Your Go To Guide To Understanding The Pros And Cons Of GST

Guide To Understanding The Pros And Cons Of GST: GST was introduced in India on the 1st of July 2017 for the rationalization of the indirect tax structure. 


GST was introduced in India on the 1st of July 2017 for the rationalization of the indirect tax structure.

It took 17 years starting from the year 2000 for GST or the Goods and Services Tax came into force on the 1st of July, 2017. It is a single indirect tax which replaced multiple indirect taxes. GST is applied at multiple stages of the value chain and is destination-based.

Guide To Understanding The Pros And Cons Of GST

As a multistage tax, GST is added from the point the materials are purchased, at the point of the production or manufacturing, when the finished goods are kept in the warehouse when the goods are sold to the wholesaler and retailer, and finally the end-user.

GST is destination-based, meaning that GST will be collected by the state where the goods are finally consumed. For example, if the production takes place in West Bengal and the final consumption takes place in Mumbai, then Mumbai will collect the entire revenue.

GST Impact on Real Estate

The introduction of GST has impacted all sectors. Let us determine the impact of gst on real estate.

When it comes to knowing what category your product or service comes under, you need to find the HSN code or SAC code. The HSN code will help you determine the category of your product and the applicable GST.

For example, the HSN GST number for real estate would be 9972 and for trade service of buildings would be 997213.

The latest notification by the Government concerning real estate was issued on the 1st of April 2019.

GST at 1% would be applicable for affordable housing construction with no ITC (Input Tax Credit). The definition of affordable housing would be as per GSTC.

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In the case of affordable housing under the Central or State Housing Scheme, the GST rate would be 8%.

Affordable housing is defined as a residential flat or house whose carpet area would not be over 90 sqm in terms of carpet area for non-metropolitan cities or towns. In the case of metropolitan areas, the flat or house cannot be over 60 sqm in terms of carpet area.

The following cities come under the definition of metropolitan cities: 

  • Bengaluru
  • Chennai
  • Delhi NCR (Faridabad, Gurgaon, Ghaziabad, Greater Noida, Noida, and Delhi)
  • Hyderabad
  • Kolkata
  • Mumbai (includes entire MMR)

GST at 5% would be imposed on houses that don’t come under the affordable housing definition with no ITC whether the booking was made before 1.4.2009 or after it. If the booking was made before this date, the new rate would be applicable for instalments on that date or after it.

This would be applied to ongoing and new projects.

This 5% GST rate would also be applicable for apartments used commercially like shops or offices which are part of residential real estate projects.

The builder would have to purchase at least 80% of the specified inputs from registered vendors. If the 80% purchase requirement is not met, then the builder will have to pay tax at 18% on the Reverse Charge Mechanism basis. In case of cement, however, the applicable rate would be 28% as per the Reverse Charge Mechanism basis.

Advantages and Disadvantages of GST

Advantages and Disadvantages of GST

There a lot of positive changes brought about with the introduction of GST, but like any other initiative, there are drawbacks too. Here are the gst advantages and disadvantages:

Advantages of GST

  1. Removed Cascading Effect of Tax: GST, being a comprehensive tax, eliminates tax being charged on tax. Before GST was introduced, the tax was imposed at every stage of the value chain, and no input credit was available.
  2. Higher Exemptions: For small traders with a turnover of less than Rs .20 lacs per annum, GST is not applicable. Earlier, if your turnover was over Rs. 5 lacs, you would have to pay VAT. This provides a huge relief to the small traders. The limit for states in the North East is Rs. 10 lacs.
  3. Composition Scheme: If your business has a turnover between Rs. 20 to Rs. 75 lacs, GST is payable as a fixed rate of the turnover. However, the input tax credit cannot be claimed, and you cannot sell goods exempt from GST.
  4. Easy Online Process: The registration and filing process for GST can be completed easily online. This is convenient for start-ups as well.
  5. Lesser compliance: With GST being introduced, there is a single, comprehensive return to be filed against multiple returns when excise, service tax, and VAT which had to be filed earlier.
  6. E-Commerce Included: There was confusion regarding the taxes payable before GST. Some states did not require VAT registration, while other states had to pay different VAT rates according to the state. Now supplying goods interstate is no longer a problem as e-commerce has been brought under GST.
  7. Lower Logistic Costs: Before GST, to avoid Central Sales Tax, e-commerce companies had warehouses in multiple states. With GST, warehouses are maintained only in strategic locations leading to lower costs.
  8. Unorganized Sector: The unorganized sector, like textile and cotton, has been brought under GST providing the benefit of input credit, leading to more accountability and compliance.

Disadvantages of GST

  1. Software Costs: Implementing GST would require investing in GST software or upgrading the existing ERP software to comply with GST along with training which involves high costs.
  2. Higher Taxes: SMEs or small and medium enterprises would have to pay higher taxes as GST is payable on a turnover of Rs. 20 lacs whereas Excise Duty was payable on a turnover exceeding Rs. 1.5 crores. Even though the GST for SMEs with a turnover under Rs. 75 lacs is just 1%, and you cannot avail of input credit
  3. Higher Operational Costs: Apart from the costs of training employees, small businesses will have to hire tax professionals specializing in GST. This would lead to higher operational overheads.
  4. Compliance Process: Introducing GST would mean invoices that are GST compliant, adopt digital record keeping, and ensure that the return filing deadlines are adhered to.

Overall Gains for Business

The introduction of GST has led to greater compliance from a wider range of industries. This has led to higher revenues from indirect taxes. Businesses have gained in terms of fewer complications with just one tax. Doing business has become easier.

Apply for GST today and watch your business grow!

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