GST Impact on Businesses in India

This project is undertaken to fulfill information needs of the user at two levels i.e. Macro Level and Micro Level
On a macro level, it aims to provide a single document which can provide information about the impact of GST on various sectors like logistics, eCommerce, pharma, telecommunication, textile, real estate, agriculture, automobiles, small medium enterprises and startups.
Further, on a micro level, it aims to provide information to a businessperson information about GST from a business perspective so that one is able to (a) Comply with the law and (b) collect and pay to the government the correct amount of taxes on time and (c) Does not miss out on any credits that are available.

2. S.no Particulars Page Number
1 Need of the Study 3
2 Literary Survey 4-6
3 Objective of the study 7
4 Research Methodology 8
5 Meaning of GST and its Components 9-14
6 Scenario Before GST 15
7 Scenario After GST 16-18
8 Advantages & Disadvantages of GST 19-24
9 Analysis of GST impact on various sectors 25-41
10 Tax Planning in GST 42-43
11 Conclusion 44
12 References 45

3. 1. Need of the study

This project is undertaken to fulfill information needs of the user at two levels i.e. Macro
Level and Micro Level
On a macro level, it aims to provide a single document which can provide information
about the impact of GST on various sectors like logistics, ecommerce, pharma,
telecommunication, textile, real estate, agriculture, automobiles, small medium
enterprises and startups.
Further, on a micro level, it aims to provide information to a businessperson information
about GST from a business perspective so that one is able to (a) Comply with the law
and (b) collect and pay to the government the correct amount of taxes on time and (c)
Does not miss out on any credits that are available.

4. 2. Literary Survey
On my research mostly on Internet, I have found following research papers/works on GST
which provided me inputs and further direction in completing this report. The topic, name
of the researcher and a brief summary of work are mentioned below:-
A. Research Paper on an Impact of Goods and Service Tax
(GST) on Indian Economy by Shefali Dani

*Corresponding Author:
Shefali Dani
Director
GLS (J.P.Shah) Institute of Business Administration
GLS University, India
Tel: [phone]
E-mail: [email protected]

Received Date: February 16, 2016; Accepted Date: November 14, 2016; Published
Date: November 20, 2016
Citation: Dani S (2016) A Research Paper on an Impact of Goods and Service Tax (GST)
on Indian Economy. Bus Eco J 7: 264. doi: 10.4172/2151-6219.1000264
Copyright: © 2016 Dani S. This is an open-access article distributed under the terms of
the Creative Commons Attribution License, which permits unrestricted use, distribution,
and reproduction in any medium, provided the original author and source are credited.
Objective of the research:-
GST also known as the Goods and Services Tax is defined as the giant indirect tax
structure designed to support and enhance the economic growth of a country. More than
150 countries have implemented GST so far. It would be interesting to understand
whether this GST regime would hamper the growth and development of the country or
not?
Conclusion:-

The proposed GST regime is a half-hearted attempt to rationalize indirect tax structure.
More than 150 countries have implemented GST. The government of India should study
the GST regime set up by various countries and also their fallouts. At the same time, the
government should make an attempt to insulate the vast poor population of India against
the likely inflation due to implementation of GST. No doubt, GST will simplify existing
indirect tax system and will help to remove inefficiencies created by the existing current

5. heterogeneous taxation system only if there is a clear consensus over issues of threshold
limit, revenue rate, and inclusion of petroleum products, electricity, liquor and real estate.
Until the consensus is reached, the government should resist from implementing such
regime.
B. Effect of GST on Indian Growth by Eva Van Leemput and
Ellen A. Wiencek∗
Citation: Board of Governors of the Federal Reserve System International Finance
Discussion Paper Note March 2017

Received Date: March 14, 2017; Accepted Date: June 14, 2017; Published Date:
November 20, 2017
Copyright: © 2017 EVA ELEN. This is an open-access article distributed under the terms
of the Creative Commons Attribution License, which permits unrestricted use, distribution,
and reproduction in any medium, provided the original author and source are credited.
Objective of the research:
We want to understand the impact of GST on Indian Gross Domestic Product with the
help of this research.
Conclusion:
We studied the impact of the newly approved Goods and Services Tax (GST) in India,
which is scheduled to take effect in mid-2017. We collected the most notable indirect
taxes that the GST will subsume both at the central and the state level. We then analyzed
the effect of changes in the tax system through the lens of the trade model from Van
Leemput (2016).
We find that the GST is expected to raise overall Indian welfare and is projected to be an
inclusive policy in that it would be welfare improving for all Indian states. Furthermore, the
model suggests that the GST would lead to real GDP gains of 4.2 percent under the
baseline assumptions, driven by a surge in manufacturing output. We also find that the
distribution of goods across tax rate tiers matters for the growth outlook. As more goods
move to the upper tiers, the real GDP and manufacturing output gains would be
dampened.
There are a few caveats in the analysis, which are important to highlight. First, this is a
static model and hence, the impact of the GST should be interpreted as a long run effect.
Second, the model is unable to address services trade which has become an important
component of both domestic and international trade. In fact, the expected tax rate on
services is higher than the current tax rate on services, which could therefore dampen the
overall effects. Third, this note does not evaluate the impact on tax revenues. Even though

6. the model predicts a decrease in tax revenue, there are reasons to believe that the GST
could be revenue neutral. By simplifying the current complex tax system, the GST is
expected to broaden the overall tax base through increased transparency and
compliance. In addition, the increased rate on services might generate extra revenues.
Finally, the analysis not does not differentiate between intermediate input and final goods
trade. Even though both are subject to the tax system, there might be additional sources
of welfare gains through cheaper sourcing of intermediate inputs, thereby increasing the
competitiveness of the final good. In addition, the GST could reduce the inefficiencies in
the production process. The current system encourages production chains within state,
which could be suboptimal. Therefore, we view the studied impacts on real GDP growth
and manufacturing output in this note as likely lower bounds.

7. 3. Objective of the study
Goals which would be attained by the study are mentioned hereunder:-
a. Understanding of Indirect Tax Structure of India before GST
b. Understanding of Indirect Tax Structure of India after GST
c. Advantages & Disadvantages of GST
d. Penalties in GST for non-compliance
e. GST impact on various sectors in India
f. Tax planning in GST

8. 4. Research Methodology

A. Selection of Research Problem – This is to apprise the concerned authority who will
check & review the report that, I am working in the field of taxation for the past 5 years.
Further, implementation of GST in Indian Taxation Structure was a most drastic event
in my professional life. Hence, when I was asked to prepare a project for my first
semester, the only topic that came to my mind was “GST and its impact on Indian
Businesses”.

B. Extensive Literature Survey – For the preparation of this report, I have gone through
two researches (details mentioned in Literary Survey Heading). Further, as GST has
been recently implemented, there was a lot of material available on the internet (Clear
Tax.com, TOI.com, and ET.com) which helped me to understand GST and its impact
better. In addition to this, I referred a Book named Comprehensive Guide on Indirect
Taxation by Shri Yogendra Bangar & Vandana Bangar.

C. Preparing the Research Design – The Design for the research was prepared by
myself in consultation with Mr. Chandra Shekhar Tiwari (Senior Manager –
Procurement, Gems Education). Mr. Tiwari is my Superior at the place of my
employment.

D. Data collection – The data/facts/figures/content for this report has been collected from
various sources aptly mentioned in the references heading.

E. Data Analysis – After the collection of data from the above mentioned sources, it was
analyzed by myself and Mr. Ankur Gupta (Senior Consultant, Gems Education). Mr.
Gupta is a chartered accountant having vast experience in the taxation field. He is my
colleague at the place of my employment.

F. Preparation of Report – After the data analysis, report was prepared by myself. The
report was proof read by Mr. Ankur Gupta & Mr. Chandra Shekhar Tiwari.

