Impact of GST on Small and Medium Enterprises (SMEs)
The Goods and Services Tax (GST) represents a substantial overhaul of India's indirect taxation system. It was introduced to create a single, unified market by eliminating the cascading effect of taxes and streamlining the entire taxation process. GST has significantly impacted Small, and Medium Enterprises (SMEs) in India, and this article aims to highlight how it has impacted these businesses.
Impacts of GST on SMEs
GST has made starting a new business more accessible for SMEs. With GST, registering and complying with tax laws has been simplified. SMEs can now register for GST online, saving time and effort. Earlier, businesses had to deal with multiple tax regimes, which complicated the process.
GST has made the entire process of taxation simpler for SMEs. Businesses have to deal with multiple tax regimes, resulting in a complex tax structure. The GST portal provides businesses with various tools and resources to help them file their returns and make payments.
Reduced logistics cost: This has also helped reduce logistics costs for SMEs. Earlier, businesses had to pay multiple taxes at different stages of the supply chain, which added to the cost of goods and services. With GST, these taxes have been replaced with a single tax, which has reduced the overall cost of logistics.
This has also eliminated the distinction between goods and services, making it easier for SMEs to comply with tax laws. Earlier, businesses had to deal with different tax rates for goods and services, which complicated the compliance process. The tax rate is the same for products and services - making it even easier for businesses to comply with GST.
It has also increased the threshold limits for new businesses, making it easier for small businesses to comply with tax laws. Businesses with turnover of up to INR 40 lakhs are exempt from GST, which has provided relief to small businesses. Earlier, businesses with a turnover of more than had to pay GST.
The Entire Process Of Taxation Becomes Simpler
GST simplifies the tax compliance process for SMEs. They no longer have to deal with multiple taxes and can pay a single tax under the GST regime. The GST portal provides various features like GST return filing, payment of taxes, and registration, which makes it easier for SMEs to comply with GST.
In addition to simplifying the compliance process, the GST portal also provides various features that make it easier for SMEs to comply with GST. These features include GST return filing, payment of taxes, and registration. The GST portal is user-friendly and provides businesses with various tools and resources to help them file their returns and make payments. An SME cloud accounting software makes it seamless for small and medium businesses to file GST, and even generate GST-compliant invoices. Overall, GST has significantly improved the tax compliance process for SMEs in India, making it easier for small businesses to comply with tax laws.
Reduced Cost Of Logistics
GST has reduced the cost of logistics for SMEs as it has eliminated the cascading effect of taxes. Under the GST regime, the tax paid on inputs can be claimed as a credit, reducing the production cost for SMEs.
In addition to reducing the cost of production, GST has also helped to reduce the cost of logistics for SMEs. Earlier, businesses had to pay multiple taxes at different stages of the supply chain, which added to the overall cost of goods and services. With GST, these taxes have been replaced with a single tax, which has reduced the overall cost of logistics. This has helped to make the supply chain more efficient and has made it easier for SMEs to compete in the market.
The Difference Between Goods And Services Will Be Eliminated
Under the GST regime, the distinction between goods and services has been eliminated. This helps SMEs as they no longer have to pay different taxes on goods and services.
In addition to simplifying the tax structure, eliminating the distinction between goods and services has helped create a single, unified market in India. This has made it easier for businesses, especially SMEs, to expand their operations and reach a more extensive customer base. The elimination of the distinction between goods and services under the GST regime has positively impacted SMEs in India.
Increased Threshold Limits For New Businesses
GST has increased the threshold limits for businesses to opt for the composition scheme. Under the composition scheme, businesses must pay a fixed percentage of their turnover as tax. This helps small businesses as they have to pay a lower tax rate.
The threshold for businesses to opt for the composition scheme varies by state and business type. Still, it is generally around $100,000 per year. Businesses that opt for the composition scheme file periodic returns and pay tax at the fixed rate but cannot collect GST from customers or claim the input tax credit. The composition scheme is optional, but once a business opts in, it can only opt-out at the end of the financial year.
Limitation Of GST
- Complexity: GST has multiple tax slabs and different rules for different sectors, which can be complex for SMEs to understand and comply with.
- Compliance burden: The compliance burden under GST has increased for SMEs as they have to file multiple returns and keep detailed records of their business transactions.
- Working capital blockage: The GST regime requires businesses to pay tax every month, which can lead to a blockage of working capital for SMEs.
Conclusion
GST has had a mixed impact on SMEs. On one hand, it has made starting a new business easier and simplified the tax compliance process. On the other hand, it has increased the compliance burden and can lead to a blockage of working capital for SMEs. Overall, the GST regime has benefited SMEs as it has reduced the cost of logistics and eliminated the distinction between goods and services. So if you’re puzzled about the GST filing procedure, an SME accounting system can help you smoothly file the same, ensuring you don’t miss the deadlines.
