How GST Works for Businesses
A value-added tax levied at the national level, GST is also a comprehensive indirect tax levied on manufacturer, sale, and consumption of goods as well as services.
It has replaced all the indirect taxes levied on the goods and services by the Indian central and state governments.
The GST is being looked up to the most significant tax reform in the country in terms of improving the indirect tax structure of India ever since the economy opened up about twenty-five years ago, making it easier to opt for business finance.
GST Works for Business
GST is targeted at removing all kinds of taxation barriers between states and the creation of a single market which is open to all to buy, sell, import, and export within the country.
The common man has benefited from this biggest tax reform as all the taxes are directly collected at the point of consumption.
To put things in perspective, say a manufacturer of shirts buys raw materials to weave a cloth- thread, button, tailoring equipment, that cost Rs. 100 and that includes a tax of Rs. 10.
The VAT added to him was Rs. 300. Thus, the gross value of the shirt now turns Rs. 130 and the tax on output will be Rs. 13.
However, under GST, he can do away with this tax of Rs. 13 as he has already paid on raw material and input of Rs.10.
Therefore, the effective GST incidence on the manufacturer is only Rs. 3 (Rs. 13-10). Bajaj Finserv is one of those NBFCs that promises MSME and SME loans at low interest rates.
The loan amount can be a maximum of Rs. 30 lakhs. Be it a medium or a large business, this facility will surely prove to be of huge help.
The next stage involves the product moving from manufacturer to wholesaler, and then to a service provider. The wholesaler would add another Rs. 20 for his profit thus bringing the value of the product to Rs. 150.
The tax would come to Rs. 15 but effectively the ultimate GST incidence on the wholesaler is only Rs. 2 (15-13).
GST Impact on Business
Following this, the retailer adds a margin of Rs. 10 when the buys from the wholesaler. Thus the price will go up to Rs. 160 and the tax to Rs. 16.
By setting off this tax of Rs. 16 against the tax on his purchase from the wholesaler (Rs. 15), the retailer brings down the effective GST incidence on himself to Rs. 1 (16-15).
Thanks to GST, some goods and services have become costlier while others have turned cheaper. However, many businessmen found this difficult to comply with and certain section of the common people now has to pay more taxes.
However, it should be noted that certain commodities are not taxed at all and primary tax slabs have been made for certain items. Gold and jewellery would be taxed at a concessional rate of 3% and rough diamonds will attract 0.25%. Certain essential items have also been kept away from GST.
A GST calculator can be used to calculate taxes on various items. Food items like unpacked food grains, unbranded atta, maida, besan, fresh vegetables and fruits, salt, food at small restaurants, cutlery, ketchup, sauces, and pickle have become cheaper.
Likewise, soap, hair oil, and toothpaste are also cheaper. Other things which are now cheaper include, airfares for economy class travel, bikes or scooters with engine capacity below 350cc, SUVs, household utensils like pans and pressure cookers, footwear and apparel, and so on.
It is also interesting to note that business loan is expected to become slightly expensive after the implementation of GST.
On the other hand, the things which turned more expensive include, food items like packaged/branded coffee, fine dining restaurants, shampoos, deodorants, airfare for business class and train tickets, bikes with an engine capacity of over 350cc, household appliances like TVs, refrigerators, ACs, washing machine, courier services, mobile phone tariffs, insurance premiums, banking charges, broadband services, etc.
Salt, eggs, milk, buttermilk, unpackaged curd, natural honey, fresh fruits and vegetables, flour, besan, bread, lassi, unpacked paneer, fresh meat, fish, chicken, vegetable oil, contraceptives, bangles, stamps, newspapers, vegetables, judicial papers, printed books, are some of the things which continue to be GST-free. The different GST rates of 5%, 12%, 18%, and 28% are levied on different products and services.
Read Also: Understanding GST and its Impact on Different Businesses
Category: Business