9. 5. Meaning of GST & its Components

A. Meaning of GST
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and
Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into
effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-
stage, consumption based destination tax that is levied on every value addition.
In simple words, GST is an indirect tax levied on the supply of goods and services. This
law has replaced many indirect tax laws that previously existed in India.
GST is one indirect tax for the entire country.
Now let us try to understand the definition of Goods and Service Tax – “GST is
a comprehensive, multi-stage, destination-based tax that will be levied on every value
addition.”
a. Multi-stage
There are multiple change-of-hands when an item goes through along its supply chain:
from manufacture to final sale to the consumer.
Let us consider the following case:
 Purchase of raw materials
 Production or manufacture
 Warehousing of finished goods
 Sale to wholesaler
 Sale of the product to the retailer
 Sale to the end consumer
Goods and Services Tax will be levied on value added in each of these stages
which makes it a multi-stage tax.

10. b. Consumption Based Destination tax
Consider goods manufactured in Maharashtra and are sold to the final consumer
in Karnataka. Since Goods & Service Tax is levied at the point of consumption, in
this case, Karnataka, the entire tax revenue will go to Karnataka and not
Maharashtra.
c. Value Addition

The manufacturer who makes biscuits buys flour, sugar and other material. The
value of the inputs increases when the sugar and flour are mixed and baked into
biscuits.
The manufacturer then sells the biscuits to the warehousing agent who packs large
quantities of biscuits and labels it. That is another addition of value after which the
warehouse sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing
of the biscuits thus increasing its value.
GST will be levied on these value additions i.e. the monetary worth added at each
stage to achieve the final sale to the end customer.

11. B. Components of GST
There are 3 taxes applicable under this system i.e. CGST, SGST & IGST.
 CGST: Collected by the Central Government on an intra-state sale (Eg: transaction
happening within Maharashtra)
 SGST: Collected by the State Government on an intra-state sale (Eg: transaction
happening within Maharashtra)
 IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra
to Tamil Nadu)
C. Offences, Penalties & Appeals in GST
To prevent tax evasion and corruption, GST has brought in strict provisions for
offenders regarding penalties, prosecution, and arrest.
a. Offences
There are 21 offenses under GST. A few important ones are mentioned here:-
 Not registering under GST, even though required by law. (Read our article for the
list of those who have to register mandatorily under GST)
 Supply of any goods/services without any invoice or issuing a false invoice
 The issue of invoices by a taxable person using the GSTIN of another bona fide
taxpayer
 Submission of false information while registering under GST
 Submission of fake financial records/documents or files, or fake returns to evade
tax
 Obtaining refunds by fraud
 Deliberate suppression of sales to evade tax
 Opting for composition scheme even though a taxpayer is ineligible
b. Penalty
 If any of the offenses are committed then a penalty will have to be paid under
GST. The principles on which these penalties are based are also mentioned by
law.
 For late filing
Late filing attracts penalty called late fee. The late fee is Rs. 100 per day per Act.
So it is Rs. 100 under CGST & 100 under SGST. Total will be Rs. 200/day*. The
maximum is Rs. 5,000. There is no late fee on IGST in case of delayed filing.
Along with late fee, interest has to be paid at 18% per annum. It has to be
calculated by the taxpayer on the tax to be paid. The time period will be from the
next day of filing to the date of payment.

12.  For not filing
If you don’t file any GST return then subsequent returns cannot be filed. For
example, if GSTR-2 return of August is not filed then the next return GSTR-3 and
subsequent returns of September cannot be filed. Hence, late filing of GST return
will have a cascading effect leading to heavy fines and penalty (see below).
 For the 21 offenses with no intention of fraud or tax
evasion
An offender not paying tax or making short payments must pay a penalty of 10% of
the tax amount due subject to a minimum of Rs. 10,000.
Consider — in case tax has not been paid or a short payment is made, a minimum
penalty of Rs 10,000 has to be paid. The maximum penalty is 10% of the tax
unpaid.
 For the 21 offenses with the intention of fraud or tax
evasion
An offender has to pay a penalty amount of tax evaded/short deducted etc.,
i.e., 100% penalty, subject to a minimum of Rs. 10,000.

Additional penalties as follows:-
Tax amount
involved
100-200
lakhs
200-500
lakhs
Above
500 lakhs
Jail term Upto 1
year
Upto 3
years
Upto 5
year
Fine In all three cases

*Cases of fraud also face penalties, prosecution, and arrest.
c. Search & Seizure Under GST
The Joint Commissioner of SGST/CGST can order for a search. He will order a
search on the basis of results of inspection (or other reason) if he has reasons to
believe –
 There are goods which might be confiscated

13.  Any documents or books or other things which are hidden somewhere. Such items
can be useful during proceedings
Such incriminating goods and documents can be seized.
d. Compounding of Offences Under GST
Compounding of offenses is a shortcut method to avoid litigation. In case
of prosecution for an offense in a criminal court, the accused has to appear before
the Magistrate at every hearing through an advocate. This becomes expensive and
time-consuming.
In compounding, the accused is not required to appear personally and can be
discharged on payment of compounding fee which cannot be more than the
maximum fine as applicable under GST.
Compounding will save time and money. However, compounding under GST is not
available for cases where the value involved exceeds 1 crore.
e. Prosecution Under GST
The prosecution is conducting legal proceedings against someone in respect of a
criminal charge.
A person committing an offense with the deliberate intention of fraud, becomes
liable to prosecution under GST, i.e., face criminal charges. A few examples of
these offenses are-
 Issue of an invoice without supplying any goods/services- thus taking input credit
or refund by fraud
 Obtaining refund of any CGST/SGST by fraud
 Submitting fake financial records/documents or files, and fake returns to evade tax
 Helping another person to commit fraud under GST
f. Arrest under GST
If the Commissioner of CGST/SGST believes a person has committed a certain
offense he can be arrested under GST by any authorized CGST/SGST officer (click
here for the list of offenses for which one can be arrested).
The arrested person will be informed of the grounds for his arrest. He will appear
before the magistrate within 24 hours in case of a cognizable offense (Cognizable
offenses are those where the police can arrest a person without an arrest warrant.
They are serious crimes like murder, robbery, counterfeiting).

14. g. Appeals
A person unhappy with any decision or order passed against him under
GST can appeal against such decision.
The first appeal against an order by an adjudicating authority goes to the First
Appellate Authority.
If the taxpayer is not happy with the decision of the First Appellate Authority they
can appeal to the National Appellate Tribunal, then to the High Court, and finally to
the Supreme Court.

15. 6. Scenario before GST



In the earlier indirect tax regime, there were many indirect taxes levied by both
state and center. States mainly collected taxes in the form of Value Added Tax
(VAT). Every state had a different set of rules and regulations.
Interstate sale of goods was taxed by the Center. CST (Central State Tax) was
applicable in case of interstate sale of goods. Other than above there were many
indirect taxes like entertainment tax, octroi and local tax that was levied by state
and center.
This lead to a lot of overlapping of taxes levied by both state and center.
For example, when goods were manufactured and sold Excise Duty charged by
the center was charged by the center. Over and above Excise Duty, VAT was also
charged by the State. This lead to a tax on tax also known as cascading effect of
taxes.
The following is the list of indirect taxes in the pre-GST regime:
 Central Excise Duty
 Custom Duty
 Special Additional Duty of Customs
 State VAT
 Central Sales Tax
 Purchase Tax
 Luxury Tax
 Entertainment Tax
 Entry Tax
 Taxes on lotteries, betting, and gambling

16. 7. Scenario after GST
In the pre-GST regime (as discussed above), there was a web of multiple taxes
levied by Centre & State. Further, due to over lapping of taxes, Tax on tax
(Cascading Effect of Taxes) was paid by the consumers, resulting in higher prices
paid by the consumers.
GST corrected this multiple taxes environment by introducing uniform tax rate for
goods & services in the entire country.
Now, let’s see what happens to the cost of goods and the taxes for a manufacturer
of biscuit based in Delhi, in Pre GST and GST regime.
Tax calculations in earlier regime:-

