What is GST?
India is one country politically, but it is fragmented into small economic zones. The taxation system of the country has many loopholes that generate benefits to the individual as well companies. Basically, Goods and Service Tax is the biggest tax revolutionary change in the country that will have the great impact on the economic system. It will create a single market and remove the barriers between states. Also, it will break the current fiscal deficit barriers of the states.
GST is a destination based tax and burdens on the end consumers, now with the GST it would be easy to recognize that where goods and services are circulating. Eliminating the need for multiple indirect taxes, GST will reduce the overall tax burden along with increasing the individual as well as government revenue.
How does GST work?
Simply, there are three GST models to implement in the country. They are covered in the three terms say Central , Integrated, and State GST. Except to state GST model, other two models falls under the hands of the central government. Integrated GST is also known as the dual GST model as it hit the central as well as the state government. From registering the business to the taking GST credit, there is certain working procedure of GST that needs to be followed at any cost.
- GST identification number: GSTIN (Goods and Service Tax Identification Number) is a unique identification code to bring all indirect taxpayer under one authority. Getting GSTIN is the first step towards becoming a Goods and Service Taxpayer. All new Startups and businesses will fall under the ground of GST and the same will be responsible for getting themselves registered to obtain GSTIN code.
There is no requirement to take additional GSTIN for existing taxpayers having the registration under CENVAT or state Vat or central excise or service tax as they have the provisional period of 6 months to register themselves for conversion registration GSTIN from the GST portal. But, if you are having a centralized registration for as a service tax payer, you will not be eligible to fall in the mentioned provisional period as you will have to apply for a fresh registration. Enrolment to obtain GSTIN is completely free; there is no charge to get the GSTIN from GST portal.
- Interstate GST operations: Transactions within the state are simple and easy in this tax system. All and all, 50% of the tax payable will be credited to the account of central government and rest 50% in the state government. Same is applicable in the case of resale in the same state of the goods and services after taking account of credit of taxes. In all intrastate transactions, CGST and SGST will be applicable replacing indirect taxation.
- Intrastate GST operations: Intrastate transactions will be tax leviable under IGST model of Good and Service Tax. In IGST model, the taxpayer can take the complete credit of the tax paid from the central government, and state government compensates to the central government up to their part.
- Benefits of having GST: Not only from the economic perspective but also from the consumer perspective, there are countless benefits that will arise after GST implementation. It will avoid the regulation of “tax on tax” and a single tax rate will be inclusive of both state and central taxes. Ultimately, goods and services will be available at comparatively low prices to consumers. Complex scenario of both the taxes will reduce the burden of the legal authorities and it will create a transparency among taxpayers and tax receivers.
It will make Indian products and services more competitive in the domestic as well as international market. Apart from this, it is expected that the GST will increase the growth of the economy.
How does GST impact small business?
Business restructure will take place after formal implementation of GST. Though the direct impact will be on products and services having taxable in nature, but the economic impact of this step is not measurable yet. Not only small and medium enterprises but also giant businesses will get impacted by the GST. It will reduce the business cost and improve margins. GST will open the doors of the international market and face broader competition for small businesses. Benefits that small business can have after implementation of GST:
- Reduction in overall cost due to removing the effect of the tax on the tax or cascading tax.
- Products and services will be cheaper and more competitive.
- It will eliminate the complex taxation nature of indirect taxes and will bring more transparency in transactions.
- Increase in business revenue as well as the profitability due to the reduction in cost.
By and large, GST is one of the biggest economic reforms in the country, but it demands proper implementations. The biggest hurdle is the uniform rate across the country that is yet to be defined and accepted. But for sure, far from complexities, the idea of GST will change the financial as well as economic growth of the country affirmatively. Indian economy is already on the path of reforms after demonetization scheme. After this, the impact of GST will be amazing to see!
