The Goods and Services Tax introduced a consolidated form of taxation in India, reducing hassle for business. As per a December 2020 report, around Rs.1.15 lakh crore was collected as GST revenue from various sources. However, before assessing the importance of such taxes, understanding ‘what is GST’ and its importance is crucial for every entrepreneur.
Importance of GST for businesses
Understanding the ways GST impacts a business can aid one to better utilise its benefits. Here are some reasons why GST is crucial for businesses operating in India today.
A streamlined process for new businesses
Part of knowing what is GST is to appreciate the fact that it has made life easier for start-ups and new firms. Previously, such businesses would need to opt for VAT registration, whose process differed significantly from one state to the next. The Goods and Services Tax introduced a standardised method of registration, which remains the same throughout India.
An entrepreneur needs to only find out how to register for GST online, arrange necessary documents and submit the same to complete the procedure.
Affordability and increased exemption limit
When talking about the top advantages and disadvantages of GST in India, one cannot fail to point out the tax’s benefits for small businesses. Firms with a turnover of less than Rs.40 lakh a year do not need to collect GST from customers. Furthermore, they can operate without GST registration. Therefore, this new regime offers increased reprieve to small and medium-sized enterprises.
Composition scheme benefits
Part of understanding what is GST involves gauging the composition scheme associated with it. Under this scheme, GST registered companies with an annual turnover of up to Rs.75 lakh can pay this tax at a flat rate of 1%. Doing so simplifies and standardises the tax payment process for companies.
Reduction in logistics expenses
Businesses that rely on the transport of goods across borders also benefit tremendously due to GST registration. Logistics cost has dropped by around 20% while also leading to greater transparency in the entire process.
GST receipts act as important business documents
Whether it is a small business or an established firm, every enterprise falls short of working capital at one point or another. At such a time, companies often rely on business loans from reputed lenders to maintain daily operations and pay workers’ salaries. Today, GST documents have become an essential part of acquiring such credits.
Financial institutions would want to verify these documents to check whether your firm has paid all its applicable taxes. Thus, apart from its other benefits, GST registration is also crucial when a business is looking to avail credits.
Businesses looking to acquire such funds may also check for pre-approved offers from financial institutions like Bajaj Finserv. Such offers can reduce loan processing times on financial products, such as business loans, personal loans, and others. You can check your pre-approved offer by providing a few basic details.
To enjoy the above-mentioned benefits, it is crucial to acquire more knowledge about the tax regime.
Know more about what is GST and its types
GST is a consolidated form of taxation, which began under the one-nation, one-tax mantra. Previously, businesses and citizens had to service different taxes, such as VAT, purchase tax, octroi, central excise, customs duty and many more. With the introduction of the Goods and Services Tax, the Government abolished all of these taxes in favour of a unified taxation system.
GST is divided into four types, depending on who levies the same. These are as follows –
- SGST or State Goods and Services Tax – As the name suggests, this tax is levied by a state government on the transportation of goods within the state’s boundaries.
- CGST or Central Good and Services Tax – Again, this tax is applicable on intra-state good transportation. However, the central government levies this particular form of GST.
- IGST or Integrated Goods and Services Tax – This particular GST is applicable on inter-state transport of goods and services. Moreover, exports and imports also draw this form of taxation.
Lastly, UGST is similar to SGST, but it is charged by Union Territories instead of state governments. Nonetheless, one should know more about this tax’s functionality. Business owners must understand the different advantages and disadvantages of GST as well.
Apart from asking ‘what is GST,’ a business owner must also know how to collect and service this particular tax. The Goods and Services Tax has consolidated more than 17 taxes, ensuring ease of tracking and payment. It is the standardization, which has primarily benefited all citizens of India.