Introduction
The government introduced Goods and Services Tax (GST) with the aim of overcoming the confusing and complex multiple tax systems. Moreover, GST eliminated the need for indirect taxes like excise, VAT, and service tax. As a result, it stands as a significant tax reform that attempts to streamline the taxation system while also improving tax compliance. Interestingly, the GST revenue collected in October 2023 was 13% higher when compared to the previous year.
The concept of one nation, one tax system affects multiple industries in various ways. On one hand, it addresses the challenges of the indirect tax system; on the other hand, it faces numerous challenges mainly due to the digitisation of industries in India. Therefore, ensuring GST compliance is imperative for businesses so that they can continue their operations smoothly.
Like any major reform, GST brings both advantages and disadvantages. Thus, this blog will explore the implications of GST on different types of businesses in India.
Need for GST
Before the introduction of GST, central and state governments levied different types of direct and indirect taxes. The complex systems resulted in problems with compliance. Reporting taxes and validating tax details was a time-consuming and complex process. Most of the time, SMEs remain unaware of their tax liabilities and scramble to generate cash flow during the tax season. Also, it resulted in numerous malpractices due to insufficient central system or network to monitor the tax filings.
The introduction of the GST network streamlined the compliance process and made it possible to validate tax information more easily. Furthermore, multiple changes in the legal framework with technology integration have enabled the tax authorities to improve taxes collected. In response to SME concerns, the government provided relief by introducing the quarterly return submissions and monthly payment scheme (QRMP), thereby helping them manage their funds more easily. Additionally, it allowed SMEs to conveniently claim input tax credits every month.
Some of the reasons that drove the need for GST in India are:
- Eliminating multiple taxation systems
- Expanding the tax base
- Reducing the cost of services and goods for consumers
- Simplifying compliance system
- Improving efficiency and transparency of tax policies
- Implementing technology solutions
- Streamlining taxation process
Benefits of GST
GST eliminated the tax-on-tax problem with the previous tax regimen. Now, businesses calculate GST only once at the place of supply and at the time of supply, which has significantly lowered overall tax costs for both businesses and consumers. Moreover, invoicing under GST has been digitized and streamlined, making it easier for businesses to comply. As a result, the simplified process to claim input tax credit has enabled businesses to efficiently maintain their cash flow. Overall, GST has impacted consumers, businesses, and the country in the following ways:
| GST Impact on the Commoner | GST Impact on Businesses | GST Impact on the Economy |
| ● Lower tax rates for products and services
● Benefits for economically weaker people ● Levelled playing field for small-sized traders ● Simplified tax structure ● Seamless movement of services and goods across India ● Increased competitiveness among businesses |
● Centralised process for registration, filing, and tax refunds
● Streamlined tax credit flow ● Composition scheme for small-sized suppliers ● Tax neutrality for exporters ● Efficient system for input tax credit ● Easy access to the global market |
● Unified tax market
● Improved manufacturing process ● Boosted exports and investments ● Increased economic activity ● Improved job opportunities ● Reduced tax barriers to attract foreign investments ● Enhanced revenue distribution ● Better control over tax payments |
Also Read: Benefits Of GST Registration
Positive Impact of GST on SMEs
The single GST tax effectively eliminates all types of confusion that previously existed in India’s taxation system. With its implementation, businesses no longer need to worry about excise duty, customs duty, service tax, purchase tax, luxury tax, VAT, and other indirect taxes. Previously, businesses reported these different types of taxes separately while also having to follow different compliance requirements. However, GST has enabled multiple sectors to take advantage of a uniform taxation system, thereby simplifying compliance and promoting efficiency.
● Manufacturers, Distributors, and Retailers
There is no cascading of taxes at different parts of the supply chain with GST. GST introduction improved performance and competitiveness in the manufacturing sector. This sector faced issues such as higher infrastructure spending and reduced exports.Eliminating indirect taxes reduced administrative costs for traders, manufacturers, and distributors. Increased attention to exports and a simplified tax system will enable export businesses to grow rapidly.