Action Cost
Tax
Name
Tax
Rate
(%)
Tax
Amount
Total Cost
(Including
Tax)
Purchase of Floor &
Sugar from Delhi
1000 VAT 12.50 125.00 1125.00
Purchase of
Chocolate from
Mumbai
500 CST 12.50 62.50 562.50
Services (Labor)
used in
manufacturing of
Biscuit
1000
Service
Tax
15.00 150.00 1150.00
Duty paid on
purchase of
machinery for
manufacturing
10000
Excise
Duty
12.50 1250.00 11250.00
Duty levied on
manufacturing of
Biscuit
12500
Excise
Duty
12.50 162.50 162.50
Total Cost (including
taxes on purchase or
input tax)
14250.00
Profit Margin * 10% 1425.00
Taxes on Sales (after
taking input of taxes
already paid)
15675.00
VAT or
CST
12.50 1771.875 17446.88

17. Tax calculations in current regime:-

Action Cost
Tax
Name
Tax
Rate
(%)
Tax
Amount
Total Cost
(Including
Tax)
Purchase of Floor &
Sugar from Delhi
1000 GST 18.00 180.00 1180.00
Purchase of
Chocolate from
Mumbai
500 GST 18.00 90.00 590.00
Services (Labor)
used in
manufacturing of
Biscuit
1000 GST 18.00 180.00 1180.00
Duty paid on
purchase of
machinery for
manufacturing
10000 GST 18.00 1800.00 11800.00
Total Cost
(including taxes on
purchase or input
tax)
14750.00
Profit Margin * 10% 1475.00
Taxes on Sales
(after taking input of
taxes already paid)
16225.00 GST 18.00 670.5 16895.50

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in
acquiring input. What happens in this case is, the individual who has paid a tax already
can claim credit for this tax when he submits his taxes.
In the end, every time an individual is able to claim input tax credit, the sale price is
reduced and the cost price for the buyer is reduced because of a lower tax liability. The
final value of the biscuits is therefore reduced from Rs.17446 to Rs. 16,895. Thus
reducing the tax burden on the final customer.
Further, GST also brought with it a single nation-wide system of waybills by
the introduction of “E-way bills”. This system started on 1st April 2018 for Inter-state

18. movement of goods and 15th April 2018 for intra-state movement of goods in a staggered
manner. By this system, manufacturers, traders & transporters are benefitted by a
common portal where e-way bills can be generated and presence of its visibility to all
stakeholders in the process of moving goods from the place of its origin to its destination.
Tax authorities are also in vantage as this reduces the time at check -posts and help
reduce tax evasion.

19. 8. Advantages & Disadvantages of GST
A. Advantages of GST
a. GST eliminates the cascading effect of tax
GST is a comprehensive indirect tax that was designed to bring the indirect taxation under
one umbrella. More importantly, it is going to eliminate the cascading effect of tax that
was evident earlier.
Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to
understand what Tax on Tax is:
Before GST regime:-
A consultant offering services for say, Rs 50,000 and charged a service tax of 15% (Rs
50,000 * 15% = Rs 7,500).
Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT (Rs 20,000 *5%
= Rs 1,000).
He had to pay Rs 7,500 output service tax without getting any deduction of Rs 1,000 VAT
already paid on stationery.
His total outflow is Rs 8,500.
Under GST regime:-

GST on service of Rs 50,000 @18% 9,000
Less: GST on office supplies (Rs 20,000*5%) 1,000
Net GST to pay 8,000
b. Higher threshold for registration
Earlier, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in most
states) was liable to pay VAT. Please note that this limit differed state-wise. Also, service
tax was exempted for service providers with a turnover of less than Rs 10 lakh.
Under GST regime, however, this threshold has been increased to Rs 20 lakh, which
exempts many small traders and service providers.
Let us look at this table below:

20. Tax Turnover Threshold Limits for one year
Excise 1.5 crores
VAT 5 lakhs in most states
Service Tax 10 lakhs
GST 20 lakhs (10 lakhs for NE states)
c. Composition scheme for small businesses
Under GST, small businesses (with a turnover of Rs 20 to 1.5 crores) can benefit as it
gives an option to lower taxes by utilizing the composition scheme. This move has brought
down the tax and compliance burden on many small businesses.

Composition Scheme is a simple and easy scheme under GST for taxpayers. Small
taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover.
The fixed rates are mentioned hereunder:-


Further, the following people cannot opt for the scheme:
 Taxpayer supplying exempt supplies.
 Supplier of services other than restaurant related services
 Manufacturer of ice cream, pan masala, or tobacco
 Casual taxable person or a non-resident taxable person
 Businesses which supply goods through an e-commerce operator

21. In addition, to this following conditions must be satisfied in order to opt for composition
scheme:
 No Input Tax Credit can be claimed by a dealer opting for composition scheme
 The taxpayer cannot make any inter-state supply of goods.
 The dealer cannot supply GST exempted goods
 Taxpayer has to pay tax at normal rates for transactions under Reverse Charge
Mechanism
 If a taxable person has different segments of businesses (such as textile, electronic
accessories, groceries, etc.) under the same PAN, they must register all such
businesses under the scheme collectively or opt out of the scheme.
 The taxpayer has to mention the words ‘composition taxable person’ on every
notice or signboard displayed prominently at their place of business.
 The taxpayer has to mention the words ‘composition taxable person’ on every bill
of supply issued by him.
 Those supplying goods can provide services of upto Rs. 5 lakh.
d. Simple and easy online procedure
The entire process of GST (from registration to filing returns) is made online, and it is
super simple. This has been beneficial for start-ups especially, as they do not have to run
from pillar to post to get different registrations such as VAT, excise, and service tax.
e. The number of compliances is lesser
Earlier, there was VAT and service tax, each of which had their own returns and
compliances. Below table shows the same:

22. Under GST, however, there is just one, unified return to be filed. Therefore, the number
of returns to be filed has come down. There are about 11 returns under GST, out of which
4 are basic returns which apply to all taxable persons under GST. The main GSTR-1 is
manually populated and GSTR-2 and GSTR-3 will be auto-populated.
f. Defined treatment for E-commerce operators
Earlier to GST regime, supplying goods through e-commerce sector was not defined. It
had variable VAT laws. Let us look at this example:
Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a VAT
declaration and mention the registration number of the delivery truck. Tax authorities
could sometimes seize goods if the documents were not produced.
Again, these e-commerce brands were treated as facilitators or mediators by states like
Kerala, Rajasthan, and West Bengal which did not require them to register for VAT.
All these differential treatments and confusing compliances have been removed under
GST. For the first time, GST has clearly mapped out the provisions applicable to the e-
commerce sector and since these are applicable all over India, there should be no
complication regarding the inter-state movement of goods anymore.
g. Improved efficiency of logistics
Earlier, the logistics industry in India had to maintain multiple warehouses across states
to avoid the current CST and state entry taxes on inter-state movement. These
warehouses were forced to operate below their capacity, giving room to increased
operating costs.
Under GST, however, these restrictions on inter-state movement of goods have been
lessened.
As an outcome of GST, warehouse operators and e-commerce aggregators players have
shown interest in setting up their warehouses at strategic locations such as Nagpur (which
is the zero-mile city of India), instead of every other city on their delivery route.
Reduction in unnecessary logistics costs is already increasing profits for businesses
involved in the supply of goods through transportation.
h. Unorganized sector is regulated under GST
In the pre-GST era, it was often seen that certain industries in India like construction and
textile were largely unregulated and unorganized.
Under GST, however, there are provisions for online compliances and payments, and for
availing of input credit only when the supplier has accepted the amount. This has brought
in accountability and regulation to these industries.

