How GST Has Helped Businesses to Reduce Their Tax Burden?

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Published Date:  26-11-2023   Author:   moulik-jain
how gst has helped businesses to reduce their tax burden

The whole ecosystem has benefited from the introduction of India’s new comprehensive indirect tax regime. It has helped to simplify compliance for taxpayers, cut the tax burden on businesses, and create a single national market.

The cascade impact and cost of doing business have lowered due to the seamless flow of input tax credits and lower rates. Thanks to the one tax system, starting a new company is now simpler. For small organizations, the composition scheme makes compliance easier.

differences between cgst sgst igst

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The compliance procedure is now much more efficient, with only one registration, three combined returns, and online processing via a single portal. One of India’s most notable tax changes was implementing this new indirect tax system on July 1, 2017. It was put into place to replace the complex and cascading indirect tax system, and it has lowered taxes and contributed to the development of a single market.

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It has taken in a lot of federal and state taxes, including excise taxes, VAT, service taxes, amusement taxes, luxury taxes, and more, under the ‘one country, one tax’ policy. As a result, there are now fewer taxes, which simplifies compliance. The total tax incidence has decreased as a result of the input tax credit’s seamless movement.

Key Benefits of GST

The Goods and Services Tax (GST) imposition has resulted in several organizational tax advantages. Let’s look at some of the primary ways GST has helped businesses reduce their tax burdens and become more compliant.

  • Abolition of the Tax Cascading Impact

The absence of the tax cascading effect is a huge benefit. Previously, the federal and state governments imposed indirect taxes at various stages of manufacture and sale, resulting in a rising tax burden as items progressed up the supply chain.

GST has replaced this complicated structure with a unified tax system combining more than 15 taxes. This has significantly decreased the cascading effect, allowing for the unfettered flow of tax credits.

  • Reduced Tax Charges

Furthermore, over 80% of products and services are subject to GST rates of 18% or lower. The maximum charge is 28%, which is only applied to certain luxury and demerit products. Most goods’ overall tax rates have fallen compared to pre-GST combined indirect tax rates. This has assisted in lowering the tax burden on enterprises.

In summary, important advantages such as the elimination of tax cascading and reduced tax rates have assisted businesses in optimizing their tax outgo and becoming more GST compliant.

  • Tax Compliance Simplified

For companies, GST has streamlined the whole indirect tax compliance procedure. Previously, businesses had to comply with several federal and state tax requirements, face multiple audits, and file tax returns for each tax separately.

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Businesses must file a single monthly tax return under GST. The whole tax compliance process has become technology-driven, saving firms time and effort. The GST compliance rating system encourages firms to be more tax-compliant as well.

  • Consistent Tax Rates

By implementing the ‘one country, one tax’ premise, GST has established a shared national market. It has eliminated geographical trade obstacles inside the country.

Prior to GST, tax rates and regulations differ per state. However, GST has resulted in consistent indirect tax rates nationwide. Previously, for example, VAT rates varied from 12.5% to 15% between states. However, the GST rate is now similar throughout India.

  • Increased Logistics Efficiency

Following GST, the abolition of interstate inspections boosted logistical efficiency. Trucks transporting commodities may travel longer distances without incurring delays or expenses associated with state border inspections.

The logistics industry has benefited from standard registration for GST compliance as well. Finally, GST has reduced logistics expenses as a result of speedier product circulation, increasing corporate competitiveness.

  • Increase in E-commerce

GST offers a unified tax structure for e-commerce enterprises, which previously had to cope with a plethora of different tax procedures. GST’s introduction of tax collection at source has eased tax compliance for e-commerce businesses.

Considering the speedier flow of commodities across the country as a result of GST, e-commerce enterprises save on logistical costs. Some tax compliance and warehousing expenses have also decreased. This has aided the expansion of the e-commerce industry.

GST Benefits for Businesses in Key Areas

  • Tax Cascading Effect Elimination

One of the most significant advantages of GST is that it has removed the cascading impact of taxes. Prior to GST, the national and state governments imposed several indirect taxes. Every step of manufacture and sale was taxed. It merged over 15 distinct taxes into a single one, allowing for the free flow of tax credits. This has considerably reduced the cascading impact of taxes.

