Understanding Dual GST – Its Effect on Your Business

Businesses all over the country have felt the impact of the government’s decision to change the country’s goods and services tax code. The new tax, GST, will change the way our country does business, affecting all businesses engaged in sale/supply of goods or supply of services.

What is GST?

The Goods and Services Tax (GST) is a revised and comprehensive form of previously implemented Value Added Tax (VAT). The GST is an indirect tax and replaces many cascading taxes levied by both Centre and State governments. Supply chains, ERP services, product pricing, etc. will all fall under the ambit of GST.

What is Dual GST?

The Union Government and the States were unable to form a consensus for tax revenue sharing. Therefore, the government has introduced a dual GST system – Central GST (CGST) and State GST (SGST).

Example – If a dealer in Rajasthan, selling goods to consumers within the state, makes a sale of INR 20,000 at 18% GST rate. Then the dealer will collect INR 3,600 as total tax. In this case CGST and SGST will be shared by Centre and State equally as INR 1,800 each.

Effective July 1, both CGST and SGST are applicable on the taxable value of goods and services shipments pan India, except in the State of Jammu and Kashmir.

Impact of GST on your pricing

Implementing GST will reduce the impact of numerous indirect taxes which were applicable on your manufacturing and supply chain. This will allow you to decrease the cost of product and services in mid to long term and pass on the benefits to your customers. Although, for various services, the short-term prices may go up as the tax rate has been raised by 4-6%.

Effects of GST on your SME:

• The GST system in India has helped overhaul and streamline the taxation with respect to the business transactions, and indirect taxes. The dual structure of GST is meant to be fairly simple and transparent, with only a handful of CGST (Central Goods and Service Tax) and SGST (State Goods and Service Tax) rates being implemented. The new tax regime includes both costs and benefits for SMEs. This has made it much more convenient for small businesses to manage their tax liabilities, since earlier there were multiple taxes levied on different types of transactions. Now the entrepreneur may only need to worry about GST. It has also helped bring down the revenue leakage in taxes for the government.
• Reduction in the number of taxes you were paying earlier. However, Customs Duty and some other levies are still in place for imports and excepted items under GST. This has helped simplified the taxes for big but most importantly small businesses who were unknowingly either overpaying or underpaying the taxes.With the introduction of GST, the tax rates on specific goods and services are pre-determined, making it much more easier for the smaller businesses to understand and pay their tax liabilities on time. 
• Reduction in your transactional costs due to simplified tax compliance code and online procedure. This simplified tax journey has helped many business owners who had a tough time keeping track of all the applicable taxes and ensuring that the filing was done perfectly fine, while not concealing any truthful information to avoid penalties. With the introduction of GST, the ease of filing has enabled entrepreneurs as well as accountants to complete the filing process efficiently.
• On the flip side, GST might increase your operating costs if you do not have tax professionals to look after your annual filings. So, hiring an expert may be your only way to have tax compliance. It is always recommended to leave sensitive tasks to the professional. Especially taxes, as incorrect disclosure may have financial loss, and non-compliance may have some serious repercussions. Hence, with the convenience of tax professionals comes the added cost of their fees. This is something that entrepreneurs should always consider while calculating costs.
• Compliance issues may also arise due to the mid-year implementation of CGST and SGST. However, with each passing month, the businesses are becoming increasingly comfortable with filing their GST returns efficiently. We’re seeing decreasing unknowing compliance issues and increasing GST collection, which is a good thing from the economic point of view.
• If you are running a manufacturing SME the tax burden may increase since the excise laws exempted units below 1.5 crores whereas the limit is now 20 lakhs. With some smart accounting practices, you may be able to bring down the effective taxes paid, however, this is a huge reduction in exemption. 

Who should register for GST?

