The Goods and Services Tax(GST), which has been advertised by the government in power as the biggest tax reform in the history of the Indian economy, is going to impact each and every business activity as the implementation of GST would imply a number of changes in the existing tax regime.
Here are some of the things that you should know about how GST Would Impact Small Business:
What is GST?
GST is a single tax that will replace all the existing indirect taxes levied on goods and services in India. Both the centre and the state would levy the GST. Centre would levy Central GST(CGST) and states would impose State GST(SGST) on the supply of all goods within a state.
For goods that are transferred between different states, Integrated GST(IGST) will be applied on them.
Proposed roll out date for GST
Although 1 April 2017 was set as the deadline for implementing GST, but in a recent speech Finance Minister Arun Jaitley mentioned that government is trying to implement it from 1 July 2017.
What all taxes would be removed after implementation of GST?
All indirect taxes such as entertainment tax, tax on consumption of electricity, tax collected by panchayats/municipality etc. will be replaced by GST.
At central level taxes like central excise duty, additional excise duty, service tax, additional customs duty commonly known as countervailing duty and special additional duty of customs will be absorbed under GST.
At the state level, taxes like sales tax, entertainment tax, octroi and entry tax, luxury tax and taxes on lottery, betting and gambling will be replaced by GST.
Who are exempted from GST registration?
- Suppliers of cultivated agricultural produce
- Suppliers of Nil rated or non-taxable goods and services
- Suppliers of goods and services entirely covered under Reverse Charge
What are the Benefits of GST Registration?
People who do the GST registration online can be benefitted in the following ways:
- Person gets legal recognition as a supplier of goods and services
- Person gets legal authorization to collect tax from his buyers, paid on their behalf
- Taxes paid on the input goods & services, if properly accounted can be utilised for the outstanding payment of GST on supply of goods and services
- Eligible for various other privileges under the GST laws
How GST would impact small businesses?
GST would impact small businesses positively in followings ways:
- The present threshold described in various state VAT acts differs from state to state. In the present tax structure, Rs.5 lakh is the threshold for a majority of bigger states. But after the implementation of GST a threshold of gross annual turnover of around Rs.10 lakh for all goods and services, for all state and union territories may be adopted.
- GST has an interesting concept of charge on the value added at each stage of sale/purchase in the supply chain. For example, let’s take GST rate to be 10%. Let’s say a manufacturer spends around Rs.10 for raw materials and sells it at Rs.20. The profit margin is Rs. 10. So the GST payable by him will be Re1, according to the 10% rule, whereas according to the earlier system he would have to pay Rs. 2. So this will give the manufacturer a tax credit of 1 rupee.
For more information on GST, please refer to http://www.cbec.gov.in/htdocs-cbec/gst website.
Frequently Asked Questions
The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
The 4 types of GST in India are:
SGST (State Goods and Services Tax)
CGST (Central Goods and Services Tax)
IGST (Integrated Goods and Services Tax)
UGST (Union Territory Goods and Services Tax)
The GST council has fitted over 1300 goods and 500 services under four tax slabs of 5%, 12%, 18%, and 28% under GST.
GST calculation can be explained by simple illustration : If a goods or services is sold at Rs. 1,000 and the GST rate applicable is 18%, then the net price calculated will be = 1,000+ (1,000X(18/100)) = 1,000+180 = Rs. 1,180.
In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee Government in 2000. The state finance ministers formed an Empowered Committee (EC) to create a structure for GST, based on their experience in designing State VAT.
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