● E-Commerce
GST reformation is one of the major reasons for the e-commerce sector in India to be on a growth trajectory. In particular, the Tax Collection at Source (TCS) is 1% for e-commerce businesses attempting to regulate tax collection for domestic and international companies. However, e-commerce businesses do not highly favor this TCS, and they expect new changes in the future.
● Start-Ups
The unified taxation system with a DIY compliance model enables start-ups to start business operations in India more freely. They can get tax credits on purchases, which will help the business’s cash flow. Moreover, the streamlined goods and services operations throughout the country allow the start-ups to run their functions effectively.
Impact of GST on Services
The introduction of GST transformed the services industry in India. Professionals, consultants, and service-based businesses clearly understand the tax system, which helps with tax compliance. Before GST arrived, businesses treated the goods and services industries differently.The latest trends and developments have helped the Indian service industry in several ways:
✔ Digital Transformation with E-Invoicing
With the introduction of e-invoicing, businesses now regulate the supply of services similar to goods. As a result, service suppliers must submit their invoices within 30 days of offering the service. It also accelerated the digital transformation of the service industry, making the process transparent and streamlined.
✔ Anti-Profiteering Measures
The government focuses intensely on delivering GST benefits to consumers. To support this effort, the National Anti-Profiteering Authority (NAA) oversees profiteering complaints against businesses. In this regard, the authority ensures that businesses reduce their prices appropriately based on the GST tax rates. As a result, it protects consumer rights and provides tax regulation.
✔ Composition Scheme
Furthermore, the government has launched the Composition scheme to help small-sized business providers comply with GST more easily, which in turn will benefit service companies. Additionally, the increased threshold for the composition scheme enables many service providers to avail this benefit. Moreover, businesses registered under the composition scheme must pay a lower tax rate, regardless of their sales and income. This also reduces compliance requirements, enabling small-scale service providers to focus on their business.
Also Read: GST Registration – Who can opt for the Composition Scheme?
✔ Improved Government Collaboration
The services industry remained neglected for many years. However, the government has taken a keen interest in the services industry with numerous discussions and consultations. Authorities introduced many proactive schemes based on service providers’ feedback. This also enables the government to streamline GST operations in the services sector.
✔ Increased Registration Threshold
Businesses with more than Rs. 20 lakh turnover are only required to register under GST. This provides relief for service businesses with a lower turnover. Moreover, the composition scheme allows companies with turnover between Rs. 20 lakh to 50 lakh only need to pay a lower GST rate. As a result, this will boost start-ups and small services to get relief from heavy tax burdens and compliance requirements.
Also Read: How Does GST Impact The Service Sector?
Negative Impacts of GST
Even though GST reform eliminates various disadvantages of the previous tax regime, it still presents several new hurdles for businesses. After discussing with multiple stakeholders, authorities constantly update and amend the GST tax laws. Transitioning to the new taxation system poses numerous challenges for the SMEs in India. Further, the rules don’t clearly define several digital operations that are becoming increasingly common in India and other countries. Authorities must address the negative impacts of GST so that experts can create a perfect tax regimen.
❖ Multiple Registration Requirements
The GST regimen expects businesses to register in each state where they operate. Consequently, companies that conduct pan-India operations and sell goods and supplies to multiple states must complete multiple registrations. Small business owners can complete the registration process online, but those looking to expand their operations may find it cumbersome.
❖ Return Filing Requirements
The monthly, quarterly, and annual filing requirements mean businesses must submit their returns 36 times per year. As a result, all the books must be closed on a monthly basis. This means that companies need a finance department to handle accounts and books around the clock. Digital GST billing software such as CaptainBiz will enable businesses to track records and accounts easily. However, this requires business owners to have technical skills in managing the online GST return filing system.
Registered businesses can claim their input tax credit only after filing returns. Also, your customers can claim their ITC only if you submit timely invoices. Not filing returns on time incurs heavy penalties and interest on penalties. It can also affect the compliance rating of businesses.
❖ E-Commerce Mandatory Registration
GST laws have been clearly defined for e-commerce firms. Unlike other SMEs, all types of e-commerce firms must register their businesses regardless of their annual turnover rate. The Composition Scheme is not available for e-commerce companies. Also, e-commerce businesses must register for GST in each state where they supply goods.
