GST Advantages and Disadvantages in India

September 12, 2022

9 min read

GST, which was treated as India’s most significant reform in the sector of Tax, is also known as Goods and Services Tax. GST is a form of indirect taxes imposed at the State and Centre levels. The GST outlawed the old tax system, which consisted of VAT, Excise duty, Service Tax and other such taxes. As the name suggests, it charged on both services and goods. This tax was brought forward with the intention of One Tax One System, although it failed to live up to that expectation with several tax slabs.

What is GST?

GST was first brought forward in the 2006 Annual Budget Speech on 28th February. The main intention was to rebuild the Nation’s indirect taxation system. Later, the Goods and Services Tax was approved by the Indian Parliament on 29th March 2017, which came into effect on 1st July 2017.

It was brought forward with the idea of a single comprehensive tax that would be levied on all services and goods. It has 4 slabs – 5%, 12%, 18% and 28% for all kinds of goods and services. The other two slabs are 1.5% and 3% for jewelry, cut diamonds, precious metals, and some selected automobiles. So, there are 6 slabs in total.

GST or Goods and Services Tax was imposed in India with some motives. The main reason to impose GST are:-

Remove multiple tax system
Removing multiple taxes on tax on a particular product
Allowing online transactions
Online filing of Returns
Reduce Evasion of Tax
Trying to bring more and more businesses under GST
Trying to increase the Goods and Services Consumption
Bring out competitive Prices for a product

Like every coin has two sides, GST has many disadvantages. There are a lot of demerits that this taxation system brought. So, any informed businessman or MSME owner, or entrepreneur must know its side effects and benefits. Let’s look at some of them in this article.

Advantages of GST

As mentioned above, the GST comes with a few advantages, such as one tax system and boosting the different aspects of the Indian economy, such as:-

1. One Tax System

One of the main intentions of bringing GST was to remove different types in the Indian tax system. Before the implementation of GST, there were different taxes such as VAT, service tax, etc. All such taxes have been removed with GST coming into play. Now, only one tax is charged. Although there are different slabs, GST charges are different for different items which often creates confusion.

2. Common National Market Creation

GST brings up a tax structure that is integrated into nature. This helps remove all kinds of economic barriers, allowing the GST to create common national markets. Again, using input tax credit can sometimes become difficult.

3. The Make In India Initiative

One of the main reasons for bringing Goods and Services Tax was to help in boosting the ‘Make in India’ products. The GST helps in manufacturing the products at competitive rates. Although the rest is yet to be explained by the Government as to how GST helps in this campaign.

4. Cascading Effect Removal

A big advantage of GST is the removal of the cascading effect of GST. Cascading effect means the tax levied on tax. So, if a product has 10% tax on Rs 1000, another 10% of tax will be charged on 1100. So double tax is charged. In GST, if 28% tax is charged on Rs 1000, then Rs 1280 is charged, and on the next level, again 28% will be charged on Rs 1000. So, the Tax on Tax system is removed.

5. Litigation Reduction

GST helps in reducing litigation cost, which was increased due to multiple taxation systems. As GST is meant to provide clarity in the tax assessment ability. One can use the revised structure of GST to show the different credit flow in different businesses. But the credit following is not very smooth and sometimes leads to errors, so one must be careful.

6. Composition Scheme

Through the GST, many small businesses with an annual turnover of less than and equal to INR 1.5 Crore can opt for the composition scheme. They can reduce their compliance easily using this scheme. The GST is charged at lower rates of 1%, 5% and 6% by businesses that come under this scheme.

7. Simple Access

The GST portal can be accessed by anyone sitting anywhere at any time. This makes filing of returns easy. This is very good for all kinds of businesses.

8. Efficiency in Logistics

GST has removed different other tax systems such as VAT. So, since the business already pays to the center and state before the transportation of goods, there is no need to pay state-level taxes during interstate movement, which makes the logistics movement better.

