GST regime is the conveyor belt that will take India to a unified tax regime with a mission to achieve ‘One nation: One tax’ principle. Tax reforms have been underway since liberalization keeping in mind the changing economic, fiscal and monetary landscape of the country.
Why GST replaced Value added tax?
VAT was introduced in 2003 to reduce the cascading effect of taxes and offset players in the supply chain for taxes paid at the input stage. Only the value added to the product at each stage was taxed. But it had a loophole as it offered an exit route for businesses to evade tax sourcing goods from one state, manufacturing it in another and selling it in yet another state. Honest entrepreneurs faced the brunt of multiple taxes and that too at diverse rates which affected their domestic and international competitiveness.
Hike in turnover limits for various businesses: Some of the interesting and praise-worthy features of the goods and services regime that will prove to be quite beneficial for start-up entrepreneurs are highlighted for the benefit of our core audience.
Ten lakhs exemption limit in terms of annual business turnover for firms engaged in production of goods and twenty lakhs for service providers. Since most start-ups in the internet era are service providers, this is obviously good news for start-ups. [ However, freelancer’s bloggers and professionals earning income outside the state or from outside the country in the form of foreign exchange will be taxed at 18% and they will have to enrol in GST, and the exemption limit does not apply to them.]
Ease of compliance as everything including registration of tax payers, submission of returns, payment of taxes and claiming of refunds can be done online. Three reports a month and one report at the end of the financial- year amounting to a total of 37 reports per state are needed to be filed online. [Special software’s have been introduced in the market and some websites have new algorithm embedded in them to help file GST returns with a few clicks. If your business runs in two cities, then a total of 74 reports need to be filed in the year.]
E-commerce firms can rejoice as faster deliveries will happen owing to removal of tariff barriers at the border of every state. More customers will explore online portals as delivery time-lines are expected to rise threefold comparable to the best in the world.
Say goodbye to unending wait for tax refunds: Yes, you can now get your returns and claims processed faster with this new online regime and ensure that valuable cash is not locked up as pending tax refunds.
Good news for service providers: Even stationery purchases and tax paid on office supplies will be allowed as deduction while calculating the final tax paid. Something which was long overdue to make service providers globally competitive.
Overall, it can be said that the long pending Goods and Services Tax will bring the much-needed transparency and ease of doing business that was absent before. Expect high ranks in business confidence index for India in the times to come!