Merits of GST in India: A Legal Perspective

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The ‘Goods and Service Tax’ short for GST, introduced by the government of India, came into effect on the 1st of April 2017. A monumental decision to bring all the indirect taxes levied, either state or center, under one umbrella. This new amendment not just streamlines the taxing process but also eases the burden on paying individuals as well as businesses. Before we go into the details and benefits of GST in India as a whole, let’s first understand how many types of taxes exist and why GST in india was necessary.

Prior to GST’s introduction, we primarily categorized the taxes into two sections.

  • Direct tax: Taxes implemented by the central government on individuals or businesses are classified as direct taxes. These mainly include income tax, corporation tax, etc.
  • Indirect tax: Taxes implemented by the state or center on certain services and taxes are classified as indirect tax. These mainly include Value added tax (VAT), Service Tax, Customs duty, etc.

The major issue encountered with the various taxes was the sheer number when it came to Indirect taxes. The title quote of GST ‘One nation one tax’ derives its meaning from the very work that it does. Eliminate the cascading effects of these indirect taxes. Now, while GST in India has been brought in as one platform for the entire nation. Its effects vary from industry to industry. To understand this better, we need to understand that the business sector in India is primarily divided into 4 segments. Whether it’s a manufacturing business like factories or distribution like e-coms, or retailing like dealers, or finally a service provider like IT services.

Relief to the manufacturing, distribution, and retailing sectors?

When it comes to the first 3, i.e. the manufacturing, distribution, and retailing business. The vast number of indirect taxes used to take a toll on the administrative segment and hindered workflow in some places. With the introduction of GST not only cuts out the infrastructure spending to the company. It also eases the compliance burden for the manufacturers as well as the distributors. With GSTR 9c applicability most prominent for this segment as the usual turnover goes beyond 2cr, the annual audit under the GST laws also helps cut administrative costs compared to the earlier audit system

This also helps negate the concern of skyrocketing infrastructure spending in import and export sections.

What’s in it for the Service Providers?

The service sector has been one of the most prominent segments. When it comes to taxation, with over 50% collection coming from here. From IT services to insurance providers and even banking segments, the major tax burden is borne by them. While GST in India eases the compliance burden on these sections of the business. One challenge that comes forth is that they will now have to register their respective business HQs separately in each state.

India has the second-largest population, and also houses the largest workforce in the unorganized sector. GST acts as a regulator for this by far, ignored market. Its introduction also affects multiple businesses that prior to GST did not fall in any tax bracket. With the new rules in place, industries like textile, automobiles, FMCGs see significant tax-saving benefits. The overall collection is also expected to grow exponentially as more and more businesses register.

The pharma segment will be hugely affected by the new rules as it not only levels the playing field for generic medicine manufacturers when compared to big pharma giants of the west but also helps the local health care tourism sector as the overall tax system is simplified to one portal.

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