Advantages and Disadvantages of GST: A Comprehensive Guide (2025)

Goods and Services Tax (GST): An indirect form of tax placed on the supply of goods and services, aimed at streamlining the tax structure.

What is GST?

India implemented Goods and Services Tax (GST) on July 1, 2017. GST is an indirect tax on goods and services with four main slabs (5%, 12%, 18%, and 28%). Despite its advantages, there are also challenges. Here are the top 10 pros and cons of GST in India.

Benefits of GST for Businesses and Consumers

1. Simplified Tax Structure: GST has replaced multiple indirect taxes with a single tax, simplifying the tax structure.
2. Higher Tax Compliance Levels: GST has introduced a single cumulative tax return that the taxpayer needs to file, elevating tax compliance and reducing tax evasion.
3. Greater Revenue Collection: More people are filing tax returns, complying with the GST requirements, and avoiding evasion of taxes, resulting in increased tax revenue for various central and state government agencies.
4. Increasingly Efficient Logistics: GST has moved goods and services across states easier, reduced the overheads incurred by companies, and improved overall logistics and operations.
5. Increased Transparency: GST is a transparent tax system that provides a clear and comprehensive view of the taxes paid and collected, reducing corruption within the tax administration and related agencies.
6. Easy Accessibility: GST returns can be filed anytime and from anywhere using a web-enabled device like a smartphone, tablet, or PC, encouraging higher compliance.
7. Convenience for Small Businesses: GST has simplified the tax structure for small businesses, reducing the burden of adhering to multiple compliances and simplifying the protocols for micro, small, and medium enterprises (MSMEs).
8. Encouragement for Foreign Investments: The elimination of disparate taxes and increased transparency has made India a highly-attractive investment avenue for foreign investors, with the export of Indian commodities surging while foreign companies are flocking to set up operations here.
9. Digitisation: GST has encouraged the digitisation of businesses, increasing efficiency in operations and heightened transparency in reporting.
10. Boost to the Economy: More taxes collected and a more efficient inter-state supply chain have benefited the entire economy, especially the less-developed states that can now benefit from the additional GST amount that can be distributed across the country.

Understand the types of supply in GST. 

Drawbacks and Limitations of GST

To holistically comprehend the GST advantages and disadvantages in India, we must also check out the challenges in the new system.

1. Increased Costs: To comply with the GST-suggested accounting practices, businesses need to upgrade their software. The specialised GST-compliant software comes with additional costs of purchasing, installation, training, and maintenance. All of this has increased the overall operational expenses of businesses.
2. Higher Tax Liability of SMEs: Before GST, small and medium enterprises (SMEs) with a turnover in excess of ₹1.5 Cr were liable to pay excise duty. However, under GST, any business with a turnover of more than ₹20 L has to pay taxes. Although, for businesses with an annual turnover of less than ₹1 Cr, a composition scheme exists that allows them to reduce their burden, its caveats and conditions require an in-depth cost-benefit analysis.
3. Penalties and Fines: Most SMEs usually lack the resources and infrastructure to comply with the new tax system. Then, there is the complication of grasping the GST-related nuances. If not fully onboard with the new process, companies can face fines and penalties adding to their operational costs.
4. Impact on Unorganised Sector: While the unorganised sector such as construction and textile has come under the ambit of GST, the businesses operating within it are still struggling to become GST-compliant in their infrastructure.
5. Other Teething Issues: GST was hurriedly implemented in 2017. Since the financial year was already underway, many companies found it challenging to comprehend the new requirements and adopt the system. However, this has become more congenial in the last six years.

GST and its Effect on the Indian Economy

GST has had a mixed impact across different sectors of the Indian economy. The manufacturing sector has generally benefited from removing interstate barriers and the availability of input tax credits. 

The logistics industry has seen improved efficiency with faster movement of goods and reduced paperwork. However, some service sectors initially faced higher tax rates under GST, and specific labour-intensive industries struggled with compliance requirements.
GST has also supported the "Make in India" initiative by creating a level playing field for domestic manufacturers. The removal of cascading taxes has made Indian goods more competitive both domestically and internationally. The simplified tax structure has also made India more attractive to foreign investors looking for precise and predictable business environments.

Key Features of the Goods and Services Tax

GST in India operates under a dual structure, where both the Center and States have the power to levy and collect taxes. The central GST (CGST) and State GST (SGST) apply to intrastate transactions, while the Integrated GST (IGST) applies to interstate commerce. 

The GST Council, comprising the Union Finance Minister and State Finance Ministers, makes key decisions about GST implementation, including tax rates, exemptions, and procedural matters.
GST is destination-based, meaning tax revenue accrues to the state where goods or services are consumed rather than where they are produced. This has helped create a more equitable distribution of tax revenues among states. 

The system also includes threshold exemptions for small businesses and special provisions for specific sectors like agriculture.

Understanding GST Refund Rules

Getting your money back in GST is actually pretty simple. If you've paid too much tax, the government will refund you.

You can file GST returns by filling out GST return forms and show proof of your transactions. For sellers shipping overseas, this means showing shipping documents, sales receipts, and bank statements. You submit a form on the GST website, and then tax officials check your request.

While the government tries to send refunds within 60 days, it can take longer if your paperwork isn't complete or they need to verify something.

Conclusion

In 2017, India implemented GST (Goods and Services Tax) to simplify taxes, increase compliance, boost revenue, improve logistics, and promote transparency. 

It benefits small businesses, foreign investments, and digitisation. GST positively impacts the economy for both developed and less-developed states. Some challenges include increased business costs, higher tax liability for SMEs, penalties for non-compliance, issues for the unorganised sector, and initial teething issues. 

Despite these challenges, GST is making significant strides in implementation and shaping India's tax landscape.

Frequently Asked Questions

1. What are the advantages of GST?

There are several advantages of GST, some of the key ones being: a simplified tax structure, higher tax compliance levels, greater revenue collection, increasingly efficient logistics, increased transparency, easy accessibility, convenience for small businesses, encouragement for foreign investment, digitisation, and it boosts the economy.

2. What are the disadvantages of GST?

Some of the disadvantages of GST include: increased costs, higher tax liability of SMEs, penalties and fines, impact in the unorganised sector as well as other teething issues.

3. How can businesses prepare for GST implementation?

Businesses with a turnover of more than ₹20 L are required to register on the GST portal. They are expected to update their IT infrastructure to ensure that they can comply with GST software requirements. Furthermore, they must carefully go through all the applicable GST guidelines and regulations and train their staff as well to avoid any non-compliance-related penalties.