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4 Advantages And Disadvantages Of GST For SMEs

Author: Aditi Ahuja
by Aditi Ahuja
Posted: Feb 21, 2019
service tax

Implemented back in 2017, the Goods & Service Tax (GST) met with both critics and appraisals. Several GST advantages and disadvantages split the general public’s opinions.

For example, where vegetable fats & oils, ice cream, refined sugar, soap, hair oil, LED lights, etc. became cheaper, dry fruits, butter, cheese, ghee, toothpaste, deodorants, shaving cream, aftershave, etc. turned out more expensive.

Not only FMCG, but its effect was widespread among all sectors. One of the areas where it had a significant impact was SMEs.

Small and medium-sized enterprises received both favourable and unfavourable outcomes of the Goods & Service Tax. The main GST Advantages and Disadvantages for SMEs are discussed below:


The benefits that GST bought for SMEs include –

  1. Tax Exemptions

SMEs with an aggregate turnover of Rs. 40 Lakh or less are exempt from income tax. The exemption limit for SMEs in Himachal Pradesh and North-eastern states is Rs. 20 Lakh.

Previously, the turnover was set at Rs. 20 Lakh and Rs. 10 Lakh for businesses in Himachal Pradesh and North-eastern states.

  1. Ease of Business Registration

Businesses that have operations in more than one state previously required VAT registration in all of them. Different states have different rules and regulations for VAT registration plus additional fees.

The implementation of Goods and Service Tax has made it simplistic. Now, SMEs can register themselves on the GSTN portal. This registration will make them eligible to conduct businesses in every state.

Registering an SME online is considerably straightforward and makes it easier to file returns.

  1. Composition Scheme

The GST Composition Scheme is targeted towards businesses with turnover lower than Rs. 1 Crore (Rs. 75 Lakh for those in Himachal Pradesh and North-eastern states). SMEs have to fulfil some criteria to become eligible for this scheme.

Under this scheme, the GST rate in India for goods manufacturers and traders is 0.5% CGST and 0.5% SGST on their turnover. Restaurants that don’t serve alcohol have to pay 2.5% CGST and 2.5% SGST on their turnover.

  1. Elimination of Entry Tax

Previously, businesses exporting goods to other states had to pay to pay entry tax on toll plazas and interstate junctions when doing so.

One of the exceptional Goods & Service Tax benefits is the abolition of entry tax. Thus, SMEs can enjoy more flexibility in delivery and faster logistics.

Other than the above, GST has also made it possible for businesses to take advantage of input tax credits. Input tax credits aids businesses to pay only the amount availed after subtracting the tax on input from the tax on output.


Similar to GST benefits, this taxation system has also bought some disadvantages for SMEs –

  1. More Businesses Come Under This Tax Regime

Previously, only manufacturing businesses with a turnover of Rs. 1.5 Crore or above had to pay excise duties.

With the implementation of GST, the limit is now lowered to Rs. 40 Lakh as mentioned above.

  1. Higher Operational Costs

SMEs now have to employ a professional with knowledge of GST filing. They will need to do so as GST has bought in new reforms to tax filing which require professional expertise.

Hence, businesses not only have to increase their operational costs but also educate their existing employees about GST in India.

However, SMEs can now avail a loan thanks to NBFCs if they lack funding. Companies provide MSME & SME Loans of up to Rs. 30 Lakh to businesses within 24 hours of approval at attractive EMIs and flexible repayment tenors.

New Accounting Software

Businesses required ERP software when filing income tax returns including VAT, service tax, and excise duty.

The implementation of GST has made it complicated to file income tax returns with this conventional software. Thus, businesses now have to purchase new applications for GST calculations.

  1. Lack of Transparency

Although implemented a while back, businesses lack transparency about GST. There still exists confusion and unavailability of information from the Government about the full rules and regulations of GST.

These included, in short, the top GST advantages and disadvantages in India. The Government is still tweaking the taxation system to help small businesses succeed in a heavily competitive arena.

About the Author

Aditi Ahuja is a noted financial consultant and adviser. She loves to write on financial affairs, issues and solutions covering a range of topics like loans & insurance. She has more than 7 year exp. in Business, Investment & Finance writing.

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Author: Aditi Ahuja

Aditi Ahuja

Member since: Jun 19, 2018
Published articles: 4

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