The Goods and Services Tax (GST) is considered one of the most significant tax reforms in India. It combines several indirect taxes like excise, VAT, and service tax, all under one system. GST is applied to both goods and services sold in the country.

Just like any other reform, Goods and Services Tax comes with its advantages and disadvantages. Let’s explore both:

Advantages of GST:

1. Removes the cascading effect of taxes
   Goods and Services Tax eliminates the “tax on tax” problem that existed before. For example, previously, if a consultant charged a service fee and paid VAT on office supplies, there was no credit for the VAT paid. Under GST, the tax paid on purchases can be deducted, lowering the overall tax burden.
2. Higher threshold for registration
   Under the old VAT system, businesses with a turnover of more than Rs.5 lakh had to pay VAT, while service providers with a turnover under Rs.10 lakh were exempt from service tax. Goods and Services Tax has raised the threshold to Rs.20 lakh, giving relief to small businesses.
3. Composition scheme for small businesses
   Small businesses with a turnover between Rs.20 to 75 lakh can opt for a simplified tax rate under the composition scheme, reducing their tax and compliance burden.
4. Simple online process
   Goods and Services Tax processes, from registration to filing returns, are online, making it easier for businesses, especially startups, to comply without visiting multiple offices for different taxes like VAT or excise.
5. Fewer compliances
   Earlier, businesses had to file separate returns for VAT, excise, and service tax. With Goods and Services Tax, there are fewer returns to file, simplifying compliance.
6. Uniform rules for e-commerce
   Before GST, e-commerce businesses faced various state-specific VAT rules. Now, there is a uniform Goods and Services Tax system, making it easier for e-commerce companies to operate across India.
7. Improved logistics
   GST has removed barriers for the inter-state movement of goods, allowing businesses to reduce the number of warehouses and lower logistics costs.
8. Regulation of unorganized sectors
   Industries like construction and textiles, which were mostly unregulated, are now more accountable under Goods and Services Tax due to online compliance systems.

Under GST 

Disadvantages of GST:

1. Increased costs due to software requirements
   Businesses need to regularly update their software to comply with Goods and Services Tax changes. This often requires purchasing new accounting or ERP software and training employees, increasing operational costs.
2. Penalties for non-compliance
   Failing to comply with GST regulations, such as issuing proper Goods and Services Tax invoices or filing returns on time, can result in penalties. This means businesses must be extra careful with record-keeping and timely filing.
3. Higher operational costs
   GST introduced new compliance requirements, which led to many small businesses hiring tax experts, raising operational expenses.
4. Mid-year implementation
   Goods and Services Tax was introduced on July 1, 2017, causing businesses to follow two tax systems for the financial year 2017-18. This created confusion for businesses adjusting to the new system.
5. Challenges for small businesses
   Some smaller businesses struggled with the switch from manual paperwork to an online tax system. Filing returns online and making payments digitally were new challenges for them.
6. Higher tax burden for SMEs
   Smaller manufacturing businesses that previously didn’t need to pay excise duty now have to pay Goods and Services Tax if their turnover exceeds Rs.20 lakh. While they can opt for the composition scheme to reduce taxes, they lose out on input tax credits (ITC), which can be a tough decision.

Conclusion:

While GST has streamlined tax administration and reduced redundancies, it also presents new challenges that require adjustments and strategic planning for businesses. Ongoing reforms and government initiatives are aimed at mitigating these disadvantages, ensuring that the Goods and Services Tax framework benefits all sectors of the economy effectively.

Stay updated with the latest in Goods and Services Tax regulations and leverage expert guidance to navigate this comprehensive tax system.