  • Tax Structure Consolidation

By combining all indirect national and state taxes, GST creates a consolidated indirect tax system. Under GST, the total number of taxes has been reduced from 17 to one.

Compared with monitoring compliance across many taxes, this has simplified tax compliance for businesses. Filing tax returns has also been simplified, with businesses required to file state-specific GST reports monthly rather than quarterly.

  • Increase in Manufacturing and Exports

GST has significantly increased manufacturing and export activity. Lower tax rates have decreased prices and boosted the worldwide competitiveness of Indian-produced products.

The continuous supply of input tax credits has also reduced manufacturing costs. Exports are now zero-rated, and exporters may get tax refunds on export inputs. Overall, GST has aided India’s exports.

  • The Indian Collective Market

The advent of GST has integrated the Indian market by bringing all states under one umbrella. It has dismantled geographical and fiscal barriers, enabling unrestrained movement of goods across the country.

Enterprises can now source and supply nationwide without grappling with diverse state taxes. This has opened up pan-India market access.

Additionally, GST compliance is less cumbersome for fledgling ventures as they handle single taxation. They can get onboarded on the GST portal and follow unified procedures.

  • The Ease of Starting a Business

The composition scheme is a boon for small businesses like retail stores as it lightens compliance responsibilities. They are spared from intricate GST formalities.

In a nutshell, GST has unified the Indian market and simplified tax compliance for startups by removing logistical limitations and convoluted taxation. This has facilitated broader market reach and easier adherence for companies.

  • Increased Transparency

With the implementation of GST, the whole indirect tax regime has become more transparent. Registration, invoicing, refunds, and payments are all done online. Compliance is more straightforward to track and monitor.

The open flow of input credit has increased the transparency of transactions between buyers and sellers. By differentiating compliant taxpayers, the GST compliance rating also contributes to transparency.

Important GST Regime Changes

Let us look at some of the significant differences between GST and past indirect taxes:

  • Multiple registrations for central and state taxes are replaced with a single registration.
  • Three kinds of GST returns have replaced multiple tax filings.
  • Previously restricted advantages are now accessible across the supply chain for input tax refunds.
  • Lower GST tax slabs (5%, 12%, and 18%) apply to the majority of goods and services.
  • Exports with a zero rating are eligible for tax rebates.
  • HSN codes for items were implemented in place of tariff categorization.
  • E-way invoices are necessary for transporting items valued at more than Rs. 50000.
  • Scheme of composition for small firms with a turnover of less than Rs. 1.5 crores

Significant GST Compliance Advantages for Businesses

The GST compliance procedure has become considerably simpler and easier for companies, particularly compared to the complicated compliance of the previous indirect tax structure. 

Significantly less 37%
Significantly more 11%
Marginally more 26%
Same as before 26%

Table: Time spent on GST compliance vs. pre GST business taxation in 2022

Consider the following important GST compliance benefits:

  • Single Enrollment

Organizations in India receive just GSTIN registration under GST for tax compliance. Previously, they had to apply for VAT registration in every state, CST registration for commerce between states, and central import and service tax registration. A single registration has replaced several registrations.

  • Combined Returns

Previously, businesses had to submit separate VAT, service tax, and excise filings, resulting in a massive compliance burden. For average taxpayers, GST has replaced them with only three monthly reports – GSTR-1, GSTR-2, and GSTR-3. Unified returns have greatly reduced the compliance burden.

  • Online Transaction Processing

The GSTN platform is used for the complete registration, invoice preparation, return filing, and payment procedure. This has resulted in less paperwork, more time saved, and lower costs for corporation taxpayers.

  • Scheme of Composition

The GST composition plan is a major compliance advantage for small firms with a turnover of less than Rs. 1.5 crores. It enables them to pay a low flat GST rate and submit an annual return rather than complicated monthly reports.

  • Tax Credit for Input

The unrestricted flow of input tax credit throughout the supply chain is one of the most significant GST compliance benefits. Unlike previous tax regimes, credit may now be obtained on all business purchases.

