Advantages and disadvantages of GST: GST Benefits

Taxpayers must meticulously assess the advantages and disadvantages of GST to optimize its benefits effectively. GST, a significant tax reform in India, brings advantages like the nationwide consolidation of the tax system, simplified avenues for tax filing, and improved logistics efficiency.

Conversely, Goods and Services Tax (GST) might lead to increased costs, higher expenses for automation, and additional compliance challenges, particularly for Small and Medium Enterprises (SMEs). It is crucial for taxpayers to thoroughly evaluate these factors to make informed decisions in leveraging the benefits of GST.

What are Goods and Services Tax?

GST, a simplified indirect taxation system, replaced various preceding indirect taxes to establish a unified nationwide tax structure. Introduced in the annual budget speech on February 28, 2006, the goal was to overhaul the country’s indirect taxation system. 

In 2017, the Indian Parliament sanctioned the Goods and Services Tax, officially taking effect on July 1, 2017. Initially, the plan was to subject all goods and services to a singular comprehensive tax. However, subsequent adjustments led to the creation of four slabs for all goods and services: 5%, 12%, 18%, and 28%.

Moreover, specific tax rates were applied to cut diamonds, precious metals, jewelry, and select automobiles, varying between 1.5% and 3%. This results in a total of six distinct slabs within the GST framework. The implementation of the GST stands as a noteworthy development in the tax histories of various nations, introducing a thorough and efficient approach to indirect taxation.

This transformative system has sparked significant debate, with advocates underscoring its potential advantages and detractors expressing concerns about potential disadvantages. In this discourse, we scrutinize the distinct merits and shortcomings associated with the GST framework, delving into how these factors shape their impact on economies and businesses.

What are the advantages of GST?

Advantages of GST
  • Accumulative taxes were eradicated
    • The elimination of stacking taxes is a notable advantage of GST Registration, as it integrates diverse indirect tax systems into a cohesive framework.
    • This integration effectively eliminates the cascading effects of taxes and the compounding of taxes on taxes.  
  • Higher threshold
    • The introduction of GST norms brought about a significant increase in the registration threshold. Previously, businesses were required to register for Value Added Taxes (VAT).
    • Under the VAT system if their turnover exceeded INR 5 lakhs, and this threshold varied from state to state.
    • In the former VAT system, businesses had the obligation to pay VAT if their turnover exceeded INR 5 lakhs, and it’s noteworthy that this threshold varied among states.
    • Additionally, service tax exemptions were provided to service providers with a turnover below INR 10 lakhs.
    • The GST framework, the threshold has been raised to INR 20 lakhs, resulting in exemptions for a substantial number of small-scale traders and service providers.
  • Enhanced regulatory check points
    • Before the new tax system, VAT and service tax had distinct compliance requirements and filing frequencies.
    • Excise returns were monthly, service tax returns varied for different business structures, and VAT returns had significant variation.
    • GST has simplified filing, requiring only one return. Utilizing a GST invoice generator brings added benefits, and GST contributes to regulating and instilling accountability in unorganized sectors like textiles and construction. 
  • Simplified Tax Scheme
    • Businesses with a turnover below INR 1.5 crore (INR 75 lakhs for specific states) can benefit from tax relief through the Composition Scheme.
    • This alternative leads to a significant reduction in the applicable tax rate and a substantial easing of compliance burdens.
    • When evaluating the pros and cons of GST, this factor emerges as pivotal. 
  • Hassel-free process
    • The introduction of user-friendly interfaces and effective online filing has yielded significant advantages.
    • The emergence of GST-compliant software vendors has made GST e-governance affordable and within reach.
    • These tools also guarantee seamless assessments for businesses of various sizes by simplifying the taxation jurisdiction between state and central governments. 

What are the disadvantages of GST?

Disadvantages of GST
  • Impulsive implementation of GST
    • The expedited introduction of GST on July 1, 2017, within the fiscal year presented obstacles for businesses seeking a rapid adjustment to the new tax structure.
  • Not following GST rules can lead to Penalties
    • Non-compliance with GST regulations can result in penalties. To ensure adherence, businesses should issue invoices compliant with GST, keep digital records, and promptly file returns.
    • Including crucial details such as GSTIN, places of supply, and Harmonized System of Nomenclature (HSN) codes in invoices is necessary to prevent fines and penalties.
  • Dual Control
    • While GST is often portrayed as a singular tax system, it effectively functions as a dual tax, with both state and central governments independently levying taxes on a single sale and service transaction. 
  • Increased tax burden on SMEs
    • The introduction of GST has heightened the tax burden on SMEs.
    • In contrast to the prior mandate for businesses with annual sales exceeding INR 1.5 crores to pay excise, the current tax structure subjects any company with a turnover surpassing INR 20 lakhs to taxation. 
  • Mismatch of Income Tax Credit (ITC)
    • Tax regulation changes necessitate significant upfront tax payments during initial applications.
    • Businesses can utilize tax input only in later stages, leading to a potential mismatch in ITC at the start of GST Tax Implementation. 

