Goods and Services Tax has completely changed the face of taxation in India. GST is a unified tax system enacted in 2017, replacing several indirect taxes levied by central and state governments. To the small business owner, there are various merits of getting registered under GST, and some of the merits will considerably affect their operation and growth. The blog covers 15 key benefits accruing to a small enterprise from GST registration.
1. Enhanced Credibility and Business Reputation
The major advantages of GST registration include increased credibility . A business that is registered would be considered more professional and trustworthy, which may become a major factor in winning clients and customers. It means the business will follow legal principles and is transparent; thus, it will give a boost to its reputation.
2. Input Tax Credit (ITC) Advantage
Under GST, a business can avail the facility of Input Tax Credit for tax so paid by them on inputs, that is, raw materials, services, etc. That means, a registered enterprise under GST could offset the taxes paid on purchase against the taxes collected on sale. The ease in the burden of tax would thus ensure improvement in cash flow and, thereby, bringing down overall expenditures.
3. Reduced Tax Burden
Before the advent of the GST, small businesses had to bear the burden of a very complicated indirect tax structure in the form of excise duty, VAT, and service tax. In the GST system, all these taxes merge into a single tax. As a result of this simplification, the total load of taxes on business concerns gets reduced, and hence compliance with the law becomes easier and less expensive.
4. Interstate Trade Benefits
On the other hand, there are many advantages to GST registration for companies with interstate trade. It does away with the need for interstate sales tax altogether and permits seamless movement of goods across state borders. In simple terms, reduced logistics costs translate into easier entry into newer markets.
5. Access to a Larger Market
GST registration opens up doors to a bigger market, making the supply across states possible with no extra tax obstacles. This is especially a big plus for small businesses with visions of spreading beyond their local environs.
6. Improved Cash Flow
The ITC mechanism under GST improves the cash flow for businesses by enabling credits on inputs, thus reducing the out-of-pocket expenses of a business. This results in good liquidity and financial stability, essential to the smooth running of any business venture.
7. Eligibility for Government Contracts
Many government contracts and tenders require businesses to be GST-registered. Registration thus opens up avenues in the public sector, which have lucrative potential to advance the business aggressively.
8. Simplified Tax Compliance
GST provides a single tax regime with uniform processes. Businesses enjoy ease of tax compliance through one return for all transactions. The ease of filing reduces the administrative burden and minimizes the chances of errors in tax submissions.
9. Easier Access to Loans and Credit
Banks and financial institutions and banks like to grant loans to GST-registered businesses. This, therefore, increases the credibility of a business and gives way to loan and credit facilities, which play a significant role in expansion and operations.
10. Enhanced Business Records and Transparency
GST registration requires a business that intends to get registered under it to maintain detailed records and also file returns regularly. This imposed discipline assists an entity in maintaining its financial records accurately, which is beneficial for internal audits, financial planning, as well as for regulatory requirements.
11. Avoidance of Penalties and Legal Issues
Non-compliance with the requirements for taxation brings about penalties, apart from many other legal issues. Being GST-registered, one can make sure that his or her business is not running at risk because of non-compliance with laws related to taxation. Continuous filing and proper reporting in GST would enable them to avoid costly fines and other legal problems.
12. Better Supplier Relations
GST registration helps in improving relations with suppliers; this is because a registered business is in a position to claim ITC on purchases from its suppliers. Suppliers shall, therefore, want to deal more and more with GST-registered businesses that provide them with better terms and thereby have better business relationships.
13. Attractive Pricing for Consumers
Under GST, businesses can offer reasonable prices to customers availing of the ITC facility. The product service would be cheaper, thus increasing customer satisfaction and hopefully more sales.
14. Reduced Tax Cascading
Pre-GST, there used to be cascading of taxes, or tax on tax, levied on the value of the product inclusive of the value of the tax itself. Since GST permits credit for taxes paid on inputs, therefore, it reduces the final incidence of taxes on the goods.
15. Eligibility for Composition Scheme
For companies whose turnovers are below the threshold, there is an option of the GST Composition Scheme, under which businesses can pay tax on turnover at a lower rate. This is more of a boon for small businesses, as it reduces the headache of compliance due to less number of filings.
GST Registration Advantages and Disadvantages
While the advantages of registering for GST are enormous, one also needs to consider a few disadvantages:
Advantages
- Simplified Tax System: Takes away the headache of complying with multiple taxes by integrating them into one system.
- Tax Credit: This allows the industry to claim a tax refund on inputs, reducing the effective tax rate.
- Improved Market Reach: The interstate trade will be easier, and businesses can spread themselves across bigger markets.
Disadvantages
- Compliance Costs: The one-time setup and recurring compliance costs may involve software, professional fees, and time.
- Complex Procedures: Although simplified, compliance under GST may become overwhelming for businesses involving numerous transactions.
- Regulatory Changes: The frequent changes in rules and rates of GST will keep the business concerns updated constantly to adapt to the changes.
Conclusion
A wide range of advantages, from enhanced credibility to reduced tax burden, improved cash flow, and the ability to access more extensive markets, flowing from the GST registration will go a long way in aiding small business entrepreneurs in the country. Though inconveniences may persist in adapting to the system, in most instances, the advantages of the GST system outweigh the disadvantages.
This implies that, for the majority of small enterprises, the process of acquiring GST registration will be worth the effort. With an understanding of the benefits and due caution, the small business stands a good chance of growth and success in the competitive market. By reaping its advantages on registration under GST, a small business owner would significantly benefit on long-term scores and Business operations can be continued smoothly and with much efficiency.