Advantages of GST: Benefits for Small Businesses in India
When the Goods and Services Tax (GST) was introduced in July 2017, it did not just replace several tax statutes - it completely redirected India's indirect tax regime. For decades small shopkeepers, merchants and service providers worked with VAT, service tax, excise duty and state specific taxes, having to deal with different filing dates, types of documentation, as well as different penalties for disruption of any of them.
Suddenly, there was one system, one set of statutes, and the focus was primarily based on technology. For a local departmental store in Indore or a handicraft exporter in Jaipur, there was less uncertainty, greater transparency and perhaps consideration could be afforded to markets outside the local consumer base. With easier compliance and clearer tax norms, accessing financial support such as a Business Loan also became simpler, enabling these businesses to expand and compete on a larger scale.
What is GST?
Essentially, GST is a single indirect tax on the supply of goods and services in India. The concept is simple: you are only charged tax on the value added at each stage, and you can allow for any taxes paid on your purchases against taxes collected on your sales.
Let us say you operate a small furniture workshop. You would pay Goods and Services Tax (GST) when you purchase wood and fittings to manufacture the table. When you sell the table, you would collect GST from your customer, but you only pay the difference between what you collected from the sale, and what you have already paid on the wood and fittings. This ensures fairness and avoids the complexity of different levels of tax on the same product, as taxpayers only pay once for the value added.
Key Advantages of GST
1. Relief from the 'Tax on Tax' Dilemma
Before GST existed, there were instances when you had to pay VAT on top of excise duty or service duty, which meant that you paid a tax on a tax. A sweet shop purchasing sugar paid taxes there, but again when they sold their sweets. GST allows for an input tax credit system so that you can get credit for taxes paid previously allowing for continued cost control.
2. Compliance That is Actually Doable
Before, a small business would sometimes spend as much time filing monthly returns as they did serve customers. Different taxes meant different time-consuming forms and tax collection portals. One return system under GST allows for everything with much being online. Even a café owner in a small town could log in, upload, file and be done with it without running the risk of taking an entire day off to file tax paperwork.
3. Higher Threshold for Registration
If your annual sales are less than ₹40 lakh for goods (and ₹20 lakh for services), you do not need to register for GST. For example, consider an ultra-micro business, such as a local tailoring shop or a neighbourhood grocery store. You can operate without additional compliance once sales increase.
4. Composition Scheme for Small Players
Not every small business owner wants to do the calculations for GST on a monthly basis. The Composition Scheme allows eligible companies to pay a flat, lesser tax rate on their turnover and file returns once every quarter. For example, a small stationery shop or a small catering service means that you would do less paperwork and have more time for your work.
5. Input Tax Credit Boost
For example, when a boutique purchases fabric from Surat, the GST paid on that fabric is deducted from the GST owed on sales. This leads to improved cash flow and reduces the amount of money tied up in taxes.
6. Smoother Logistics and Supply Chains
Before GST, transporting goods between states added bottlenecks like queues at checkpoints, paying entry taxes and losing time, that are now gone. Transporters now cover distances faster, and businesses save on warehousing costs.
7. One National Market
Uniform tax rates mean a business in Kerala can sell to customers in Delhi without grappling with a new set of tax rules. This creates room for small businesses to expand beyond their home turf.
8. Friendlier for Start-ups
For new entrepreneurs, GST’s single registration and online processes mean they can set up faster. That is one less barrier for someone launching an innovative idea or niche service.
Also Read : GST Rates in India: A Complete Guide for Businesses
Benefits of GST for Small Businesses in India
For small businesses, GST brings a mix of operational and financial benefits:
- Better cash flow with input tax credits reducing the net tax burden.
- Lower compliance costs because filings are online and standardised.
- Eligibility for incentives and government schemes linked to GST.
- Simpler interstate operations, making expansion easier.
- Reduced paperwork, freeing up time for business growth.
- Greater transparency, which can improve supplier and customer trust.
- Better access to finance, since GST records can support loan applications, including those from Godrej Capital.
Challenges and Considerations for Small Businesses
No tax reform is perfect, and GST has its learning curve:
- Filing returns more often once you cross the exemption limit.
- Understanding GST rate slabs and how your products or services fit in.
- Investing in basic accounting software or training.
- Avoiding penalties for late or inaccurate filings.
- Managing monthly tax payments while waiting for client payments.
- Dealing with occasional glitches on the GST portal.
Pro tip to manage these: Use the Composition Scheme if eligible, set up automatic invoices and filing if you can, engage a part-time accountant or tax consultant. If cash flow is an issue when you are needing to pay GST, consider using short-term finance while you wait for payments to arrive.
Also Read: GST Registration Process – How to Apply Online
How Godrej Capital Offers Help in Managing GST Compliance
GST compliance is less about the forms that need to be completed and more about not disrupting the flow of business through cash flow delays. To ensure you reap all its benefits, we offer:
- A GST compliance business loan to help maintain working capital.
- Short-term funding options to keep up to speed with monthly GST payments.
- Flexible repayment options consistent with your revenue.
- Fast, digital application process to access your funds when you need them.
- Support and experience to keep you compliant and legitimate to avoid penalties.
With the right financial support, you have options for satisfying compliance requirements while serving customers and growing your business.
Also Read: GST State Code List and Jurisdiction Details
Conclusion
GST has changed the way businesses work in India. For small businesses, the benefits are more than the challenges if you take some time to understand the system. With support from companies like Godrej Capital, you can stay GST-compliant, manage your cash flow better and focus on what really matters running a successful business in a fair and competitive market.
Apply now for a Business Loan.
FAQs
Q.1. What is the biggest advantage of doing GST for small businesses?
A. It eliminates the cascading tax effect, simplifies compliance and allows for input tax credits, which reduces your overall tax liability.
Q.2. How does GST prevent cascading taxes?
A. You can deduct any GST you paid for purchases from the GST you owe on sales. This means you are only taxed on the value you add.
Q.3. What is the GST Composition scheme?
A. This is a simpler option for businesses with a turnover of up to ₹1.5 crore, which allows you to pay GST at a fixed lower rate, and allows you to file quarterly returns instead of monthly.
Q.4. What challenges can I expect?
A. You will need to get used to more frequent filings, learn how to classify products, and manage cash flow for monthly payments. With the right tools and advice, these challenges are manageable.
Q.5. How do I claim input tax credit?
A. Ensure that your supplier has filed their GST returns, paid the applicable tax, and that you maintain proper invoices for all purchases.
Q.6. Can GST help my business grow?
A. Yes. By removing barriers to interstate trade, increasing transparency, and lowering certain costs, GST makes it easier for small businesses to expand.
Disclaimer:
The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.
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