  • Compliance Evaluation

The GST compliance rating system motivates companies to enhance their tax compliance. Maintaining a good GST rating makes a company more credible and trustworthy in the eyes of its consumers.

  • Audit Consolidation

A unified audit for central and state-level compliance under GST assists firms that previously faced separate central and state tax audits.

  • Refunds of Taxes

The online processing and speedier GST refund method are significant compliance advantages. Exporters may now receive speedy refunds of IGST paid on exports, as opposed to the previous delays in VAT and central tax returns.

  • Resolution of Disputes

GST’s robust dispute resolution systems, such as the GST Appellate Authority, enable firms to settle tax problems more quickly than in past regimes.

Overall, GST compliance for companies has become considerably more simplified and effective, resulting in time, effort, and cost savings. Businesses may now be more tax-compliant thanks to the streamlined tax structure and procedures.

Conclusion

The introduction of Goods and Services Tаx (GST) has transformed India’s indirect tаx structure. It has facilitated the country’s integrаtion into the singlе mаrket by replacаting the complex network of state and federal tаxes with a single integrated tаx frаmework.

One of the most significant аdvаntаges hаs been а decreаsed tаx burden on enterprises. GST eliminated the cаscаding impаct of tаxes that existed when tаxes were placed on tаxes. The smooth flow of tаx credits has significаntly reduced business costs.

The Goods and Services Tаx (GST) hаs simplified tax compliаnce for tаxpаyers. Compliаnce hаs been greаtly eаsed by a single registrаtion, three stаndard tax returns, and centrаlised processing on а single site. This is a huge relief, pаrticularly for smаll enterprises, who may now use the basic composition approach.

Overаll, GST hаs been quite аdvantаgeous in terms of lowering the tax burden, eliminating inefficiencies, and encourаging tax compliаnce. It has resulted in a transparent and unified indirect tax structure, which has increased commerce and made Indian enterprises more competitive on a worldwide scale. The reform has had a tremendous positive impact, transforming India’s indirect tax system.

FAQs

  • What tax benefits does GST provide over the previous tax structure?

Key benefits are seamless flow of input tax credits, elimination of cascading effects, lower tax rates for most goods & services, simplified compliance, and a unified tax regime.

  • How can one apply for a new GST registration?

You may register online at the GST site using Form GST REG-01.  PAN, residence, business activities, contacts, bank information, and authorized signatures are all required.

  • Can I update GST returns if any information needs to be included or corrected?

Yes, GST returns may be updated to add or modify information. Revised reports may be filed within the periods for modifications.

  • What format must GST invoices be sent in?

GST invoices must be produced in the standard forms Form GST INV-1 (tax invoice) or Form GST INV-2 (bill of supply) with the relevant data, either electronically or manually.

  • When is the GST payment deadline?

The due date for payment of GST liabilities and submission of GST returns for the previous month’s transactions is the 20th of the following month.

  • How is a GST refund obtained for exports?

Exporters may get a refund of the IGST paid on their exports by submitting Form GST RFD-01. GSTR-1 and GSTR-3B filings must include zero-rated suppliers.

  • What is the eligibility level for the GST Composition Scheme?

The turnover barrier for availing of the Composition Scheme is Rs. 1.5 crores (up from Rs. 1 crore before). The plan provides for the payment of a flat GST rate of 1-6%.

  • Can I claim an input tax credit from the prior year in the following year?

If an ITC is missed, it may be claimed in later fiscal years, but only up to the fiscal year following the year, the tax invoice was issued.

  • How are fines for noncompliance with GST imposed?

The late cost for non-filing returns is Rs. 25-50 per day of delay. Other infractions may result in a penalty of up to 10% of the tax amount, plus interest for late payments.

  • Is manual submission of Nil GST returns permitted, or is e-filing required?

E-filing of Nil returns using Form GSTR-3B on the GST site is required. Except for composition taxpayers, manual filing of Nil returns is not permitted.

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Moulik Jain

I am a seasoned marketer specializing in Tax, Finance, and MSMEs who brings a wealth of hands-on experience to demystify complex subjects, providing insightful guidance for entrepreneurs and finance enthusiasts alike.

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