Tax (CGST)
- State Goods & Service Tax (SGST)
- Integrated Goods & Service Tax (IGST)
- Union Territory Goods and Services Tax (UTGST)
Here’s a detailed explanation of the different parts of GST:
- Central Goods & Service Tax (CGST): The Central Government collects tax on intra-state sales. This portion of the tax compensates the central government for the loss of excise duty and service tax revenue.
In the case of intra-state sales, 50% of GST is transferred to the CGST.
(e.g. a trade that is taking place in Karnataka)
- State Goods & Service Tax (SGST): The state government collects the tax on intra-state trade. This portion of the tax compensates the state government for the loss of VAT or Sales Tax revenue.
In the case of intra-state trade, the remaining 50% of the GST tax amount is redirected to the SGST. (e.g. a trade that is taking place in Karnataka)
- Integrated Goods & Service Tax (IGST): The Central Government collects the tax on inter-state trade. The central government receives a portion of the tax, while the state government receives the remaining amount.
IGST is only applied in the case of interstate sales or transactions involving two states. (e.g. Karnataka to Maharashtra)
- Union Territory Goods and Services Tax (UTGST): The Central Government collects the tax on intra-union territory trade. The central government receives a portion of the tax, while the Union Territory Government receives the remainder.
The following is the tax structure under the new system:
|Trade||New System||Old System|
|Trade within the State||CGST + SGST||VAT + Central Service Tax / Excise duty|
|Trade outside the State||IGST||Central Sales Tax + Service Tax / Excise duty|
What are the 5 different ways in which GST will impact your business?
Here are 5 different ways in which GST will impact you:
Calculations made simpler
- In the past, a business owner had to keep track of a variety of taxes and payment deadlines.
- You may have to conduct research in order to locate and manage your tax filings and documents. Which made the process very tedious.
- GST now makes it much easier for your business to calculate taxes and stay on top of tax payments by combining all indirect taxes under one umbrella.
Lower Tax Burden
- Previously, businesses with a turnover of more than Rs 5 lakh were required to pay VAT (in most states). Please keep in mind that this limitation varies from state to state.
- Service providers with a turnover of less than Rs 10 lakh are excluded from service tax as well.
- The government is thinking about raising the GST exemption limit to Rs. 20 lakh, which would help more than 60% of small business owners and sellers.
You can use our GST Calculator India to find out how much GST you will need to pay before you register for GST.
- GST, as an internet taxing system, improved on the manual filing procedures of the previous tax system.
- Tax fraud is easier to detect, and transactions have become more transparent and accountable.
- Furthermore, any mistakes you make when Filing GST returns will be simple to rectify.
Easier to Start Or Expand Your Business
- Starting a new business necessitated registration with various departments such as VAT, service tax, excise, and so on.
- Moreover, in the case of VAT, various registration formalities/documents were required in different states. This made it more difficult, if you planned to conduct business in multiple states.
- To do business in a particular state, you must first register with that state. It is, however, a simple procedure.
- Registering your start-up and expansion has never been easier thanks to single point of registration.
- GST input credits have been made available for all in-state and out-of-state transactions in order to increase cross-border business.
- Previously, excise/service tax credits could not be offset against VAT liability and vice versa. There was also an issue with offsetting CST and VAT.
- These issues have been resolved, and the smooth flow of input tax credits is a key feature of GST.
Differentiation of Goods and Services
- The GST ensures that the distinction between goods and services is maintained.
- This will make many legal actions easier. As a result, tax fraud can be significantly reduced.
GST implementation is one of the greatest decisions the Indian government has made. A clear understanding of how GST affects your business can lead to better decision-making, especially in areas like procurement, sales, and services. By comprehending how GST affects your business, you can make informed decisions about pricing, supply chain management, and more. It is a widely known and well-regarded system because it eliminates the need for different tax rates at the federal and state levels.
There are many benefits of having done GST registration such as lesser compliances, improved efficiency, composition scheme for small businesses, and so on.
Despite the fact that the GST portal: https://reg.gst.gov.in/registration/ has a user-friendly interface, it Forms contain a large number of complex fields. As a result, it is strongly advised that you seek the assistance of a professional for submitting the application, completing the necessary procedures, filing your returns, and completing other formalities in the portal.
About InCorp Advisory
InCorp India is the Indian arm of TA associates backed, by Singapore-headquartered InCorp Global. InCorp India is a leading integrated corporate solutions provider that has a presence across South-East Asia and specializes in providing tech-based incorporation, corporate secretarial & compliance, accounting, taxation, FEMA, and investment banking services to its clients while partnering with them in their entire business lifecycle.