Everything MSMEs Need to Know About GST
Implementation of the Goods and Services Tax (GST) restructured the indirect tax system of India and brought significant changes in almost every economic sector of India. This comprehensive tax has been created by summing up all the consumption (indirect) taxes that were put separately on goods and services. The GST council decides GST rates, goods, and services under it and exemptions. These things might change as per the decision of the council.
MSMEs (Micro, Small and Medium Enterprises) are some specified businesses whose annual turnovers do not exceed a certain amount. To learn the impact of GST on MSMEs, read the full article.
What are the different types of GST?
Categorization of GST was necessary to make the new tax system of India simpler and easier than before. Therefore, the four different types of GST are discussed below.
- IGST or Integrated Goods and Services Tax: This tax regime is applicable on exports and imports as well as for businesses done between two states. The central government collects this tax
- CGST or Central Goods and Services Tax: This tax is also collected by the central government and is applicable for the intrastate exchange of goods and services.
- SGST or State Goods and Services Tax: Under the GST regime, another tax is similar to CGST, and that is State GST. It is collected by state governments and is applicable for the intrastate supply of goods and services
- UTGST or Union Territory Goods and Services Tax: This tax is applicable for the transactions made within the union territories of India.
What are the different tax slabs of GST?
There are 4 types of GST slabs in India i.e., 5%, 12%, 18%, 28%. Those slabs might be revised at times if needed by the GST council. Necessary items like food medicines come under the lowest tax slab, while the highest tax slab is for luxury and sin goods like AC, tobacco products, gutkha, etc. Look at the below table to learn more about GST rates and the items under the same.
What advantages can MSMEs get from GST?
Find out the benefits MSMEs enjoy under the Goods and Services Tax regime.
- A single tax: Before the introduction of GST, MSMEs had to pay separately for multiple indirect taxes such as VAT, service taxes, etc. Not only was the procedure difficult, but also the MSMEs had to bear a heavier tax burden.
- Lightened tax burden: The practice of entertaining different taxes before the implementation of GST was responsible for a heavier tax burden on MSMEs. Previously they needed to pay around 32% tax integrating central and state-level taxes. But now they pay approximately 18% to 22% GST.
- Lowered transportation cost: Transportation service falls under the lower tax slabs of GST. Therefore, MSMEs now have to spend less on transporting their final goods. It also reduced the total cost of production.
- Improvement in growth: Different taxes made it difficult for MSME owners used to expand their businesses. They usually preferred to run their businesses without approaching the markets of other states as the complex tax structure could increase their total production cost. But the scenario now has changed significantly.
- Easy registration process: Earlier, MSMEs needed to register under different tax systems. That was a complex and consequently delaying procedure. On the other hand, GST registration neither takes much time nor is complex. MSME owners can complete the process by visiting the official web portal for GST registration.
MSMEs are the backbone of the Indian Economy as they contribute almost 29 – 30% to the GDP of India. The Indian government always encourages such enterprises and offers them a lot of advantages in several areas to smoothly expand their businesses. Similarly, GST, one of India’s most significant tax reforms, didn’t disappoint the MSMEs. Besides lowering the tax burdens, the simplified structure of GST has played a vital role in the growth of MSMEs.
Everything MSMEs Need to Know About GST FAQs:
1. How to differentiate between small and micro-enterprises?
2. What is the annual turnover of medium enterprises under MSME?
3. Is GST good for MSMEs?
4. Can MSMEs complete the GST registration process online?
5. Under which GST slab are MSMEs liable to pay?
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