Amalgamating excise duty, VAT, entertainment tax, state and local tax, surcharges, octroi and others, Goods and Service Tax (GST) has emerged as the most extensive tax reform independent India has ever seen.
The impact of GST has been large scale affecting import to export, manufacturing to trading. Numerous websites have started displaying a GST calculator that will make its calculation simple for business owners.
When it comes to small businesses, the influence of GST has mostly been positive. Small businesses with an annual turnover of more than Rs.5 Lakh only have to pay a VAT registration fee.
Businesses operating in the States and Union Territories whose annual turnover doesn’t cross Rs.20 Lakh and those serving in the Special Category States whose yearly turnover doesn't pass Rs.10 Lakh are exempted from the GST.
For businesses that have an annual turnover of less than Rs.1.5 Crore in the States and Union Territories and Rs.75 Lakh for the Special Category States, the government has implemented a Composition Scheme.
Businesses under the Composition Scheme have to pay tax themselves and cannot charge the same from their customers. They have to issue a Bill of Supply which shall include “composition taxable person, not eligible to collect tax on supplies”.
They have to pay GST on supplies, reverse charge, and on goods purchased from an unregistered retailer.
GST Composition Scheme rates:
For goods manufacturers and traders – 0.5% CGST + 0.5% SGST = 1% GST
For restaurants that don’t serve alcohol – 2.5% CGST + 2.5% SGST = 5% GST.
Benefits of GST on small businesses:
GST brings the following benefits to small businesses –
Reduced logistics expenses
Eliminating Central Sales Tax (CST), comes the Integrated Goods and Services Tax (IGST) that will be levied on sales between states for which a GST calculator can prove useful. The IGST decreases the transportation cost for businesses considerably by removing check-post and border taxes.
CRISIL estimates that the logistics cost made by goods manufactures will reduce by about 20%.
No multiple VAT registration
Previously, all businesses had to be registered for VAT with the local sales tax department if they operated in multiple states. Owing to different tax regulations prevalent in each state, business owners had to register themselves with each and pay processing fees in each case also.
GST removes the need for multiple registrations and implements uniform regulations for all states. As of now, businesses that want to operate in multiple states only have to register for a GST Identification Number (GSTIN), which they can do online.
No segregation between goods and services
Businesses that took part in delivering both goods and services had to calculate VAT and service taxes separately.
GST eliminates the segregation between goods and services; business owners can now use a GST calculator for determining their tax on the total production.
Reduced number of compliance
Before the implementation of GST, each tax had its own compliance. For example, excise duty required monthly filing; VAT filing varied with states; for service tax, the returns filing was quarterly for a proprietorship/partnership and monthly for a company/LLP.
With GST, businesses have to file only 11 returns altogether in a year.
Drawbacks of GST on small businesses:
GST brings the following drawbacks to small businesses -
Mandatory registration for e-commerce sellers
All e-commerce companies need to be registered under GST, no matter their volume. However, these retailers selling their products on e-commerce sites and delivering goods across the nation no more require a VAT registration.
Mandatory registration for export/import
Even a business having an annual turnover lower than Rs. 20 Lakh will require registration as a regular dealer for exporting/importing.
These included some of the points on how small business can make GST work for them. Owing to the presence of GST calculator, they can quickly calculate their outstanding taxes as well.
The calculator can also be useful when opting for a business finance, as it comes with an additional 18% GST.
I am a Financial Advisor with an experience of more than 7 years.I had worked for top Financial Firms in India and has been a visiting faculty at many reputed institutes. I have done my post-graduate in Business Economics, from Princeton University, USA. During my free time, I teaches children from marginalised sections of society and also work on my Blog.