❖ Digital Financial Operations Compliance
The fintech sector is growing rapidly in India, and GST laws are not clearly defined for this sector. Fintech companies supply services within India and connect Indian businesses readily with the world’s financial institutions. However, the GST laws create ambiguity regarding the place of supply and applicable GST rates.
Conclusion
GST reform has helped India streamline and digitise the tax system. It has positively impacted all types of businesses in India. The SME sector reduced its compliance and taxation system with the Composition Scheme. Tax evasion and fraud can be kept under check with e-invoicing and digital return filing. The stringent compliance requirements enable the tax authorities to conduct audits more easily. Digital tools enable businesses and enterprises to comply with GST requirements. However, the GST laws must be upgraded and amended for digital companies and digital operations. It is the need of the hour when the world is moving towards a digital supply chain. For detailed information on ensuring GST compliance with every generated invoice, visit CaptianBiz.
Also Listen: The Impact of GST on Tax Revenue
FAQs
1. What are the key e-invoicing requirements under GST?
E-invoices are generated and validated by the GST portal. Each e-invoice has a unique identification number and a QR code that can be used to validate the information. Generated e-invoices can be shared electronically. There is no need to carry a physical copy of the e-invoice.
2. Has e-invoicing simplified the taxation system?
Yes, with e-invoicing, details are automatically uploaded to the GST portal, and there is a reduced need for manual data entry. As the e-invoices are directly integrated with the GST network, they provide real-time validation and compliance. The e-invoicing data is auto-populated into GST return forms for simplified return filing. It also provides transparency of the audit trail.
3. How does e-invoicing reduce the compliance burden for businesses?
E-invoicing eliminates the need for physical invoicing. It saves printing, storage, and transportation costs for invoices. Integrated tax calculations minimise GST errors. The real-time compliance checks minimise non-compliance risks. The digital e-invoicing data can also be easily reconciled with other accounts.
4. How buyers and suppliers can benefit from e-invoicing?
E-invoicing helps buyers and suppliers to ensure accurate tax calculation and minimises compliance risks. Buyers can access e-invoices digitally and submit input tax credits readily. Suppliers can reduce disputes and maintain adequate cash flow with precise payment processing.
5. Are there challenges with e-invoicing?
The e-invoicing process simplifies GST compliance invoicing. However, it requires technology because e-invoices can be generated online using the e-invoicing portal. Some billing software directly integrates with an e-invoicing portal to generate e-invoices with a few clicks. Business owners must invest time and resources in technology integration for seamless GST invoicing.
6. Why is GST e-invoicing important?
As per GST regulations, businesses with more than Rs.10 crore annual turnover in the past financial year must generate e-invoices for every sale. E-invoicing is essential to avoid tax penalties and charges for businesses. It is also useful in the long run to maintain a digital audit trail. It benefits all the participants with an integrated tax ecosystem with real-time data exchange.
7. How can businesses prepare for GST invoicing?
To ensure GST compliance, businesses must stay updated on the latest changes in the rules and regulations. Using automated billing software with CaptainBiz will ensure real-time compliance, as GST is always calculated based on real-time tax rates. Investing in supportive technologies for future GST e-invoicing requirements is crucial.
8. How can small businesses easily adopt e-invoicing?
In the future, almost all businesses will be required to submit e-invoices. The online generation method is simple, and anyone with basic computer skills can generate e-invoices. However, ensuring accuracy is critical to calculating GST taxes correctly. A user-friendly software like CaptainBiz is helpful for business owners to generate GST-compliant invoices readily.
9. Do I need to hire tax consultants to submit GST reports for my small business?
The online GST return filing system reduces the tax filing burden for small businesses. There is no need to hire a tax consultant if you use an automated GST billing software such as CaptainBiz. With a few clicks, you can generate GST-compliant invoices, generate e-invoices, and file your GST returns with ease.
10. What happens for non-compliance with GST regulations?
GST-registered businesses that fail to comply with GST regulations face serious charges and penalties. Financial penalties must be paid if you don’t generate GST-compliant invoices and e-invoices. If the tax amount is large, you may also face legal consequences. Repeated non-compliance may also result in GST registration cancellation.