9. Unregulated Sectors get Regulation

Previously various businesses were not regulated, and there had been tax evasion from the construction and textile sectors. The implementation of GST has addressed these loopholes. The tax burden has been reduced for such sectors too. This will prevent tax evasion.

10. Automated procedures

These processes are automated and simplified for various processes such as return, tax payment, registration, etc.; all interaction is done through a common GSTN portal.

Disadvantages of GST

1. Very High Tax Burden on SMEs

As per the structure of the previous tax system, only those businesses whose yearly sales were more than Rs.1.5 crore were required to pay excise duty. But as per the new tax structure, it is mandatory for all businesses whose annual sales are more than Rs.40 lakh to pay GST.

2. Compliance Burden

GST compliance is quite high due to the filing of 3 tax returns every single month. Besides, now it is mandatory for the companies to register for the GST in all states wherever they perform business.
The whole procedure of registering with the regulatory body, producing GST-compliant invoices, maintaining digital records, and filing returns have put a huge stress burden on SMEs and others.

3. Increased Costs

It is seen that GST compels businesses to convert their present accounting software to ERP or GST-compliant software with a view to keeping their operations running. But one also has to remember that the businesses may incur substantial expenses for buying, installing, and then training employees to use GST-compliant software.
In addition to this, the costs of doing business have increased considerably not only for big businesses but also for small ones since they have to hire tax professionals in order to become GST-compliant.

4. IT Software Expenditure

Keeping in view the GST regime, all businesses either have to update their current accounting software or ERP software to make it GST compliant or purchase new GST software to prop up their businesses. This results in an increase in IT expenses of the businesses in terms of purchasing the GST software and training the staff to use the software efficiently. However, Masters India, a firm that is one of the leading GST Suvidha Providers(GSP) has successfully developed customized GST software and APIs in order to ease the compliance procedures for different business users.

GST slabs for general as well as for businesses that come under the composition scheme

General Rates
1.2%	3%	5%
12%	18%	28%
Composition Rates
1%	5%	6%

*0% slab means no GST charged!

As is evident, change is definitely not easy. Undoubtedly, the government is endeavoring to smoothen the road to GST. At this juncture, it is important to learn from global economies that have implemented GST before us and who have overcome the teething troubles to witness the advantages of having GST, i.e., a unified tax system and easy input credits.

GST Advantages and Disadvantages in India FAQs:

1. How many GST slabs are there?

There are 6 GST slabs. The first 4 slabs are – 5%, 12%, 18% and 28% for all kinds of goods and services. The other two slabs are 1.5% and 3% for jewellery, cut diamonds, precious metals, and some selected automobiles. So, there are 6 slabs in total. There is also a 0% slab implying no GST has been charged on the service or product.

2. What is the fine for non-filing of GST returns?

The fine for non-filing of GST returns is Rs 20 per day for Nil returns and Rs 50 for other returns. This becomes quite expensive.

3. Does one need to pay quarterly or monthly returns?

One can pay quarterly or monthly returns as per their wish. The settings for return period filing can be edited from the Dashboard of the GST portal.

4. Can one do GST registration online?

Yes, one can do GST registration online.

5. Can one file a Nil return?

Yes, one can file a Nil return.

6. How can one file a return using EVC?

For filing a return, go to your dashboard, click file returns, choose which month’s return you want to file and then choose which return you want to file. Then, enter the details and click on file return. The GST will ask you the signatory’s name, which you have to choose from the drop-down menu and then click on file return with EVC. The GST portal will send you an OTP at your mobile number and email address registered by you. Fill up OTP and click on submit.

7. What is the due date for GST returns for GSTR 3B?

The due date of GST returns is either the 20th or 24th of every month.

8. What is the composition scheme?

Businesses which have an annual turnover of less than and equal to INR 1.5 Crore can opt for the composition scheme. They can easily reduce their compliance easily using this scheme. The GST is charged at lower rates of 1%, 5% and 6% by businesses that come under this scheme.