The Good and Services Tax (GST), launched by the Government of India in July 2017, has revolutionised the way the business is carried out and the way a tax system works. The GST has simplified the return filing process for businesses and harbingered an era of accountability and transparency. This, in turn, has also paved the way for eliminating tax-related corruption to a large extent.
GST also holds a big promise for taxpayers to streamline their business and accounting processes, and get the maximum tax benefits. The only caveat being businesses must be punctual and precise in following the procedures laid down by the GST Council. Let us explore how and why GST is proving to be a boon for small businesses in India.
• Leveraging the benefits of going online: A robust online portal for registration, payment, and filing of returns facilitates smooth GST compliance. The portal provides for flexibility and freedom to taxpayers to rectify and refile their returns in case they discover any errors after filing. The government has taken measures to enhance the ease of tax payment by decreasing compliance requirements for direct tax payments and moving more critical payments online.
• Making compliance simpler, cheaper: GST brings in simplicity while decreasing the cost of compliance – a boon for micro, small and medium-sized enterprises (MSMEs). For the MSMEs, GST exemption limit has been raised to an annual turnover of ?40 lakh from the erstwhile ?20 lakh. Businesses with a turnover of up to ?1.5 crore also enjoy a composition scheme wherein they pay only one percent flat rate and file only one annual return. Service providers with a turnover of up to ?50 lakh can pay GST at a rate of six percent instead of 18 percent. Over 35 lakh enterprises stand to gain from these business-friendly initiatives. The government is also working on an initiative for allowing more than 90 percent of GST payers to file quarterly returns.
• Robust audit system: The GST policy emphasises on a strong audit mechanism for ensuring and evaluating compliance by the taxpayer. It calls for taxpayers to undertake self-assessment of their tax liability and pay tax without the intervention of the Income Tax department. Every GST registered taxable entity, whose turnover during a financial year surpasses ?2 crore, is supposed to get their accounts audited by a CA or cost accountant. This audit will check the correctness of information provided, taxes settled, refund claimed and input tax credit (ITC) availed by the taxpayer.
• Ease of doing business: GST has been the key catalyst to simplifying the indirect tax system in India. While eliminating the cascading effect of the tax, GST has done away with several pre-existing taxes like Central Excise Duty, Service Tax, Countervailing Duty, Value Added Tax or Sales Tax, Central Sales Tax, Octroi and Entry tax, etc. Thus, it has brought ease in doing business for all. Moreover, as filing returns happens online and inter-state movement of goods and services have become quicker, it has become streamlined and trouble-free.
Tax for entry into other states, presence of check posts and vehicular queues are things of the past. Standardised tax structures across states and Union Territories have decreased compliance expenses and got rid of a variety of taxes.
The GST rates on goods and services have been put into five slabs – nil, 5 percent, 12 percent, 18 percent, and 28 percent. These have been done based on the pre-GST aggregate indirect tax incidence both of Central and State taxes, including embedded taxes, which are incorporated in GST to ensure revenue neutrality. Since there are no multiple taxes imposed by multiple governing bodies, some imposed even at the city level, the accuracy levels of data filed for returns have seen a vast improvement.
• Improved transparency, taking care of future complications: By ensuring transparency, the GST regime has paved the way for minimising frauds, tax avoidance, pestering of taxpayers and corruption. It has replaced a multi-dimensional, complex indirect tax system with a simple, transparent and technology-centric tax regime, leaving no room for ambiguities. The result: ease for the taxpayer and increased revenues for the government
• Disruption, but for a better future: There have been disruptions after the GST regime started, which were expected of a reform of such a mammoth scale. But benefits for businesses are inevitable in the long term, thanks to the easier route to tax compliance, which is devoid of the multiplicity of taxes, complexities and corruption.
• Digitalisation, giving businesses greater scope to expand: The implementation of GST has brought MSMEs under the ambit of digitalisation, which has helped fast-track the digitisation process in India. Digitalisation leads to transparency with supplementary benefits, such as reduced frauds and chances of error. This has resulted in an eco-system that is conducive to business growth.
• Access to markets across India: As the new GST regime has done away with different taxations applicable for transacting business at different states, it has removed the tax-related hassles and complexities that businesses with an all-India footprint had to face. With GST, businesses have now easy access and freedom to conduct businesses at any location across India without the fear of paying multiple taxes and cumbersome transaction processes.
• Seamless, universal viability of ITC: New GST rules have paved the way for a systematic mechanism to provide ITC between excise duty and service taxes. This ensures a stronger mechanism for crediting input taxes applicable on the outputs. Previously, central excise duty was levied at the manufacturing stage, which poured into the final retail value. The state VAT was also collected on the excise duty paid value.
The best foot forward
Even as GST assures a range of benefits, its true value can be accrued when companies invest in software solutions for complete business process automation. There exist a few good GST-compliant software products today that automates a company’s accounting to billing to GSTR filing processes in less than three minutes.
Internationally acclaimed systems play a crucial role in streamlining accounting processes, billing, bill-wise/ledger-wise data, generating balance sheets and most importantly generating GST compliant invoices. Also, the responsibility of reconciliation is on the taxpayer, who has to continuously follow up with the vendor and also, maintain his records precisely. An advanced GST ready software system can also streamline the reconciliation process.