With the advent of the Goods and Services Tax (GST) in India, there has been a massive change in tax calculations and management. Its underlying principle is ‘one country, one tax.’ It has managed to combat the cascading effect of many indirect taxes like Excise Duty, VAT, & Service Tax, which the state & central government levied on the supply of products and services in India.
What are the main advantages of GST?
Here are a few benefits of GST worth talking about:
- GST solves one of the primary issues of the previous tax structure – double taxation or the cascading effect of various indirect taxes. Indirect taxes, such as the value-added tax, were imposed on consumers at many stages, increasing the overall prices of goods and services. Now that we have the GST system in place, this problem has been solved.
- The tax calculation procedure under the old tax system was mind-numbingly tedious, owing to the sheer number of taxes levied at different levels for different categories of products and services. However, this issue was rectified by the introduction and implementation of the Goods and Services Tax.
- The taxpayer is allowed to sign and make tax payments and file GST returns on the GST portal without worrying about answering to the authorities. The GST portal online has an extensive catalog containing updated, relevant information. The added advantage of the Goods and Services Tax system is the prevention of tax evasion and fraud.
- It is no secret that managing indirect taxes has always been a bit of a challenge. However, the implementation of GST with a consolidated GST network and easy data access makes it easy for the government to handle tax payments and other related processes.
What are the main disadvantages of GST?
Here are some of the main problems with the GST:
High Operational Costs
Companies have nowhere to go but to invest in onboarding tax professionals to help the company employees comply with the GST rules. In other words, it is a significant operational expense to make sure the company is GST-compliant.
SMEs face the Brunt
Relatively smaller businesses, particularly in the manufacturing sector, are forced to deal with the problems that come with the GST system. Companies based out of special category states are required to pay GST once their turnover exceeds Rs. 20 Lakh. Numerous small and medium-sized businesses might not qualify for Input Tax Credit (ITC), which makes it hard for them to manage their tax expenses. If their annual business turnover does not exceed Rs. 1.5CR in a fiscal year, they may be eligible for the GST composition scheme.
Some Products do not fall Under The GST Act
GST does not cover some goods and services like petroleum-based products, oil, and gasoline. This is a problem for oil producers since they cannot claim Input Tax Credit on petroleum products, given how petroleum goods do not fall into the GST category.
The Effect of GST on the Real Estate Sector – Developers and Builders
Under the old system, developers would find it extremely difficult to file their GST taxes like VAT, excise duty, raw materials, customs duty, service taxes, and so on. As you may have guessed, Input Tax Credit was not an option under the old tax regime, and as a result, these taxes were added to the bill. Fortunately, the introduction of the Goods and Service Tax has resulted in a sharp drop in the construction costs because the taxes mentioned above are now subsumed.
GST also has provisions for Input Tax Credit. On the other side of the coin is the fact that developers have no choice but to conduct complicated calculations to determine the ITC to pass on to the buyers. In other words, the ITC may be calculated and passed on only in the last stage. Also, buyers are known to defer their purchases because of a lack of transparency around ITC.
There you go, a quick read to get a grasp on the Goods and Services Tax and its importance.