GST in India: Advantages, Disadvantages and Challenges

GST in India is the replacement of all previous taxes on the goods and services. It is an indirect tax that will take over all previous taxes. There are many challenges before the government for its implementation, success and proper benefit gain.


  • Legacy issues which will use more resources
  • Non-reconciliation of Tax rates
  • Non-availability of appropriate Manuals for GST procedures
  • Lack of good automation system
  • Deficiency of Skilled officials (At least for now)
  • Handling old Registration/Double Registrations
  • Neither decent system for 100% scrutiny of Tax Returns/ Audit
  • Nor proper system for Cross Verifications with other taxation administrations
  • No perfect mechanism to control Tax Evasion.


GST in India

Investment Boost Expected:

With the previous tax laws in India, there is not any input on capital goods. But with GST in India rules, one can gain input tax credit (ITC) on the goods. That way, the investment might swell up quite a bit with an expected 4% increment.

Good for weak states:

Previous tax system was “origin of Goods” based, so tax used to go to manufacturing states (Uttar Pradesh, Tamil Nadu, Gujarat, etc.) Now, the tax collection of poor states like Bihar, Madhya Pradesh, etc. will also increase. This will give a chance to all weak states to develop fast.

Location-based tax Bias will end:

Many industries create depots/godowns in particular state simply because there is a bias in tax rates than others. Now as per GST in India provisions, this difference between states will disappear. It would help to eliminate the tax difference as a bias, thereby helping manufacturers.

Transparent and less corrupt tax authority:

It will contribute to building an open/less corrupt tax administration. In the old system, a tax is levied when prepared goods move out from a facility, which is paid by the company, and again collected at the local retail outlet. It may bring more transparency and better tax compliance. The number of departments we have to deal will decrease, which will lead to less corruption.

Benefits for Centre and the States:

The government of India will gain approximately $15 billion/year contributing to rising of GDP between 0.9-1.5% as this step (GST) will bring more trading and boost employment. It will promote further exports, create more job opportunities and heighten growth. It will divide the tax burden on manufacturing and services.

Moreover, a simple, unified tax system is very active for all foreign investors looking to set up plants in India.

The impression of GST on small Start up:  

  • Simpler taxation: Previously, a startup used to waste a lot of time to manage the various taxes at different points. Adhering to different regulations at separate States make the process very complicated. GST will elucidate the process by combining all the taxes, making the whole process better.
  • Easy registration: Previously, any new start up needs to have a VAT registration from the sales department. A firm working in several States faces a lot of issues concerning the different procedures/fees in each state. GST is said to bring about evenness in the process and centralized certification that will make starting/expanding business in various States much easier.
  • Exemption Increased: As per the old tax structure, any firm with an annual turnover of more than INR five lakh has to get VAT registration and pay it. GST is said to make this limit higher, to up to INR 10 lakh and, moreover, firms with the turnover between INR 10-50 lakh will be taxed at cheaper rates. This will bring the boost to newly installed start-ups and businesses.

⇔The producers, Suppliers, wholesalers, and local retailers will now be able to recover GST acquired on input costs as tax credits (ITC). This will reduce the cost of business, thus may drive benefit (fairer price) to consumers. Organizations under unorganized sector will now come under the tax regime. More and more business entities will come under this new tax system, thus stretching the tax base. This will lead to more tax revenue generation.

Moreover, a simple, unified tax system is very active for all foreign investors looking to set up plants in India.

GST in India



As Two sides of the coin, GST does have its disadvantages. Let’s see few of them.

Petroleum products exempted:

Petroleum was left out of GST until all states are agreed to it (which they will NEVER as along with Alcohol, is the biggest source of their revenue). So the Industries that needed petroleum products for work cannot input for tax credits which will increase the final price ultimately for consumers.

The multiplicity of Tax Slabs:

Rather than having a single slab (as is claimed), it has 5 Slabs in GST – 0, 5, 12, 18 and 28%.That’s not all. There are still items which don’t come under GST. And there is Cess (Tax on tax). And some people say it looks simpler than what existed previously :). Also there is Central(cGST), States (sGST), Inter-State (iGST). there should be only one (as claimed).

Multiple State registration:

Businesses and Firms are now needed to register for GST in every state they operate. You will have to file returns 3/month for every state in which you work. That involves at least 36 filings/year/state. Suppose you have business even in 25 states in India, the number of times you will file returns is 36 x 25= 900 times. This is no big deal for large companies with the troops of accountants. Small Dealers and growing companies with little supplies will find this uneasy.

Professional/Technical assistance:

New start-ups or small people in business who does not have knowledge of GST provisions may require hiring professionals.

Computerized GST:

Small businesses/taxpayers people are computer illiterates and do not have computers and related infrastructure. They do not have knowledge about filing returns and online registration. And they will now have to take help from professionals as the government has digitized the tax system. Run towards digitization is great – but are you sure our small businesses ready?

Luxury items to get costly:

Drinking coffee or tea at cafes, staying in resorts with bill above INR 7000, washing machine, electronic devices like TV, LCD, LED and bikes with engine capacity >> 350cc, Movie tickets above INR 100. etc. will be costlier with new GST bill.

Unstable economy:

As prominent economists rightly predicted, after implementing demonetization bill and now GST, India’s economy will approximately take two years to become stable.

Other Negative Effects:

  • Any supply (for example capital transfer, job-work) would now be taxable (though entirely credible) will lead to blocking of cash flows.
  • Many exemptions under previous tax system are to be removed with GST in India.
  • No Input Tax Credit (ITC) for purchases from Compounding traders.
  • Some Statistician says that GST would negatively affect the real estate market. It would add up to 8% to the price of new houses and reduce demand by nearly 12 %.

Further Advantages and Disadvantages can be determined by seeing its effects in markets.

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