GST Impact On Businesses In India

GST Impact On Businesses In India

GST is a single tax on the supply of goods and services, which will make India a unified common market. GST will replace all current indirect taxes with a multi-point consumption tax.

The introduction of a GST is certainly going to have a huge impact on the nation as a whole, which will include small and medium businesses (SMBs) and startups, as well as big enterprises. All these will, in turn, create an additional market for IT and ERP providers.

Impact on small & medium enterprises

A larger portion of small and medium enterprises will be covered by GST, as the exemption limit proposed has been fixed at Rs 20 lakhs for all India, except for northeastern states, where the threshold limit has been fixed even lower, at Rs 10 lakhs.

There is relief, however, for the SME sector in that jurisdiction. Businesses with a turnover of Rs. 1.5 crore and below would solely be assessed by the states, while for those above, it would be jointly assessed with the central and state governments.

How SMEs will be effected by GST

  • Wider base of SMEs: In the excise arena, the minimum exemption limit was Rs.1.5 crores for the manufacturers, which has been substantially reduced to Rs. 20 lakhs to cover a major portion of SMEs in the GST bracket.
  • Increase in customer base: Currently, SMEs restrict their trade to local purchases and sales, as they have to bear the tax burden on interstate sales for which they cannot avail the input set-off, thereby increasing their cost of production. This will no longer be the case under the new GST. Also, in the new GST regime, tax credits will be transferred irrespective of buyers’ and sellers’ location, which will allow the SMEs to expand beyond their local tax district.
  • Dual tax rate: GST will operate as a dual tax rate (CGST & SGST) for local supplies, which will increase the intricacies of maintaining books of accounts and lead to additional audits from tax authorities.

India for startups in GST regime

Before GST, new businesses had to contend with tax bureaucracy earlier, which restricted the ease of doing business. The GST regime is likely to be friendlier for startups, due to the following measures:

  • Single-point registration: Currently, new enterprises must register with VAT Authorities, Service Tax Authorities, and other local bodies, which increase the burden of tax compliance for startups. As a single-point registration tax, GST will eliminate multiple points of registration. The GST registration procedure will be standardized, making it easier to start a business in India.
  • Integration of multiple taxes: GST will simplify the current taxation scheme, as only one tax (GST) will prevail for all indirect taxes. This will directly lead to lower and standard tax compliances resulting in simplifying the Tax procedures.
  • No separate distinction in sales & service: GST is calculated on total value: there is no distinction between sales and services, eliminating complex WCT calculations necessary under the old regime.
  • Input tax credit: Upon registration for the GST, new startups will immediately be eligible for input tax credits on all purchases, both in-state and out-of-state. This will lead to expansion of cross border business and reducing the cascading effect of tax. Full credit on capital goods is claimed in one installment under the GST regime, which will have a direct impact on the cash flow of new companies, as full input credits will be available to discharge GST payments.

New IT systems to address challenges: GSTN at Macro Level

The GST system depends on online matching of supplier GST liabilities to buyers’ input GST credit claims.
In order to have a seamless system of matching credits, GSTN will provide an online generation mechanism for supplier tax invoices, which will:

  • Eliminate the need for data entry by buyers. This will leave no need for reconciliation/matching of the output GST database with the input credit claims database.
  • Relieve the purchaser from the burden of entering supplier bill data, as well as from following up with suppliers for unmatched credits.
  • Make documentation easy and automatic by using uniform software.
  • Lead to accuracy with a smaller staff and less effort.

ERP updation for big enterprises

Upgrading Enterprise Resource Planning (ERP) software will be one of the main ways corporations adapt to GST. ERP plays a major role in managing & monitoring the transactions for an origination which includes all the support models for business functions and integrate them in one package.
Migrations are obvious to happen due to the complexities that will come along with GST. Every business’s ERP must have strong features and easy adaptability, which will help companies migrate from the present regime to the GST regime.

Possible reasons for required updates to ERPs will be:

  • Change in master data with respect to registration details of vendors, customers as all of them will be required to obtain GSTIN.
  • Legal compliance with respect to return filing will undergo a huge change due to new return formats under GST.
  • Matching of ledgers will be another complicated job, requiring up-to-date transactional data.
  • MIS reporting will undergo a substantial change, as information required will be on real-time basis, requiring on accurate and complete information.

To summarize, GST is bringing along major changes for Indian businesses. Beneath all the excitement is the fear of unknown, which needs to be resolved by indirect tax automation providers who understand and handle GST globally and can handle the impact of changing taxes.

To learn more about how Avalara can help you with GST automation, contact us through

This blog is contributed by CA Mukund Abhyankar.

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