All About GST and Why It Is Necessary for Business

 

All About GST and Why It Is Necessary for Business

Goods and Services Tax (GST) is a tax that businesses in India must pay on the goods and services they sell. It was introduced on July 1, 2017, to simplify the country's complicated tax system. Before GST, businesses had to pay many different taxes like VAT, service tax, excise duty, and others. GST combines all these taxes into one, making it easier for businesses to pay and manage taxes.

What is GST?

GST is an indirect tax that applies to the supply of goods and services. It is a destination-based tax, which means the tax is collected where the goods or services are consumed, not where they are produced. GST is divided into three types:

• CGST (Central Goods and Services Tax): Tax collected by the central government on sales within a state.
• SGST (State Goods and Services Tax): Tax collected by the state government on sales within the same state.
• IGST (Integrated Goods and Services Tax): Tax collected by the central government on sales between two states.

Why Is GST Important for Businesses?

1. Simple Tax System

Before GST, businesses had to follow different tax rules in different states. This made it difficult to expand across the country. Each state had its own tax laws, and businesses had to pay multiple taxes. With GST, there is only one tax system for the entire country, making it easier for businesses to operate in multiple states.

2. No Double Taxation

In the old system, businesses often had to pay tax on top of another tax. For example, if a business paid tax while buying raw materials, they had to pay tax again on the final product. This increased the cost of goods. GST removes this problem by allowing businesses to claim Input Tax Credit (ITC) on what they already paid. This means businesses only pay tax on the value they add to the product, not on the entire price.

3. Better Logistics and Faster Delivery

Earlier, businesses had to pay taxes when moving goods across states, which caused delays at checkpoints. Trucks had to wait for long hours at state borders to pay different taxes. GST removed these interstate taxes, allowing goods to move freely across the country. This has made delivery faster, reduced transportation costs, and improved supply chains.

4. Encourages Small Businesses

GST has special benefits for small businesses. Small businesses with an annual turnover of less than ₹40 lakh (₹20 lakh for service providers) do not have to register for GST. There is also a Composition Scheme for businesses with turnover up to ₹1.5 crore, where they can pay a lower fixed rate of tax without complicated paperwork. This helps small businesses save money and focus on growth.

5. Transparency and Digital Payments

GST is entirely digital. Businesses must register, file returns, and pay taxes online through the GST portal. This makes the system more transparent and reduces corruption. It also encourages businesses to adopt digital payments, which are safer and easier to track. Digital transactions help businesses maintain proper records and improve their chances of getting loans from banks.

6. Boosts the Economy

A single tax system creates a common market across India. This helps businesses expand easily, encourages foreign investment, and makes India a better place to do business. Lower tax rates and fewer barriers also help reduce the cost of goods, making Indian products more competitive in global markets.

Latest Updates in GST (2024-2025)

• Penalty Waiver for Past Years: The government has waived penalties for certain late payments made between 2017-2020 if the full tax amount is paid by March 31, 2025.
• Mandatory E-Invoices: From April 2025, businesses must upload e-invoices within 30 days of issue. If they don't, the invoice will be rejected.
• Reverse Charge Mechanism (RCM): Buyers must issue self-invoices within 30 days of receiving supplies under the reverse charge system. This ensures taxes are paid on time.
• GST Amnesty Scheme: The government has introduced a scheme to help businesses clear their pending tax dues without heavy penalties.

Challenges of GST

• Frequent Changes: The government keeps updating GST rules, making it hard for businesses to keep up.
• Technology Requirement: Businesses must use computers and the internet to file GST, which can be difficult for small businesses in rural areas.
• Confusing Tax Rates: Different products and services have different GST rates (5%, 12%, 18%, and 28%), which can cause confusion. For example, packaged food items may have different rates depending on their ingredients.
• Compliance Burden: Businesses need to file multiple GST returns every month, which increases administrative work.

How GST Benefits Businesses in the Long Run

Even with some challenges, GST brings long-term benefits for businesses. It creates a level playing field, where small businesses can compete with larger companies. It also reduces the cost of goods and services by eliminating double taxation. Businesses that follow GST rules can claim input tax credit, improve their cash flow, and expand their operations across India without worrying about different state taxes.

Tips for Businesses to Stay GST Compliant

• Keep proper records of all purchases and sales.
• File GST returns on time.
• Use accounting software to manage invoices and tax payments.
• Stay updated with the latest GST rules and amendments.
• Hire a GST consultant if necessary.

Conclusion

GST has made India's tax system simpler, fairer, and more transparent. It helps businesses grow by removing unnecessary taxes, improving logistics, and encouraging digital payments. While there are some challenges, businesses that adapt to GST can benefit from lower tax burdens, better cash flow, and easier expansion across India. Staying updated with the latest rules and using technology will help businesses comply with GST and thrive in the long run.