23. B. Disadvantages of GST
a. Increased costs due to software purchase
Businesses have to either update their existing accounting or ERP software to GST-
compliant one or buy a GST software so that they can keep their business going. But both
the options lead to increased cost of software purchase and training of employees for an
efficient utilization of the new billing software.
b. Difficulty in Being GST-compliant
Small and medium-sized enterprises (SME) who have not yet signed for GST have to
quickly grasp the nuances of the GST tax regime. They will have to issue GST-complaint
invoices, be compliant to digital record-keeping, and of course, file timely returns. This
means that the GST-complaint invoice issued must have mandatory details such as
GSTIN, place of supply, HSN codes, and others.
c. GST will mean an increase in operational costs
As we have already established that GST is changing the way how tax is paid, businesses
will now have to employ tax professionals to be GST-complaint. This will gradually
increase costs for small businesses as they will have to bear the additional cost of hiring
experts.
Also, businesses will need to train their employees in GST compliance, further increasing
their overhead expenses.
d. GST came into effect in the middle of the financial year
As GST was implemented on the 1st of July 2017, businesses followed the old tax
structure for the first 3 months (April, May, and June), and GST for the rest of the financial
year.
Businesses may find it hard to get adjusted to the new tax regime, and some of them are
running these tax systems parallelly, resulting in confusion and compliance issues.
e. GST is an online taxation system
Unlike earlier, businesses are now switching from pen and paper invoicing and filing to
online return filing and making payments. This might be tough for some smaller
businesses to adapt to.
f. SMEs will have a higher tax burden
Smaller businesses, especially in the manufacturing sector will face difficulties under
GST. Earlier, only businesses whose turnover exceeded Rs 1.5 crore had to pay excise
duty. But now any business whose turnover exceeds Rs 20 lakh will have to pay GST.

24. However, SMEs with a turnover upto Rs 1.5 crore can opt for the composition scheme
and pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The catch
though is these businesses will then not be able to claim any input tax credit. The decision
to choose between higher taxes or the composition scheme (and thereby no ITC) will be
a tough one for many SMEs.

25. 9. Analysis of GST impact on various sectors
A. Impact of GST on Manufacturers
GST is a boost to competitiveness and performance in India’s Manufacturing Sector.
Declining exports and high infrastructure spending are just some of the concerns of this
sector. Multiple indirect taxes had also increased the administrative costs for
manufacturers and distributors and with GST in place, the compliance burden has eased
and this sector will grow more strongly.
But due to GST, businesses which were not under the tax bracket previously will now
have to register. This will lead to lesser tax evasion.
Overall, GST is expected to have a positive impact and boost manufacturing. Here
is why:-
 Removal of multiple valuations will create simplification: The old tax regime
subjects manufactured goods to excise duty, which is calculated differently in
different states. While some states calculate excise duty based on transaction
value, others calculate it based on quantity. Most manufactured goods’ excise duty
is currently considered on MRP valuation. This creates great confusion in valuation
methods. GST will usher in an era of transaction-based valuation, making
calculation of tax much simpler for the manufacturer.

 Entry tax sub summation will reduce cost of production: The subsuming of the
entry tax for inter-state transfers is a key reason for reducing cost of goods and
services. For example, a supplier of cement from Maharashtra to Karnataka was
earlier required to pay entry tax when the supply crossed the interstate border. For
Karnataka, the entry tax rate was 5% of the value of the goods. The supplier would
pass on this additional cost to the customer, resulting in increase in selling price.
With entry tax being subsumed, the supplier need not pay the entry tax rate amount
and consequently, not charge the customer this amount either.
 Improved cash flows: Under the new tax laws, manufacturers can claim input tax
credit on input goods, which seems to be a positive sign for cash flow. SMEs are
keenly observing the time difference between input tax credit and the credit being
available.
 Single registration process will provide ease of registration: The old regime
required manufacturers to register each manufacturing facility separately, even
those in the same state. GST will simplify the plant registration process by allowing
single registration for all manufacturing entities within the same state. Previously,
if a brick manufacturer had factories in Bangalore, Hubli and Dharwad, each unit
had to be registered separately. Under GST, all of these factories would be jointly
registered under the state of Karnataka. Of course, different state-entities will
require separate registrations under GST too.
 Removal of cascading will lead to lower cost-to-consumer: The old tax regime does
not allow manufacturers to claim tax credit on inter-state transaction taxes such as

26. octroi, central sales tax, entry tax etc. This results in cascading of taxes—an extra
cost to the manufacturing company. Manufacturers end up passing on these extra
costs to the consumer. The unified GST regime will eliminate multiple taxes and
thus lower cost of production; this, in turn, will mean lower pricing for the consumer.
For example, prior to 1 July 2017, SMEs in manufacturing used to pay Excise Duty,
Central State Tax and sometimes VAT too at 12.5%, 2% and 5.5% respectively.
With GST in effect, they are required to pay 18% in taxes.
 Restructuring of supply chain: To align with the GST law, businesses will be
required to realign their supply chains. However, this is a blessing in disguise. Till
date, most supply chain structuring has been designed around how to manage tax
regimes. With a single tax regime, this will change, and supply chain structures will
focus on driving business efficiencies. An example is that of warehousing. The old
regime demands that warehouse management be based on arbitrage between
varying VAT rates across states. This is expected to change to bring in economic
efficiencies and more customer-centricity going ahead.

Manufacturers, however, are concerned about the following aspects:
 Increase in immediate working capital requirements: Branch transfers and depot
transfers will be treated as taxable under GST; IGST will be applicable on these
transfers. This increases the requirement for immediate working capital. Another
reason for increased working capital requirements is that the receipt of advance is
taxable as per GST rules. Also, stock transfers are treated as “supply” and hence
are taxable under the GST regime.
 More stringent and elaborate transaction management: GST aims to achieve
better tax compliance. To make this possible, manufacturers must work towards
streamlining existing transactions; this means additional resources and costs. For
example, under GST, credit in respect to an invoice can be taken only up to one
year of the invoice date. Also, the provision of reverse charge means that the
liability to pay tax falls on the recipient of goods/services instead of the supplier.
The payment of reverse charge is dependent on the time of supply (30 days from
the date of issue of invoice by the supplier in case of goods and 60 days for
services).These changes will require manufacturers to carefully assess and track
their supply processes, especially the timelines. This may mean hiring a better
skilled compliance workforce, and better systems and software. More legal
considerations will also mean more costs.
 Lack of clarity on local exemptions: Despite GST being proposed as a unifying
platform for indirect tax, all the components for manufacturing are not yet clear.
One such area is localized area-based exemptions. The old structure provides
certain exemptions for certain goods in specific states (for example the North East
or hilly states). Under GST, most of these exemptions are likely to be removed,
resulting in a negative cost-impact on these manufacturers. Such companies must
reassess their financial position in view of such likely changes.

