What are The Advantages & Disadvantages of GST?

16 Feb,2024

In 2017, the Goods and Services Tax (GST) replaced the complex web of Central and State taxes. GST is an indirect sales tax on goods and services sold for domestic consumption. Some essential commodities have been exempted from GST.

The implementation of this GST regime in India showcased a monumental shift in the country's tax structure. Major advantages of GST in India benefited businesses and the economy as the tax regime became more unified, efficient, and transparent.

Further small businesses (with a turnover of Rs. 20 to 75 lakhs) can avail the advantages of the GST as it gives them an option to lower taxes by utilizing the GST Composition Scheme.

Advantages of GST

Before you jump to a conclusion, go through all the advantages and disadvantages of GST for different sections of people.

GST Eliminates Cascading Tax Effect

GST is a comprehensive indirect tax designed to bring indirect taxation under one umbrella. It provides a comprehensive input tax credit mechanism to prevent cascading effects of taxes or 'tax on tax effect'.

Moreover, uniform GST rates have reduced the incentive for evasion by eliminating rate arbitrage between neighboring states.

Higher Threshold For Registration

Before the introduction of the GST regime in India, any business with a turnover of more than Rs. 5 lakhs (variably different in states) was liable to pay Value Added Tax or VAT. Also, service tax was exempted for service providers which incurred a turnover of less than Rs. 10 lakhs. The advantage of GST tax India is that the threshold has been increased to Rs. 20 lakhs. This limit exempts small traders and service providers. The table below shows how the threshold limit was different in different tax systems.

Tax Threshold Limit
Excise Tax Rs. 1.5 Crores
VAT Rs. 5 lakhs in most states
Service Tax Rs. 10 lakhs
GST Rs. 20 Lakhs (Rs. 10 lakhs for North Eastern States)

Simple and Easy Online Filing

This indirect tax regime has made the entire process of filing GST returns online. It is super simple and beneficial for small businesses that do not have to run from pillar to post to get different registrations.

Reduced Number of Compliances

Businesses now have to file 11 GST returns annually, out of which 4 are basic returns that apply to all regular taxable persons under GST. Only GSTR-1 is manually populated while GSTR-2 and GSTR-3 are automatically populated.

Before the implementation of GST, there were several indirect taxes and naturally, there were several compliance rules that businesses had to abide by. Filing a single unified return has been one of the greatest benefits of GST in India.

Efficiency In Logistics

One of the most important advantages of GST to businesses is that they no longer need to pay state-level taxes during interstate movement. This has improved logistics and operations. This brought in advantages of GST tax in India for the e-commerce sector. Earlier, states like Kerela, West Bengal, and Rajasthan considered e-commerce platforms as facilitators. Online websites delivering goods to another state had to file a VAT declaration and mention the registration number of the delivery truck. Tax authorities could seize goods if documents were not produced.

GST regime mapped out common provisions applicable to e-commerce sectors. Now they can take advantage of registration under GST and face no complications in the inter-state movement of goods anymore.

Disadvantages of GST

While it is important to understand the advantages of goods and services tax GST, it is equally important to understand why critics call it a regressive tax. This means it takes a relatively larger percentage of income from lower-income households in comparison to the higher-income households.

Businesses with the goods and services tax GST registration levy tax uniformly on the consumption of goods and services, rather than on income and wealth. This means lower-income households tend to spend more of their income on consumables, which are subjected to GST.

Complexity To Business

While many businesses benefited from the merits of GST, it is also true that GST has raised complexity for many business owners across India. Small and medium enterprises with a total income of Rs. 75 lakhs could avail of the composition scheme. They can pay a mere 1% tax on turnover and abide by lesser compliances. However, they cannot claim input tax credit.

A Disability Tax

GST has received criticism for being called a 'Disability Tax; as it is levied on articles used by physically and mentally challenged people. Braille paper, wheelchairs, and hearing aids are some of the articles that have not been exempted from this single tax.

Effects Finance Sector

The finance sector is one sector that incurred the implications of both advantages and disadvantages of GST in India.

The GST transaction fees within the financial sector have become more expensive. It increased from 15 to 18 percent. Insurance premiums became more expensive.


Why is GST Important?

GST has transformed the Indian economy since its introduction in 2017. It has replaced the complex web of indirect taxes like excise duty, octroi, and VAT, with a single unified tax structure. The integrated goods and services tax GST allows simplified compliance for businesses, has streamlined the supply chain, eliminated cascading taxes, and encouraged free movement of goods across the nation.

What are the 4 Types of GST?

The four different types of GST in India are Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax (UTGST). Besides, the government has fixed different taxation rates under each of these taxes.

What are the features of GST?

Key features of GST include:

  • - It is a single levy on goods and services

  • - It comprises Central GST (CGST) and State GST (SGST).

  • - Allows businesses to claim credit for taxes paid on purchases and reduces tax liability.

  • - It tracks the movement and supplies of goods and services through an E-way bill system.

What is the scope of GST?

The scope of GST extends from supplies of goods and services with a few exceptions. It includes groceries, clothes, electronics, vehicles, transportation, healthcare, communication, and professional services. Understanding this scope is crucial to provide the benefit of GST to businesses and individuals as it determines their tax obligations and claims the input tax credit.

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