The Goods and Service Tax Act was recognized as the biggest tax reform when it was first implemented in India. The GST Act seeks to reduce the amount of indirect taxes. It was first stated in the Budget Speech of February 28, 2006, and after being passed by the Parliament on March 29, 2017, it became effective on July 1, 2017. Following the implementation of the Goods and Services Tax (GST), the government received multiple remarks about some benefits and drawbacks of GST return. One of the major benefits of GST return is that it reduces the number of indirect taxes. On the other hand, one of the main drawbacks of GST return is that it increases the overall costs.
What is GST Return?
GST return is a document that will comprise all the details of sales, purchases, tax collected on sales (output tax), and tax paid on purchases (input tax). Once you file GST returns, you will need to pay the following tax liability (money that you owe the government).
Benefits of GST return
1. The removal of several different taxes
Since the implementation of the GST, there have been less limitations imposed on the different forms of taxes that may be levied on goods and services. This includes the central excise tax, sales tax, service tax, luxury tax, and special additional duties imposed by customs, among other taxes. As a result of GST law, there are not too many tax assessments imposed on different goods and services.
2. Reducing the cascading effect
The main advantage of GST return is reducing the cascading effect, sometimes described as removing a tax on top of another tax. There was no way to balance the service tax paid on input services against the Value-Added Tax (VAT) on the output before the introduction of the Goods and Services Tax (GST). The GST design seeks to reduce the total tax burden placed on end-users by enabling Input Tax Credits across a wide range of goods and services.
3. Ease of doing business on both international and national levels
The burden of reporting indirect taxes has been reduced since the implementation of GST. Earlier, almost every business experienced significant difficulties with excise customs, VAT registration, dealing with tax officials, and other similar issues. A growth in exports over the past couple of years has given GST a competitive edge in the International market for goods and services produced in the country.
4. The management and control of unorganized business
The textile and construction sectors of the country were previously disorganized and unsupervised but now they are subjected to regulation and accountable for their activities. The Goods and Services Tax (GST) is an initiative that tries to make the process of supervising online payments and regulatory compliance easier. Input Credit may only be acquired if the provider accepts the price; this assures that the regulated industries are held accountable for their activities. A single portal would be used for all online communication under the GST system, which would limit engagement with tax authorities.
5. Economic efficiency
GST which will eventually promote long-term economic growth and efficiency is unaffected by business models, operating procedures, geographic location, or organizational structure. The establishment of GST has raised the ratio of taxes paid to GDP in India. GST ensures that overall working conditions will stay stable and equitable. It unifies the national market and clears up common misconceptions about the economy. As a result, there will be more voluntary compliance and the cost of submission will go down.
6. Higher limit for registration
Earlier, under the VAT system, every company with a turnover of more than INR. 5 lakhs (in the majority of states)was required to pay VAT. This limit differs from state to state. Further, service providers whose turnover is less than INR 10 lakh were exempted from paying service tax. However, under the GST regime, this limit has been raised to INR 20 lakh, exempting many small business owners and service providers.
Drawback of GST return
1. SMEs will face a higher tax burden
In the previous tax system, only businesses with annual sales of more than Rs. 1.5 crore were obligated to pay excise duty. This condition is no longer necessary. In the new tax
system the business with an annual turnover of more than INR 40 lakhs requires to pay tax.
2. Compliance Cost
Business filing three tax returns each month contributes to high compliance under GST. Companies must register with GST in each state where they want to conduct business in order to continue operating. SMEs and other businesses have experienced significant stress as a result of the procedure for registering with the regulatory body, issuing invoices that comply with the GST, preserving digital records, and GST returns filing.
3. An increase in overall expenses
After the implementation of GST, businesses are required to update their accounting software to either an ERP system or GST-compliant software in order to continue operating. On the other hand, the cost of acquiring GST-compliant software, setting it up, and training staff on how to use the software can be costly. Moreover, the costs of operating a business have increased for small businesses as more businesses are made obliged to hire tax professionals to comply with the Goods and Services Tax.
We will conclude by saying that the GST return filing process will have multiple, long-lasting benefits and drawbacks for the Indian economy. But, all parties involved have enthusiastically embraced the tax reform.