27. B. Impact of GST on Service Providers
India is a strong services-led economy with the sector generating a significant chunk of
employment opportunities and contributing to the GDP. It contributed around 66.1% of
India’s Gross Value Added (GVA) growth in 2015-16, & is the biggest magnet for Foreign
Direct Investment (FDI), and an important net foreign exchange earner. Some of the core
areas of service are IT and ITES, banking and financial services, outsourcing, research
and development, transportation, telecommunications, real estate and professional
services.
As of March 2014, there were 12, 76,861 service tax assesse’s in the country out of which
only the top 50 paid more than 50% of the tax collected nationwide. Most of the tax burden
is borne by domains such as IT services, telecommunication services, the Insurance
industry, business support services, Banking and Financial services, etc. Some of the
positive impacts of GST on service providers are:
 Clear distinction between goods and services: The old regime does not clearly
distinguish between goods and services, leading to many instances of double taxation.
For example, software is often treated as a good and as a service. The new regime clearly
distinguishes goods from services, and also defines principal supply, composite supply,
and mixed supply separately. For example, when an individual books a Rajdhani train
ticket which includes meals, it involves a composite supply wherein the ticket and the
meals cannot be sold separately. Since the transportation of the passenger is the principal
supply, the rate of tax will only be charged on the ticket. Alternatively, for items that can
be sold separately, but are sold together, like a hamper of snacks and aerated drinks, the
rate of tax applicable on the higher product will be levied on the composite supply. There
are also separate definitions for supply of software, works contracts, and leasing
transactions to bring in more clarity and transparency on their taxation rules.
 Streamlining of taxation for intra-state service providers: Due to the state level taxes
being subsumed, it will become easier for service providers that operate within the state
to know their tax obligations better. Such companies can move away from multiple tax
calculations. For example, a CD with software incurs Excise, Service Tax, and VAT under
the old regime; this is simplified to one unified rate under GST, making tax calculations
and administration easier for intra-state service providers.
 Input credit facility: VAT payment under the old regime was not eligible for setting off
against output liabilities. The input credit facility is now made available to service
providers as well, wherein tax paid on any inputs can be claimed and adjusted against
tax paid on output. This will result in direct cost savings for service providers and may
even offset the expected rise in end pricing. For example, an AC fitter who paid tax on
the raw material for AC fittings (pipe, tape, solder etc.) will be able to claim that tax, and
end up spending less on the cost of fitting the AC. This cost advantage can spill over to
the customer as well.
GST offers clear benefits to the services sector, and while some of these measures entail
additional cost and effort in the short term, businesses can look forward to simpler
operations with the new taxation laws.

28. All in all, services industries must gear up for better ways to manage business. Now is
the time for them to equip themselves with the right people, processes and technologies,
and emerge as service providers of the future.
D. Sector-wise Impact Analysis
a. Logistics & Supply Chain
In a vast country like India, the logistics sector forms the backbone of the economy. We
can fairly assume that a well-organized and mature logistics industry has the potential to
leapfrog the “Make In India” initiative of the Government of India to its desired position.
GST impact on logistics and supply chain will also bring some major changes in the way
these domains operate, as well as their bookkeeping activities. Logistics is a small but
major part of supply chain management that concerns the administration of goods
distribution in an efficient manner. We will therefore initially look at the effect of GST on
logistics and then see how it impacts the broader domain of supply chain management.
The logistics industry includes the road transport sector (comprising unorganized and
small enterprises, trucking companies and other fleets), the storage and warehousing
domain and the third-party logistics. The operational efficiency of this industry had been
falling due to the complexity of networks, growing coordination costs across supply
chains, inadequate infrastructure and the levying of entry fee in different states. In addition
to these, the multitude of business taxes was making logistics management an unwieldy
and expensive process.
Most firms had to establish hubs and transit points in several states to avoid the state
value added tax (VAT) because the goods directly supplied to dealers were taxed as per
the VAT rate, but the transfer from the warehouse was treated as a stock transfer and did
not attract VAT. However, this only caused more problems in accounting and lack of
clarity for companies, while also resulting in opportunities for tax evasion.
With GST now having replaced the multiple state taxes, there is no longer the long-
prevalent need to install a hub across all states. Companies can remodel their supply
chains and consolidate their hub operations to benefit from large-scale operations. It will
also help them to use efficient practices like bulk breaking and cross-docking through a
centralized location.
Under GST, the tax on warehouse and services involving manual labor has increased to
18% from the previous tax rate of 15%. With this change, a third-party Logistics Company
will have greater incentive to provide services where the degree of value addition is high
and where input tax credit can be claimed. This, in turn, will help in the consolidation of
storage and warehouse sector.
With the convenience of entry across states by measures like the e-way bill,
transportation delays will be reduced, although it will also call for streamlined IT systems
and readily usable documentation at the entry points. For the third-party logistics
companies, the costs of designing a logistics network will be less, and asset-light firms

29. will be able to adapt quickly and reap more advantages in comparison to asset-heavy
firms.
Impact of GST on supply chain
Before we look at the GST impact on supply chain, it must be understood that supply
chain management is vital for the running of business organization’s producing and
distributing merchandise. Each business has standards for inventory turnaround, and
these must be diligently adhered to in order to ensure optimum profit for the organization.
A loss of inventory at any point will result in a loss of value.
Post the implementation of GST, the benefits accrued by entities in supply chain
management mechanism include:-
 Customization of supply chain – Under GST, manufacturers can shift towards tailored
supply chain models as per customer requirements. The removal of stock transfer
benefits can help in increasing the share of direct dispatches for medium and large-sized
dealerships.
 Superior inventory management – After the elimination of multiple state-level taxes in
lieu of a uniform GST rate, the stock points have been optimized and channel inventories
reduced. There will be fewer transit stays after GST, which will help in advancing lead
times while also reducing inventory levels at stocking points. With more potential for
consolidation, warehouse management can also become more efficient.
 Tangential decrease in incoming logistics costs – An impact of GST on supply chain
will also be seen in the form of tangential benefits for direct out-of-state procurements
and logistics costs. This can help manufacturers to expand their vendor base outside
state boundaries and alter the sourcing models profitably.
 Cash flow management for export businesses – Due to GST, tax exclusion benefits
will continue with minimum effect on the bottom line, and a streamlined tax system will
help in promoting more exports.
Overall, the logistics and supply chain management industry has been touted as one of
the primary beneficiaries of GST structure. To begin with, there will be more compliance
and adjustment costs because the frequency of filing returns has increased for
businesses. Further, to claim the input tax credit, compliance will be expected from every
single party across the value chain. This may hurt the profitability of the industry in the
short run, but in the long run, operational efficiency is bound to enhance.
b. E-Commerce
Presently, GST appears to be an assortment of compliance guidelines. The enhanced
regulatory requirements might take a seller’s focus away from operations for some time.
However, GST as a single tax for products across India will be beneficial for all e-
commerce sellers in the long run because of the aspect of transparency in trade brought
forth by this new indirect tax reform. Let’s discuss the impact of GST on an online seller’s
operations:

30.  Increased reach of e-commerce sellers: GST has opened avenues for small and
medium sized e-commerce sellers to compete with larger enterprises at a national level.
Previously, these sellers were limited to operating within the confines of one state due to
the looming tax rates of trading across multiple states. By unifying the taxation, e-sellers
need not be burdened by multiple taxes while selling to consumers across various states.
 Compulsory registration required: The government has specified a turnover threshold
of Rs 20 lakh for registration under GST. This has been relaxed to Rs 10 lakh for north-
eastern states. However, for e-commerce sellers, registration is mandatory, irrespective
of whether they fall below the turnover slab of Rs 20 lakh or not. Removal of the threshold
for registration will help bring more online businesses into the sphere of taxation.
 Ineligible for Composition Scheme: E-commerce sellers are not eligible for the
Composition Scheme either. The Composition Scheme permits businesses with a
turnover of under Rs 75 lakh to file quarterly returns instead of monthly and pay tax at a
low rate of 2%. Although this might seem to be a disadvantage for e-commerce sellers,
the number of documents required to file for the Composition Scheme is relatively higher,
reducing the burden of document collation on the seller.
 Tax collected at source (TCS): E-commerce marketplaces are required to deduct 2%
TCS on the net value of sales as the GST liability of the seller and deposit it with the
government. Further, the sales reported by both the e-commerce marketplace as well as
the seller need to tally at the end of each month. Discrepancies, if any, will be added to
the turnover of the seller and they will be liable to pay GST on the additional amount. This
measure will weed out fraudulent sellers and shall subsequently build trust between
marketplaces and sellers.
 Filing of tax returns: The e-commerce sellers need to follow the same process that is
followed by brick-and-mortar retailers. Form GSTR-1, containing details of outward
supplies, needs to be submitted by the 10th of every month. The seller will receive Form
GSTR-2A by the 11th of the same month, which contains details of the tax collected by
the e-commerce marketplace. They then need to review and submit Form GSTR-2 by the
15th of the month. Discrepancies in supplies are to be submitted through Form GST ITC-
1 by the 21st of the same month. This would require businesses to be particular about
tallying data coming from different sources before filing returns. Taking the help of a
professional GST services provider in meeting compliance has become a requisite in light
of these regulations.
 Increase in Credit: The GST law has established ‘input tax credit’ to cover goods or
services used by a company in the course of business. E-commerce sellers need to
establish a direct relationship between the input material and the final product/service is
eliminated. Much like other registered entities under GST, e-commerce sellers too can
now avail input credit.
 Refunds under cash on delivery: Consumers extensively opt for ‘cash on delivery’ in
India and such sales witness return of orders to the tune of 18%. The reconciliation
process for refunds takes around 7-10 days. Initially, there might be confusion around
generating refunds for cancelled orders where taxes have already been filed.

