What is considered a small business?
Small businesses are those having a turnover of up to Rs 5 crore.
Situation before GST came into action
The total tax collection in India was around 14.5 Lakh Crore, out of which 34% was an indirect tax. Indirect taxes include service tax, customs duty, VAT, etc. It is the tax that is indirectly collected by the Government of India. In a country like India, the share of indirect tax used to be much higher than the direct tax but after the introduction of the new GST, it will allow the government to have a better grip on the taxpayers by increasing the direct tax and decreasing the indirect tax.
Let us first discuss the impact on small scale business just after GST
Earlier, small scale business was not liable to pay excise duty and were allowed to pay VAT ranging from 5%-12.5%. This was directly increased to 18% GST which affected them tremendously.
What did the small businessmen think about the increase in the GST?
People said that they were only able to sell about 40% of the goods they used to sell before GST came into action. The business-to-consumer end of their business had taken a tremendous turn. They have noticed the customers reacting to the 18% tax and refusing to buy goods from them at all.
They also said it was discouraging customers from buying from them. The customers claimed that they’d rather go to a branded store and spend more money there than to spend 18% on tax. GST Returns Filling still needs to be executed by hired professionals which refrained them from cutting down the cost. They’re disappointed as there is not much that they can do by themselves now.
It looks like the government did not pay attention to the small scale businessmen who are now liable to pay tax slabs as high as 28%. The hike in tax rates ended up in an unexpected manner with the revenue of these businesses slipping down.
The low threshold of exemption amounting to Rs. 20 lakh highly disappointed the many small companies. These companies were earlier allowed to skip paying excise duty. The small-scale industry exemption allowed the companies from paying tax if their annual revenue was up to Rs 1.5 crore.
Changes in the small scale business sector after the GST update
How did GST help small to medium enterprises?
GST made the procedure of commencing a business much easier for the people of India. Earlier, every business in different states of India was to collect different VAT registration, which was becoming tough to take care of, and the rules and regulations were also peculiar for different states. It was getting very difficult to stay updated with the taxes in a small company with fewer employees thus it was a very puzzling process. But now, under GST, the businesses are only required to get GST Registration Online which will have a tax collecting process similar to that of service tax.
Counsel meeting to reduce the burden on small businesses
The GST Council in its 32nd meeting on Thursday said that the government decided to aim at reducing the tax and compliance burden on small and medium-sized businesses, including an increase in the threshold limit below which companies are exempt from GST, and also allowed small companies to file annual returns.
The Council also decided to increase the annual turnover limit where the companies would be exempt from GST up to 40 lakh for most States and 20 lakh for the North Eastern and hill states.
At the meeting, it was decided that a very huge part of GST revenue comes from formal and large companies. The decision taken by the GST Council has been done to help the small and medium companies. The revenue impact due to these will not make much difference.
Due to the increase in the GST threshold limit. About 10 lakh traders will be exempt from the compliance burden of GST.
GST was a burden to the small scale businesses during the starting period. But after the update and changes done by the government, it will be acting as a boon to the country and will encourage more business start-ups all over the country.