GST: Examining its Impact on Small & Medium Businesses
GST is now all ready to be rolled out on July 1. It is no more a notion but a reality. Goods & Service Tax is a unified tax system which would subsume all the indirect taxes. An updated GST bill was passed in the Lok Sabha including quite a few changes to the earlier revised Goods & Service Tax model law released in November 2016.
GST basics for SME’s
The average turnover for SME’s in India is around Rs 50 Lakhs. Every person having a turnover of more than Rs 20 lakhs and 10 Lakhs for the northeastern states has to register compulsorily under GST.
Goods & Service Tax would be deducted in three parts: CGST, SGST, IGST. The table below depicts the possible situations in case of a domestic sale.
|Person A from Bihar sells goods/services to Person B in Gujarat||IGST|
|Person B from Gujarat sells goods/services to Person C in Gujarat||CGST, SGST|
|Person C from Vadodara sells goods/services to Person D in Surat||CGST, SGST|
GST has declared 5, 12, 18 & 28% as the tax rates that would be charged on the goods/services. Some basic essential goods/services would be exempted/nil rated. CGST and SGST would be charged in ratio of 50:50.
In above table, let’s assume:
A sold shoes to B and tax rate applicable is 18% then IGST would be applicable@18%. C sold shoes to D then CGST would be applicable at the rate of 9% and SGST would be applicable at the rate of 9%.
Impact of GST on SME’s
Currently, many SME’s opt for the VAT composition scheme. A composition scheme has been introduced under Goods & Service Tax as well.
Taxpayers only selling goods (not services) having a turnover of less than Rs 50 lakhs can opt for composition scheme under Goods & Service Tax. Restaurant sector is the only service sector that’s allowed to register for composition scheme.
SME’s registered in composition scheme would need to file only 5 returns (GSTR-4 quarterly, GSTR-9A annually) throughout the year compared to the 37 returns to be filed by SME’s not opting for composition scheme. The rates declared for the composition scheme holders under GST is 1% for manufacturers, 2.5% for restaurant sector and 0.5% for others.
One drawback of registering under composition scheme is the non-availability of input tax credit. Small medium enterprises will benefit from the streamlining of the tax process and subsuming of CST/VAT/Service tax.
Impact on E-Commerce
A clause has been inserted under GST law for all the e-commerce aggregators. E-commerce aggregators are made responsible under the Goods & Service Tax law for deducting and depositing tax at the rate of 1% from each of the transaction. Any dealers/traders selling goods/services online would get the payment after deduction of 1% tax. It is a significant change which would increase a lot of compliance and administration cost for online aggregators like Flipkart, snapdeal, amazon etc. They would need to deposit the tax deducted by the 10th day of the next month.
All the traders/dealers selling goods/services online would need to get registered under Goods & Service Tax even if their turnover is less than 20 Lakhs for claiming the tax deducted by aggregators.
Mr. Vinay Dua is a trader who sells his ready-made clothes online on Amazon India. He receives an order for Rs 1,00,000. Amazon would therefore need to deduct 1% tax (TCS) on the amount of Rs 1,00,000.
TCS deducted from the traders/dealers by Flipkart, Amazon, Snapdeal etc can be claimed by them while filing their GST return. Traders/dealers would now need to have a computerized serial number invoicing system under Goods & Service Tax.
Conversion from VAT/Service tax to GST
Every person registered under previous laws like VAT/Service tax has to complete the migration to GST.
- Part A of Form GST REG-01 is filed for registering under GST with PAN, mobile number, email id and state or union territory.Once the verification is completed, then few details are to be furnished in Part B of Form GST REG-01
- Form GST REG-02 is an e-acknowledgement for the application.
- A Proper officer would ask for missing details in Form GST REG-03 within 3 days.
- An applicant will need to file Form GST REG-04 with the details asked by the proper officer.
- A Proper officer can reject an application if necessary documents were not furnished.
- An application would be considered deemed approved if no action was taken by proper officer within 3 days from filing Form REG-01 or 7 days from filing Form REG-04.
- A unique identification number GSTIN would be provided to the applicant.
It would benefit E-Commerce companies and SME’s in dealing with the burden of compliance of taxes by having a single fully online tax compliance system. This will be a landmark moment for India’s taxation structure, and will pave the way for a hassle free and efficient future of business.
Are you a CA looking to keep yourself up to date on GST? Then please register with us for the early access to our ClearTax GST platform.
Rajesh Kothandaraman is a tax consultant and Indirect Tax Expert (Goods & Service Tax) at ClearTax. He closely follows economic and tax policy changes and writes extensively on topics of indirect taxation, and is a subject matter expert on GST.