31. c. Pharmaceutical
Goods and Service Tax is having a constructive impact on the Indian Pharmaceutical
Industries as it has increased the manufacturing cost. Most drugs mentioned in 5% tax
bracket under GST were previously covered in 4% tax bracket under VAT. It will eliminate
the cascading effect of multiple taxes applied on One Product. Under GST, Ayurvedic
medicines could get costlier as they would be taxed at the rate of 12% which were earlier
covered by 4% tax bracket under VAT regime. Because of this hike in the tax rates, MRP
has to be revised to absorb overall effect.
As GST is applicable on phases of the supply chain, it will have a negative impact on
Free-drugs samples, Bonus/Discount Schemes, Inter-state stock transfer, etc.
Beside negative impact, there are some negative positive impacts also, these are
mentioned hereunder:-
 Traditional Cost and Distribution Model will get replaced by supply chain efficiencies due
to discontinuance of the Central Sales tax and interstate transactions between two
dealers will become tax neutral. Pharmaceutical companies will experience improved
operational efficiency and improved compliance. It will also benefit warehousing strategy.
As of now, companies kept their warehouses in different States to avoid Central Sales
tax of different States. Now, they can consolidate warehouses at strategic locations as
they will only have to pay Integrated GST (IGST) on inter-state supplies of Goods and
Services. GST will surely benefit pharma sector by way of reduced complexities and the
consolidation of multiple taxes into a single rate.
 Now under GST, various distribution channels will now be required to obtain registration
and file returns. Earlier they were not required to obtain registration since they were not
involved in the payment of taxes and filing of returns. This will increase compliance and
would curb practices of non-issuance of invoice.
The Pharmaceutical Industry of India now has restored from GST impacts with correction
in drug inventory of stockiest. The validation is done based on a small increase seen in
domestic market sales of major pharmaceutical companies which are Torrent
Pharmaceuticals Limited, Alembic Pharmaceuticals Limited, and Cadila Healthcare
Limited.
The in-house drafting business of Torrent Pharmaceuticals Limited marked revenue of
Rs. 607 crore in the July-September 2017 quarter, a hike of 30% above Rs 464 crore
revenues recorded in Q1 in the 2017-2018 financial year. Accordingly, Alembic
Pharmaceuticals Limited’s sales scale went up by 63.3% to Rs. 385 crore in domestic
business specifically in Q2 comparing the Rs 236 crore in Q1. Besides, Cadila Healthcare
also observed the surge in domestic business sales to Rs 895 crore in Q2 for 2017-2018
fiscal year.
As per the consideration of Pharma industries, the April-June domestic market sales
declined due to stockiest diminished drug inventories before GST roll out to load off dual
taxation on stocked goods. The stocks further reduced in July as inventory days
diminished to 17 in the meantime of GST roll out. As per the All India Organization of

32. Chemists and Druggists (AIOCD), the inventory day’s period used to be 40 days
previously.
Viranchi Shah, the chairman of the Gujarat State Board-Indian Drug Manufacturers
Association (IDMA) said, “The Indian pharmaceutical market’s growth had eased to
around 3%, which has again picked up to 9% for the month of October.”
d. Telecommunications
India’s web of telecom industries is world’s second largest wireless market, which
includes over a billion of active users. The scales shown by them shows their efforts
to become one of the biggest success stories of the country. Work done by these firms
literally have revolutionized the lives of people here.
Telecom sector of India can basically be divided into three parts, the telecom service
providers, infrastructure providers and equipment manufacturers. The tower
companies had been involved in legal activities referring the accrual of tax credits.
There was strict requirement of a system which can uphold the seamless tax inputs
for this particular sector by which the finalized result might not be a burden.
The euphoria of GST brings in sets of cheers, but nothing can be implemented with
100 percent accuracy and without having any issues. There are some sector-specific
issues related to GST, especially with the telecom sector. The GST plans related to
telecom sector of the country may be needed to figure out once again, as it seems to
come as a mixed packet of sweet and sour candies for this sector. Struggling with high
taxes, the sector is already under a burden.
Talking about the advantages, GST comes with an ease in operating the business
and having a unified tax approach. It is expected to reduce tax avoidance and increase
input credit. But as we have mentioned above, good things can not come without
having any drawback in it. The tax rate after GST is now 18 percent from the previous
15 percent resulting in a load over the telecom sector which is already under financial
burden.
The next issue in sight is that, the telecommunication firms currently works for area or
circle wise service, but generating a state-wise revenue will result a large number of
IT firms and accounting systems, and will need a great increment in compliance effort,
multiple audits, multiple assessment, and a chain impact of taxes on account of credit
blockages in each and every state.
e. Textile
Textile sector of India is one of the top contributors toward the development of the
Indian economy, concerning GDP, employment, export promotion, etc. Known as one
of the oldest manufacturing industry in the country and the second largest, after
agriculture, the textile industry employs both skilled and unskilled people. The industry
contributes over 10 percent of the total annual exports of the country which is likely to
increase under the new Goods and Services Tax (GST) regime.

33. The textile industry has two segments, organized and unorganized. The unorganized
textile sector includes handicraft, handloom, small and medium scale mills whereas
an organized sector consists of spinning, garment and apparel which uses modern
machinery and techniques. Under the GST purview, the rate structure for textile is
decided at 5% for Cotton Fibre and 18% for manmade synthetic Fibre while totally
exempting silk and jute from the same. The rate of GST on apparels is also decided
based on the category, as the apparels whose cost is below Rs. 1000 will attract 5%
GST and apparels above this mark will attract 12% GST.
The GST council has mentioned some rules regarding the e-way bill and rates. At the
same time, the GST rates on job work of textiles and the related products that are
manufactured are reduced from 18% to 5%. With the implementation of GST, the
difficult data of the rates and categorization of GST in the textile sector has been eased
out. The decline in pricing will invert the supply rule directly, and there will be a boost
in demand instantly. Due to the fall in price, there will be competition in the market
thus creating a healthy environment for export. However, on the domestic front, the
manufacturers may face a setback as the price fall may result in less revenue
generation.

Despite some changes under the GST regime, the textile sector is in for certain
advantages with the implementation of the regime. The tax regime will impact the
textile industry by bringing in following changes.
 Introducing a break in input credit chain:-
As a large chunk of the textile industry in the country works under the unorganized
sector or the composition scheme, therefore creating a gap between the flow of ITC.
If a registered taxpayer procures the input from taxpayers under the composition
scheme or the unorganized sector, ITC will not be allowed for him. Now with the
implementation of GST, the input credit system smoothly shifts the balance toward the
organized sector.
 Reduction in manufacturing costs:-
By subsuming the different taxes such as the entry tax, luxury tax, Octroi, etc., the
costs for the manufacturers will be reduced in the textile industry.
 Allowing input credit on capital goods: -
The cost of import of procuring the latest technology to manufacture textile goods is
expensive because the excise duty paid for the same is not allowed at ITC. Under
GST, however, ITC will be available for all the tax paid on capital goods.
 Increase in export of textile products: -
The process of claiming ITC is streamlined due to GST which allows the textile sector
to be competitive in the export market. Due to the extensive cost of the procedure and

34. delays made in the process of duty drawback, a lot of manufacturers and traders were
not inclined towards export during the pre-GST regime. Under the GST regime, the
duty drawback system has lost its significance, and input tax credit will be given as
refund instead of the duty drawback schemes. This is an important boost that was
required for promoting the export of textile products.