Advantages and disadvantages of GST: For Buyers

The implementation of GST signifies a substantial restructuring of the tax system, consolidating various indirect taxes into a cohesive framework. This streamlining enhances clarity for buyers, aiding their understanding and adherence to tax regulations. GST addresses the issue of tax cascading by eliminating layered taxes, potentially reducing the overall tax burden and resulting in decreased prices for goods and services.  

The provision of ITC allows buyers to offset taxes on purchases, assisting businesses in reducing tax liabilities by balancing input and output taxes, leading to potential cost savings. The emphasis on transparency and technology within the GST system encourages compliance among businesses, enhancing tax collection and minimizing the potential for tax evasion.  

Moreover, GST’s aim to standardize tax rates nationwide promotes fairness and equality for both businesses and consumers. In essence, GST brings about operational efficiency, financial savings, and equity in the tax structure, benefiting buyers and businesses alike. 

Advantages and disadvantages of GST: For Small Business

GST registration offers significant advantages for small businesses.

  • Firstly, it enhances credibility by ensuring compliance with tax regulations, building trust among customers and partners.
  • Secondly, businesses become eligible for ITC, allowing them to offset input taxes against sales taxes, thereby reducing overall tax liability and improving cash flow.
  • Additionally, GST Registration is often a prerequisite for participation in online marketplaces, expanding market reach and facilitating interstate trade without encountering multiple tax barriers.
  • Moreover, the benefit of threshold exemption eases the compliance burden for small businesses with turnovers below the specified limit.

GST Registration acts as a catalyst for small business growth by strengthening credibility, providing financial advantages through ITC, enhancing market access, and offering relief through threshold exemptions. Despite these benefits, GST Registration poses challenges, including increased compliance burden, technology adoption complexity, working capital strain, and classification errors, necessitating careful management for successful navigation. 

Disadvantages of having GST Number

  • Businesses utilizing the Goods and Services Tax Network (GSTN) portal grapple with technical hurdles, impeding the filing of returns and compliance efforts and causing delays and frustration. Adhering to GSTN regulations, particularly for small businesses with limited resources, heightens costs and imposes a substantial burden. 
  • Concerns regarding the security and privacy of sensitive financial data managed by GSTN underscore the necessity for robust data protection measures to avert severe consequences from potential security breaches. 
  • Small businesses may find it challenging to meet the technological demands of GSTN, requiring investments in digital infrastructure and expertise. This transition proves heavy for smaller enterprises adapting to the technological requisites of the tax system. 
  • The intricate shift from the old tax system to GSTN mandates that businesses acquaint themselves with new procedures and classifications, resulting in confusion and adjustment as they seamlessly integrate these changes. 
  • Heavy dependence on online platforms for GSTN transactions poses a challenge for businesses in areas with limited internet connectivity, underscoring the need for enhanced accessibility options, particularly in remote locations. 
  • Educational challenges surface as businesses must educate their staff on the new GSTN system. Insufficient awareness and education about GSTN processes can lead to errors in filing and compliance, highlighting the importance of comprehensive training programs. 
  • Many businesses rely on third-party services for GSTN interactions, introducing additional costs and complications if issues arise. This emphasizes the significance of dependable and consistent support from these third-party services. 
  • The initial transition to GSTN carried substantial financial implications, necessitating investments in technology, training, and compliance. Some businesses encountered financial challenges during this period, underscoring the need for meticulous financial planning and support during significant tax system changes.


In conclusion, the implementation of the GST in India has revolutionized the country’s tax structure, impacting businesses, buyers, and small enterprises. The transition to a unified nationwide tax system has streamlined processes, eliminated cascading taxes, and bolstered regulatory oversight.

Although the GST has brought relief to small traders through a higher registration threshold and simplified tax scheme, its swift implementation has posed challenges such as ongoing compliance issues, penalties, and dual control concerns.

1. What are the advantages of GST for small traders? 

Small traders gain advantages from GST through an elevated registration threshold, streamlined tax structures, and an emphasis on transparency and technology to combat tax evasion. 

2. What are the hurdles faced by businesses and buyers under GST? 

Frequently, businesses grapple with the complexities of meeting intricate GST filing requirements and adapting to the dynamic nature of tax rates and regulations. Buyers may experience challenges in comprehending and navigating the intricate GST framework, potentially leading to delays and complications in transactions. 

3. What are the benefits does GST Registration provide for small businesses? 

Small businesses can benefit from GST registration through the ability to claim refunds on taxes paid for inputs via input tax credit. Moreover, it boosts credibility and market competitiveness by establishing legal recognition, fostering trust with both customers and suppliers. 

4. What difficulties do businesses face when depending on online platforms for GST transactions? 

Challenges emerge, particularly in areas with restricted internet access, underscoring the importance of enhancing accessibility solutions. 

5. What impact does GST have on SMEs? 

Small businesses deal with more taxes under GST, and initial issues with ITC can cause financial problems. 

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