How GST Will Impact Your Small Business?

February 9, 2020
Harshna Paroha

The MSME sector embodies the heart of the Indian economy, contributing not only to a vast portion of GDP but also to employment. It’s no wonder that this sector is special to the government with much effort constantly being made to improve and encourage its development. One such effort was the implementation of GST.  

”The old India was economically fragmented, the new India will create one tax, one market for one nation” – Late Finance Minister of India, Arun Jaitley stated when GST was announced. 

On 1st July 2017, the government of India launched the Goods and Service Tax (GST) right after demonetization as part of the ‘one-nation, one-tax’ regime. The question that stuck on the minds of many small and medium-sized business owners was “How will this new tax regime will affect my business?” Although this tax was levied to broaden the tax bracket so as to increase the number of taxpayers in the country, in the long run, small businesses are set to benefit from this regime.

Impact of GST on MSMEs

  • Registration: If your business is seeing a turnover above the threshold limit of Rs. 40 Lakhs* (Rs. 10 Lakhs for North-Eastern States, J&K, Himachal Pradesh and Uttarakhand) you will need to register under GST. Additionally, all GST registrations must be completed online.

Impact: Registering your business online will help you get your GST certificate of registration on time with minimal bureaucracy interface. However, If your business delivers goods to 5 states, you will be required to register for GST in those 5 states too. Since all registration must be completed online, you may find the transition difficult if you are not familiar with the technology. Further, you may need to dedicate additional resources to help you with the complexities of online registration leading to additional cost.

Tip: There are many websites such as ClearTax.com that provides in-detail steps on how you can register your business online. It gives you complete information on the documents you need for the process, registration fee and more. 

  • Maintenance of Books of Accounts and Payments: GST requires you to maintain an electronic cash, credit and e-liability ledger with the tax department. You are also required to maintain all your books of accounts at your place of business.

Impact: The new tax will require you to adopt digital technology, which will eliminate old-school accounting methods that are prone to errors. Although the requirement to maintain electronic ledgers will increase transparency, accounting may become complicated. To maintain books of account in every state involved in the supply of goods and services, you may need to hire an accountant or seek the services of 3rd parties if you are unfamiliar with technology, therefore increasing the GST compliance cost for you.

Tip: As a small business owner, you can use this opportunity to digitize your business. You’ll find that adopting new digital technology will not only help you maintain electronic ledgers conveniently but will also bring about business efficiency and reduce the burden of dependency on 3rd party resources. You will also get instant access and more visibility into your business with digitalization.

  • Returns and Refunds: Under the new tax regime, 2 returns must be filed every month and refunds can only be claimed after filing returns. All GST claims must be filed within 2 years from the relevant date. Additionally, under the new tax regime 36 returns must be filed in a fiscal year. The tax regime also states that refunds have to be sanctioned within 60 days from the receipt of the claim, after which there will be a 6% Interest on the withheld refund. 

Impact: Claiming refunds are now easier with quick turnaround time. The entire claim process can be done online through the GST Portal. Also, timely GST refunds will help you facilitate trade through the release of blocked working capital funds. However, the need to file numerous returns in a fiscal year and close the books of accounts on a monthly basis can be very time consuming and tedious for you. 

Tip: You must note that neither you nor your customers can claim for a refund until you file your returns every month, furthermore, if you miss filing a single return, you will be fined Rs.100/- a day and your compliance rating on the GSTN portal will also reduce. Therefore you must ensure that you comply with the return and refund regulations of GST.

Conclusion:

GST was rolled out as a means to bring every indirect form of tax under one roof. Impact of GST will vary from industry to industry and it’s quite pervasive, that a country-wide tax reform such as GST to have a mixed opinion. One of the prominent benefits of GST is definitely the tax neutrality that the SMEs enjoy. However, reduction in duty threshold is a major concern among MSMEs in regards to the GST bill. Under the existing excise tax, no duty is paid by a manufacturer having a turnover of less than rupees 1.50 crores. But, post GST implementation, the exemption limit will get significantly lowered. To learn more about how your business can benefit from GST read our blog on the Benefits of GST. 

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