Though there are a few disadvantages of the GST on the textile industry, it is safe to
say that it will help the sector in the long run. It will get many registered taxpayers
under a well-maintained system. It can also be said that the new tax regime will help
the textile industry expand itself in both the domestic as well as global markets thereby
creating sustainable and long-term growth opportunities.
f. Real Estate
Real estate sector is one of the most pivotal sector of the Indian economy. Real estate
sector plays a vital role in employment generation in India. It ranks second just behind
agriculture. The importance of Real estate sector can be understood with its average
5-6% GDP contribution and stimulating demand for more than 250 ancillary industries.
The real estate sector had a substantial growth of 22% in its private equity investments
from 2015 to 2016. At the time of the third quarter of 2016, there was a 9% increase
in investment for residential properties from the previous quarter.
GST would bring a lot of transparency in the real estate sector and minimize
unscrupulous transactions. Under the current tax laws, VAT and Service tax charged
by different Contractors and excise duty, entry tax, octroi is paid on the procurements.
GST law will increase the margin in the hands of contractor/developer by removing all
the above-mentioned taxes. Now whether this benefit gets passed on to the end-
consumer is unsure as pricing of real estate is driven by market forces than on costing
principles.
Real estate sector enjoys a lot of benefits from facilities in SEZ and same are expected
to be carried forward in GST. GST will help in filling the overwhelming gaps currently
existing under the supply chain management process.
There will be many projects of developers which would require the transition from
current tax laws onto GST. GST model law did not specify any provisions for the
transition
Currently, the sale of land and buildings have been kept out of the ambit of GST but it
is expected to be taxed within a period of a year. Construction of land and building will
benefit from the rates declared for cement, bricks, and iron under GST.
Cement will be taxed at the rate of 28% under GST. It is higher the current average
rate of tax around 23-24% but a lot of additional taxes charged over the average rate
would be subsumed under GST. Iron rods and pillars used in the construction of
buildings is charged at the rate of 18% which is similar to the current average rate of
19.5%.
Bricks used in the construction of buildings and houses is taxed under GST at the rate
of 28% except for the rate of ceramic building bricks which is kept under 5%. Currently,

35. all bricks except the ceramic bricks are charged an average tax rate of 25-26%
inclusive of all state and central level taxes. Logistics cost of transportation of bricks,
cement or iron is going to reduce through the subsuming and streamlining of taxes.
In Real estate sector, there is a huge percentage of each project expenditure goes
unrecorded on the books currently. GST will cut down this percentage due to cloud
storing of invoicing. Real estate sector will also benefit with new tax law having a
positive effect on all ancillary industry.
The impact of GST on real estate sector is expected to be neutral under GST. Though
still, there is going to be a substantial benefit from GST as it will bring a lot of required
transparency and accountability. Developers/Contractors would reap the benefit of
many taxes which will be subsumed by GST.
g. FMCG
The fast-moving consumer goods (FMCG) segment is the fourth largest sector in the
Indian economy. It has grown from US$ 9 billion in FY 2000 to US$ 49 billion in FY 2016-
17 and has an expected compound annual growth rate (CAGR) of 20.6 percent to reach
US$ 103.7 billion by 2020, according to the India Brand Equity Foundation’s July 2017
presentation.
Within the FMCG sector, food products is the leading segment, accounting for 43 percent
of the overall sector. Personal care (22 percent) and fabric care (12 percent) come next
in terms of market share. Growing awareness, easier access, and changing lifestyles
have been the key growth drivers for the sector.
Further, the GST impact on FMGC can be encapsulated in followings pointers:-
 The total current tax rate for the FMCG industry is around 22-24 percent. Under GST, the
tax rate comes to an average of 18-20 percent. Let’s look at how the new tax rates under
GST impact major products within the sector:
Product Previously
taxed at
Currently taxed
at
Companies impacted
Detergents 23% 28% HUL, P&G, Jyoti
Laboratories
Shampoo 24-25% 28% HUL, P&G, Dabur,
Himalaya, Patanjali
Sanitary napkins 10-11% 18% P&G Hygiene and Health
Care

36. Skincare 24-25% 28% HUL, Dabur, Himalaya,
Patanjali
Hair dyes 23-28% 28% Godrej Consumer Products
Ayurvedic medicine 7-10% 12% Dabur, Emami
Toothpastes, soaps, hair
oil
22-24% 18% Colgate-Palmolive, HUL,
P&G
Paints 25-26% 28% Asian Paints, Berger Paints,
Nerolac
Branded paneer 3-4% 5% Nestle, Mother Dairy
Butter, ghee, cheese 4-5% 12% Amul, Nestle, Mother Dairy

Companies such as Patanjali, ITC, HUL, and Marico are either slashing the prices of
goods or increasing the volume of the product on dispatches made from 1 July onward,
extending the tax benefits to consumers under the GST regime. In particular, HUL has
slashed the price of its detergent soap Rin bar of 250 gm from Rs 18 to Rs 15 and
increased the weight of its Surf Excel bar costing Rs 10 from 95 gm to 105 gm.
Lower prices could potentially support volume growth for certain products, particularly in
the rural segment. “We believe it could result in a faster consumption shift from unbranded
to branded products, spurring volume growth for FMCG companies. Simultaneously, it
will also bring operational efficiency with rationalization of supply chain by removing
bottlenecks,” says Sanjay Manyal, Analyst, ICICI Securities. He also pointed out that tax
exemption provided to several critical products required for food processing — jaggery,
cereals, and milk — would benefit this industry.
 Reduction in logistics costs: The FMCG sector will also benefit from GST by saving a
considerable amount of expenses on logistics. Distribution costs for the FMCG sector
currently amount to 2-7 percent of the total cost, but are expected to drop to 1.5 percent
after implementation of GST software. Due to the smoother supply chain management in
regards to paying tax, claiming input credit, and removing CST under the GST regime,
there will be a cost reduction in terms of transportation and storage of goods. The
reduction in taxes and distribution costs should enable companies to lower prices on
consumer goods.

 Increase in effective tax rates: Aerated beverages have been placed in the highest tax
slab of 28 percent and will now attract an additional tax of 12 percent. Beverage

37. companies have said the effective tax rate of 40 percent on sweetened aerated water and
flavored water under GST is against the stated policy of maintaining parity with the
existing weighted average tax, which is significantly below 40 percent.
There are some instances where the tax rate under GST is higher than the present tax
rates, and in such cases, several dealers could increase their stock levels in the run up
to GST. On the other hand, in those cases where the GST rate is lower than the current
tax rates, dealers would try to keep minimum stock and dispose of non-moving stock
before the onset of GST.
Since different products are taxed at different rates, on a macro level, the average tax
and the final prices that the end customer ends up paying will average out, with some
products becoming more expensive and others becoming cheaper.
Ultimately GST impacts the FMCG sector by readjusting tax brackets and reducing
distribution costs for various companies. Some companies will “gain” with lower taxes and
distribution costs, and thus may respond by increasing product volume and lowering
prices, while others may “lose” with higher taxes, and thus need to compensate by
increasing prices.
h. Automobiles
The automobile industry in India is a giant conglomerate, which produces a vast number
of cars and bikes annually, to cater to the needs of the billions of our country. Under
the previous tax regime, a multitude of taxes were applicable on this sector like, road tax,
sales tax, motor-vehicle tax, VAT, registration duty etc., which have now all been
subsumed by GST.
The outlined benefits of the new tax regime talk primarily about the simplification of
logistics and limiting the operational/manufacturing cost, however, the industry varies in
their opinions on compliance and the impact of GST hence, remains arbitrary, due to the
fact that compliance to GST is needed on both the ends, by vendors and buyers alike, in
order to reap maximum benefits.
Here’s taking a broad look at how GST is impacting the Automobile sector:
 With the various indirect taxes leading to an increase in the product price, GST
is seeking to put an end to all that by the introduction of ITC across the supply
chain. This will also help in wiping off the bottlenecks related to the
logistics/transportation from one state to another.

