Goods and Services Tax, that is, GST, is the biggest indirect tax reform in India. It is a destination-based tax. GST has succumbed to taxes like centre exercise law, service tax, VAT, octroi, etc. Goods and services tax had made it easy to bring together state economies and improve the entire economic growth of the nation. In the world, there are around 160 countries that have GST in place. Goods and services tax is a kind of tax which is a destination-based tax where the tax is collected by the state where the goods are consumed. There are many different ways in which GST affects your business. The current blog will discuss in detail the five ways GST affects your business.
Different Components of Goods and Services Tax
Mainly, there are four important components of Goods and Services Tax. These four components are levied as per the business. Given below is the table of components of GST affects your business:
State Goods and Services Tax
State Goods and Services Tax whose abbreviation is SGST represents that tax labelled by the state government on the transaction of goods and services within a state. SGST is charged along with CGST and is levied by all the states and two union territories of Pondicherry and Delhi, as they have their own legislative assembly and Council. The tax revenue under SGST is transferred to the state government or the eligible union territory where the transaction takes place. As mentioned earlier, the SGST rate is equal to the CGST rate that is charged on the base price of the product or service.
UT Goods and Services Tax
UT Goods and Services Tax or UTGST represents that tax labelled by the UT government on the transaction of goods and services within a UT. It is charged along with CGST and is levied by all the UTs. The tax revenue under UTGST is transferred to the UT government, where the transaction takes place. As mentioned earlier, the UTGST rate is equal to the CGST rate that is charged on the base price of the product or service.
Central Goods and Services Tax
Central Goods and Service Tax collected under the head CGST is payable to the centre. The CGST is charged to compensate the centre for the earlier taxes in the form of excise duty, service tax, customs tax, etc. CGST is charged along with the SGST or UTGST as per the dual GST regime. The applicable goods and services tax that is the GST rate for goods and services is divided equally over CGST as well as SGST or UTGST.
Integrated Goods and Services Tax
While CGST, SGST and UTGST apply to the supply of goods or services within a state, additionally there needs to be a uniform taxation system for interstate supply of goods and services. Thus, the tax on the interstate supply of goods and services, known as Integrated Goods and Services Tax or IGST, abolished the earlier Central Sales Tax Act of 1956. However, the GST is suffering from the many shortcomings that resulted in the cascading of tax in the supply chain, as input tax credit was not allowed to the buyer.
What are the Five Different Ways in which GST Affects Your Business?
GST affects your business in many ways, but here we will discuss the five ways in which GST affects your business. To run a business smoothly, it’s important to know how GST can impact one’s business. Given below is the list of five ways in which GST impacts one’s business; go through them carefully to learn about the relationship between GST and business:
Simpler Calculation
Before the GST, taxpayers had to pay various taxes, but after GST, all the indirect taxes will become one; hence, now, for businesses, it becomes easy to track the records of taxes. Because now they just have to manage one tax, which is the goods and services tax. Before that, there were multiple tax records, which made it difficult to manage for the businessman. After GST, management of finance becomes a little easier for business owners.
Lower Tax Burden
Due to the various taxes, a taxpayer had a lot of burden earlier. But after GST, the turnover limit becomes Rs. 20 lakhs, and now only those businesses whose turnover is Rs. 20 lakhs have to pay the goods and services tax. GST makes the burden on a small business very less and makes their work easy. This will not only help them in their growth but also provide them with a platform form so that they can grow as much as they want.
Prevention of Fraud
If you see the goods and services tax system, it is fully online and digitalised, and there are no chances of tax fraud. Because of the digitalisation of the GST tax system, it has become transparent, and there are no chances of fraud with respect to taxpayers as well as departments. The management of tax becomes easy.
Easy Business Expansion
Previously, when one started a business, it had to register itself under various tax systems as there were multiple taxes at that time. But after GST, anyone who is starting a new business can simply take GST registration online. Even at the beginning of the business, there was no requirement for GST registration if the turnover was less than Rs. 20 lakhs or their business was in just one state, and they were not doing business through an e-commerce website. Now, a business can easily expand because a person does not have burdens related to tax and management of tax as everything related to goods and services tax has become digitalised today.
Differentiation Between Goods and Services
GST makes a clear differentiation between the service providers and those who are in the business of goods. It is important to draw this difference because it plays a very important role in a business as GST affects your business in many ways. The tax slab varies as per the goods and services one is providing hence, it makes it easy to determine in which tax slab one’s business is falling. Accordingly, GST will be charged to that business owner.
Conclusion
GST affects your business in many ways and it has significantly transformed the landscape of taxation in India and has brought about several positive changes for businesses. It simplifies tax calculations by consolidating various indirect taxes into one, making it comparatively easier for all businesses to manage their financial records. This is how GST affects your business and fosters trust. One of the most significant advantages of GST is its role in facilitating business expansion. With simplified registration processes and higher turnover limits for taxation, entrepreneurs find it easier to start and grow their businesses. This encourages economic growth and entrepreneurship in India.
