Top Advantages and Disadvantages of GST in India

Goods and Services Tax (GST) in India has both advantages and disadvantages. It simplifies the tax structure, reduces cascading taxes, and improves compliance, but it also brings challenges like higher compliance costs and potential inflation in some sectors. Here’s a quick look at GST’s pros and cons.

Advantages of GST (Merits / Benefits)

1. Simplifies tax structure

   GST replaced a variety of central and state indirect taxes, creating a "One Nation, One Tax" system.

2. Removes the cascading effect

   It eliminates the "tax on tax" burden, as businesses can claim Input Tax Credit (ITC) for taxes paid on purchases.

3. Improves logistics

   It has eliminated state-wise taxes, making it easier and faster to transport goods across state borders.

4. Boosts tax compliance 

   The online registration and filing process has brought more businesses into the formal economy, widening the tax base.

5. Increases efficiency

   It has simplified tax filing, payments, and refunds through a single online portal.

Understand the types of supply in GST. 

Disadvantages of GST (Demerits / Cons)

1. Higher tax burden for some SMEs

   Some small businesses now have to pay GST even with a lower turnover threshold, where they were previously exempt.

2. Increased operational costs

   Businesses have to invest in new accounting software and may need to hire professionals to handle GST compliance.

3. Compliance is complex

   The multiple tax slabs and frequent changes in rules can be confusing for small business owners.

4. Technology dependence

   The system is heavily reliant on technology, which can be a challenge for businesses in areas with poor internet connectivity or a lack of digital literacy.

5. Delayed refunds

   The process for claiming tax refunds can sometimes be slow, affecting a business's cash flow.

Advantages vs Disadvantages of GST

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?

Advantages of GST: GST simplifies the tax system, improves compliance, increases government revenue, streamlines logistics, promotes transparency, and is easily accessible. It benefits small businesses, encourages foreign investment, drives digitisation, and contributes to overall economic growth.

2. What are the disadvantages of GST?

Disadvantages of GST: GST can increase operational costs and tax liability for small and medium enterprises (SMEs). It may lead to penalties and compliance issues, affect the unorganised sector, and create initial challenges during implementation.

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.