42.50 million is the estimated number of SME’s (small and medium sized enterprises) existing in India today!
Source
It is mandatory to register for Goods and Services Tax or GST for small businesses who are having an annual turnover of more than 40 lakhs (Rs. 20 lakhs for businesses in some special category states). This mandate covers a large portion of the number of small businesses existing today in the country.
GST has enabled small businesses to prevent paying a certain part of the tax they owe on their outputs. This they do by claiming the input tax credit. GST for small businesses was brought to simplify the complex indirect tax system which earlier existed in different states of the country with different rules. However, after introducing the GST system for businesses, mixed results have been obtained. Let’s have a look at the positives and negatives of GST on small businesses.
Benefits of GST for small businesses
There are a number of benefits that small businesses have enjoyed from enabling GST. Have a look at a few of them:
1) Better cash flows:
As told earlier, there is an input tax credit system that the GST system provides. This helps small businesses to cut down on taxes, have better revenue, and hence better cash flows. Eventually, they can reinvest their savings to expand the business.
2) Created a unified market:
GST has removed a number of indirect taxes that existed in different states of India. These taxes caused a lot of hurdles in the expansion of small businesses interstate wise due to different rules and regulations. On the other hand, GST is the same taxation system across the country. This has made it easier for small businesses to expand their businesses in different states.
3) Boosted growth:
The tax burden on small businesses is lowered with the arrival of GST. Hence, small businesses can now compete with bigger firms effectively.
4) Increased transparency:
Streamlined tax structures of GST have greatly reduced space for tax fraud opportunities. With this, a business environment has been created which offers fair competition between businesses and increased market trust.
Downsides of GST for small businesses
GST rules on small businesses were built to create positive impacts but there have been some of their downsides too. Such as:
1) Difficulty in adapting to the GST process:
Using the GST system effectively requires technical knowledge that most small businesses lack. This results in mistakes and non-compliance which results in heavy fines.
2) Administrative problems:
For small-sized businesses, it is necessary to file regular tax returns. This demands keeping detailed track records of all their sales and other payments which is a difficult task. It increases the administrative burden on small businesses.
3) More compliance costs:
GST for small businesses has experienced a rise in compliance costs. Small businesses have to file GST on a monthly/quarterly basis which consumes a lot of time and money. They are pressured in the process which decreases their competitiveness and pushes them behind bigger firms who file their GST once a year. Undoubtedly, it increases the unfortunate compliance costs as well.
Clearly, GST for small businesses, when managed with a GST billing app, has its pros and cons. However, small businesses need to follow GST compliance practices religiously as it brings a lot of opportunities for them to expand their business. It is expected that with time, if small businesses work on the technicalities needed to better handle the GST system, issues like difficulty adapting to the GST system and others will be eliminated. Moreover, with the updated GST laws, the present disadvantages of the GST system are also expected to be removed which is good for business. Keep visiting our blog page for more such information.