Understanding the Impact of GST in India

One nation, one market, one tax' was the motto with which GST was applied in its full capacity on 1st July 2017. This move has brought 1.3 million citizens of our nation into a unified indirect taxation system.

In this article, we will dive into the ground reality of the impact of GST on our nation.

To understand how GST has impacted the overall Indian economy, we need to understand what is GST applied to and its types. We will also discuss the various effects of GST.

GST is levied on every stage of manufacturing and sales of goods and services across India. This tax is levied when the goods or services are consumed. There are three subcategories to GST-

CGST (Central Goods and Services Tax) is collected by the Central Government on interstate sale of goods and services.

SGST (State Goods and Services Tax) is collected by the State Government on intrastate sales.

IGST (Integrated Goods and Services Tax) is collected when a supply of products and services is supplied from one state to another. The taxes collected are shared both by the Central and State Government.

With this brief idea, let's go through the impacts of GST on the Indian economy -

1. Simpler tax structure

With GST, the taxation system of our country has become simpler. It is a single tax, ensuring easier calculation. With this tax, the buyer gets a clear idea of the amount paid as tax when purchasing certain products. This is crucial when considering GST and its impact on the GDP.

2. More funds for production

Another effect of GST on the Indian economy has been the reduction in the total taxable amount. This saved fund can again be invested back into the production cycle to foster production.

3. Support for small and medium enterprises

Based on the size of your organization, the amount of GST depends on your firm's annual turnover, provided you have been registered under the Composition Scheme introduced by GST. Enterprises with a yearly turnover of services worth 50 lakhs have to pay 6% GST whereas enterprises with 1.5 crores worth of turnover of goods have to pay 1% GST.

4. Increased volume of export

When considering GST and its impact on the Indian economy, customs duty on exporting goods has reduced. So now production units save money while producing goods and also while shipping them. This two-way savings has lured many production units to export their goods, increasing the export quantity.

5. Enhanced operations throughout India

With a unified taxation system, transporting goods around India has now become easy, boosting operations throughout the country.

6. No more cascading effect

With GST, taxes of the State and Central Government have been merged. This has removed the cascading effect of taxes, reducing the burden on the buyer and the seller. So even if it may look like one big chunk of tax to be paid, you pay lesser hidden taxes.

Real estate contributes to almost 8% of our nation's total GDP. Before the onset of GST, buying an under-construction property meant you were subject to VAT, service tax, stamp duty, and registration charges. However, purchasing a completed property meant only the application of stamp duty and registration charges.

The application of GST will reduce the amount of buying a house, especially if booked before construction. Now developers too shall enjoy input credits on GST paid on goods and services delivered by them as that liability shall be passed on to potential buyers.

Taxes levied over real estate have also become simpler as the government has removed stamp duty after the application of GST, thereby making the impact of GST on the real estate sector more prominent. All under-construction properties will total to 5% of GST without the input tax credit. There is no GST applicable for ready-to-move-in properties. If you are looking to purchase a house, consider these effects of GST on properties. 

Suppose the carpet area of a particular property is up to 60 sq. meters, and in a non-metro, it is up to 90 sq. meters. In that case, that property can be included in the affordable housing scheme. This affordable house will accrue 1% GST if its value is below 45 lakhs; otherwise, 5% GST is applicable. These are some of the important effects of GST on the real estate sector.

Builders have to pay a higher tax amount in the 4-tier taxation, but they also avail input credits later. However, the burden for potential buyers has risen, as they will have to bear GST apart from those who are a part of the CLSS Scheme. Thus, one can easily notice how GST benefits the Indian economy.

If you see the short-term impacts, customers now shall need to pay more taxes on goods and services they purchase. A majority of essential consumables will input either the same or a higher amount of tax. The benefits of GST to the common man are plentiful.

Small-scale trades also have to bear the cost of compliance, which may raise the prices of their produce, affecting the consumer.

Nevertheless, in the long term, GST also promises several benefits. With the decrease of payable taxes for producers of consumer goods like FMCG, the automotive sector will have to reduce the prices of their commodities. This will allow the consumer to pay less while trying to avail of these services.

A drop in prices will show an immediate surge in demands, boosting the production cycle bringing in more profits. With this, both the buyer and the seller get to save a fair share of money eventually, and the economy, too, shall be boosted.

A boost in production shall also pave the way for expansion, leading to more employment and increased income. This not only creates a better scope for the common man but also strengthens the economy.

The implementation of GST also implies raising an invoice for the purchase of any goods and services. With a proper billing system, the prospect of black money and corruption shall also go down. These have been troubling aspects for the common man in India.

Till now, we discussed the small, medium, and large scale manufacturers and the real estate sector; let’s now take a look at the impact of GST on businesses other than real estate-

Logistics

In a country as big as ours, logistics plays a key contribution to the economy. A well-organized and structured logistics industry can grow exponentially, especially under the Make in India banner.

E-commerce

E-commerce has high growth potential. However, e-commerce companies shall have to bear with tax collected at source factor for GST.

Pharma

The pharma and healthcare sector shall have a positive impact on GST with its simplified tax structure. It will also be availing a tax respite in lieu of making healthcare cheaper and accessible to people of all income groups.

Telecom

A drop in prices can be expected in the telecom sector, as costs like warehousing, logistics, etc., will reduce.

Textile

Indian textile is one of the largest employers of skilled and unskilled labour. With the textile industry also making 10% of total exports in India, the numbers are likely to increase with the removal of customs duties. GST shall also affect the value of cotton, a material on which most small-scale textile industries depend. These are some of the impacts of GST on small traders.

Agriculture and farming

Agriculture is the biggest contributor to India's GDP, covering more than 16%. With the ease of logistics, transportation costs of agricultural produce will also go down. Thus, the impact of GST on wholesalers has been greatly positive.

FMCG

With GST eliminating the need for multiple sales depots, FMCG shall save a lot on logistics and distribution costs.

Automobile

Under the previous taxation system, several taxes like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty were applicable, which has now been replaced by GST. Automobile prices are likely to drop as the producers are saving more in the form of taxes now.

Startups

GST has tremendously benefitted Indian startups with perks like a DIY compliance model, increased limits for registration, a free flow of goods and services and tax credit on purchases. It has also become easier for companies with a pan India presence to calculate taxes, especially if belonging to the e-commerce sector. Understand the impact of GST on small-scale industries if you are a part of this sector.

Self-employed individuals

Self-employment or freelancing is a young industry in our country, but filing for taxes has become easier as they fall under service providers with GST implementation. Understanding the impact of GST on micro small and medium enterprises is important for such individuals.

Entrepreneurs engaged in the hospitality sector should also check out the impacts of GST on the hospitality industry.