1. If your business is registered under VAT, service tax or excise duty, you can move your registration to GST. Also, firms and companies with a turnover of 20 lakh or more per annum are mandatorily required to have a GST registration. If your business involves inter-state transactions, GST registration is mandatory for you, regardless of the turnover. Also, there are different minimum turnover ceilings for different states above which it becomes mandatory to register your business with GST, for certain states it is 20 lacs, but for some it is at 40 lacs per annum. However, businesses doing much less revenue can also opt to get GST registration upon the entrepreneur’s discretion.
2. Websites and portals where supply of goods and services is managed are also required to register with GST without exception. Prime example being the e-commerce websites where there is sales of goods and services. It is mandatory for a business to be GST registered if they wish to sell online, irrespective of the annual revenue. Here the revenue ceiling up to which the registration is optional does not apply.
3. An Input Service Distributor, which means a head office that receives billing for all its branches, is also mandatorily required to register for GST. The goods and service tax council has made it necessary for such offices to be GST registered owing to the fact that these offices handle and receive billing for multiple branches, be it inter-state or intra-state.

Have you adapted to the new GST regime, and how much impact do you think it has had on your business? Let us know in the comments.

The sequel to this post will deal with how to leverage GST in getting a competitive edge for your business.

Conclusion:

The goods and service tax (GST) is a taxation reform aimed at replacing the previous value added tax (VAT). The purpose behind the introduction of GST is simplifying the tax structure of the country. 

GST is indirect tax levied on businesses selling goods or services to other businesses or to the end consumers. There are various components of GSt like CGST (central goods and services tax), SGST (State goods and services tax), IGST (Integrated goods and services tax), and UGST (Union territory goods and services tax). Depending upon the nature of goods and services and the place of supply, relevant goods and services (GST) rate is applied, which is distributed among relevant government institutions depending upon the place of supply. For example, goods produced and sold in a single state tax will be collected in the form of central GST and State GST i.e. CGST and SGST. However, for interstate production and supply of goods, there will be an IGST component and SGST component, where IGST will be divided amongst the states.

GST registration is not mandatory for all the businesses in the country, it becomes mandatory only for businesses that surpasses a certain revenue threshold, or is mandatory in some other cases like businesses selling products or services on e-commerce platforms, inter-state supply of goods and services, etc. 

The simplification of multiple indirect taxes through the introduction of GSt will help many small businesses by eventually reducing cost of a product and service. Smaller entrepreneurs may benefit from an easier procedure of filing for taxes without worrying about multiple indirect tax liabilities. 

FAQs:

1. How Does Dual GST Impact My Business?

Dual GST, a two-tiered Goods and Services Tax system, impacts businesses by simplifying taxation. It involves both a Central GST (CGST) and a State GST (SGST). Dual GST is necessary to maintain fiscal federalism in India, allowing states to collect their own taxes. The benefits include reducing tax cascading and streamlining the tax process. It functions by dividing tax revenue between the central and state governments. This structure ensures a harmonious tax framework across India.

2. What Are the Key Features of Dual GST?

The Dual GST, a key feature of India’s tax system, combines both Central GST (CGST) and State GST (SGST). It is essential because it allows for revenue sharing between the central and state governments. This model ensures uniformity in taxation across the country while granting each government fiscal autonomy. An example of its working is when a product is taxed, and the revenue is divided between the center and state, benefiting both levels of government.
Dual GST, comprising a Central GST (CGST) and a State GST (SGST), is a tax system that unifies India’s indirect taxation. It streamlines tax administration, reduces tax evasion, and fosters economic growth. For example, a product’s final cost can be calculated by adding both CGST and SGST, ensuring revenue sharing between the central and state governments. This dual model of GST enhances transparency, encourages compliance, and bolsters the ease of doing business.

3. What is an example of dual GST?

An example of a dual GST system can be found in India, where both the central and state governments levy separate Goods and Services Tax (GST). This dual model is necessary to ensure a harmonized tax structure across the nation while allowing states to retain fiscal autonomy. The benefits include simplifying tax administration, reducing tax cascading, and promoting economic integration. In this system, both levels of government have their rates and exemptions, creating a unified yet multifaceted tax structure.

More read on GST:

5 Tax Saving Tips for Small Business Owners in India