 With CST out of the way, companies will now not need to maintain
warehouse/C&F agents in multiple states, this will help in consolidating the
warehouse structure and can lower down the operations costs in the supply
chain. Additionally, with the inclusion of business overheads (advertising

38. business promotion etc.) under ITC, operational costs can be reduced even
further.
 Dealers will need to be more responsible when it comes to the supply, as it is
now taxable under GST, which can hurt their outflow. Furthermore, cash lock
will also happen for auto-manufacturers as they will have to pay GST on sale
benefits on an earlier date than the timeline that the customers will actually be
using them.

 Two-Wheeler: For two-wheeler, the impact of GST is somewhat marginal as for
vehicles with an engine below 350cc the tax levied is 28% and for those above
that it’s 31%.

 Commercial Vehicles: The base rate for most commercial vehicles has been
set to 28% as opposed to previous 30.2%. The only cause for concern is
minibuses which carry up to 13 passengers, as they invite a 15% cess on them,
making the GST on them to be 43%.

 Passenger Vehicles: The earlier tax on small cars (engine less than 1200cc)
used to vary from 31.4% – 33.5%, will now be 28% GST with a variant cess of
1%-3%. Bigger Sedans and SUVs will reap maximum benefits, as they get to
pay 28% base fare with 15% cess whereas earlier, the tax slab used to vary
from 46.6% – 55.3%.
Hence, the implementation of GST, will invariably reduce the cost of manufacturing of
bikes and cars due to the subsuming of all the various taxes into a unified tax slab. Under
the GST regime, taxes would be levied on the consumption state as opposed to the
origin/manufacturing state, which in turn, will help give a push to the growth rate of the
automobile sector.
i. SMES & Startups
Goods and Services Tax (GST), is expected to be a momentous landmark scheduled to
be rolled out on 1st July 2017. Hailed as the biggest indirect tax reform in India after
Independence, it will replace the existing gamut of taxes like Service, VAT, and Excise
with a single, unified countrywide tax. The sense of which is aptly conveyed by the Union
Government’s slogan for GST — ‘One Nation One Tax.’
This move is expected to facilitate ease of doing business by simplifying the complexities
associated with a multiple tax structure, leading to better compliance. Moreover, GST will

39. not differentiate between goods and services and both will be taxed at a flat rate, greatly
reducing tax evasion.
Here, we examine some of the key positives and list out a few concerns that the
implementation of GST is likely to bring about for SMEs, start-ups, and small businesses.

The Positives:
 Reduction of Tax Burden: Any person selling goods and services, amounting to less
than 20 lakhs in a financial year, will be exempted from GST. The limit is lower from
the North-Eastern states with the amount fixed at 10 lakhs. The increase in threshold
will exempt many small businesses from paying taxes.

 A Level Playing Field: Bigger companies ‘stock transfer’ goods to other states to avoid
paying taxes on interstate movement. They leverage their sizable resources,
infrastructure, and logistic setup to execute such moves and avoid paying Central
Sales Tax. Small businesses on the other hand, are not capable of such manoeuvres
and end up paying higher taxes. Under GST, the benefits of stock transfer will be
negated, as these will also be taxed, thereby ensuring a level playing field.

 Efficient Logistics: Currently, logistics is a key challenge for start-ups and SMEs. The
movement of goods across state borders and toll check posts results in higher landing
costs and delayed shipments. With GST, there will be no entry tax charged for goods
sold or manufactured anywhere in India. There will be uninterrupted movement and
faster delivery of shipments, that too at affordable costs.

 Fixed Tax Rates for Composition Scheme: After the recent rates revision, small
businesses with a turnover of less than 75 lakh (revised from 50 lakhs earlier) can
apply for the composition scheme. Under this scheme, the rates fixed are as follows:
1% for small traders, 2% for manufacturers, and 5% for restaurants.
This is a good move as it will exempt small businesses from the compliance hassle
and they will only need to focus on paying tax. These establishments will also not be
required to undergo the three-stage filing process every month and will not be required
to file their invoices electronically.

40.  Lower Levy on Job work: Heeding to the voices of the industry, the government has
decided to lower the levy on job work from 18% to 5%. This reduction in taxation of
services will benefit several sectors such as leather, textiles, printing and gems and
jewellery.
The Concerns:
 Lower Exemption Limit for Manufacturing Units: Presently, manufacturing units having
a turnover of less than 1.5 crore do not have to pay any duty. Under GST this threshold
is expected to be drastically reduced; according to some estimates as low as 25 lakhs.
Doing this will bring many SMEs and start-ups under the tax net, thereby impacting
their bottom-line.

 The Composition Scheme: Available for businesses with a turnover of less than 75
lakh, it provides some relief for small businesses with fixed tax rates. However, those
who opt for this scheme cannot collect tax from customers. They will also have to pay
for GST themselves and will also not be allowed to claim any input tax credit.
Some states had demanded that the annual turnover be raised to 1 crore, but as of
now the GST council decided to go with 75 lakhs. This cap was decided to avoid
significant revenue loss. Having said that, this ceiling will be under review for the next
2-3 years and depending on how it performs, may also be revised.

 Mandatory Registration For e-commerce: Any business that is into e-commerce needs
to be registered with GST, even if their turnover is less than 20 lakhs. This is an
inconvenience to small businesses that are venturing into the online sales medium
with a small budget and limited means.

 GST Compliance Rating: This is one of the biggest concerns for small and medium
enterprises. According to GST law, the refund claims will be paid on merit basis/or the
compliance rating of the registered taxpayer. For instance, if the compliance rating of
a business is 100%, then the refund will be done immediately.
This will affect the bottom-line of the SMEs as they’ll have to allocate a committed
resource to ensure timely compliance, else, their working capital will be stuck with the
authorities as a pending input tax credit.
Furthermore, any sale that the supplier declares in the online system will have to be
validated by the buyer. If the supplier fails to furnish proper details, the buyer will not
get tax credit for such goods. In this scenario compliance rating becomes even more
pertinent as buyers more focused on getting input tax credits will prefer transacting
with suppliers having a high compliance rating. This again will impact small business
as they probably are the ones who’ll have a low compliance rating.

41.  More Manpower Required: With GST, everything will be online and must be updated
in real time. This would call for regular updating and on an annual basis 37 returns
will have to be filed (three a month and one annually). The number of returns will go
up if the business is present in more than one state. For example, if the company is
present in four states, the number of returns it will have to file annually will skyrocket
to 148.

42. 10. Tax Planning in GST

A. Do more and more Inter State purchases and avoid Intra State purchases (if
possible).

By doing more and more Inter State purchases, you will pay IGST on your purchases,
which have an ultimate advantage that, IGST ITC can be set off with CGST Liability as
well as SGST Liability after you set off your IGST Liability. But if you do Intra State
purchases, then you have a disadvantage that SGST ITC can be set off against SGST
Liability and IGST Liability only and CGST ITC can be set off against CGST Liability
and IGST Liability only. Therefore, if you want to save GST Liability then prefer more
and more Inter State purchases in place of Intra State purchases. If you are a
manufacturing concern, then if feasible try to set up your manufacturing plant/house in
one state(s) or Union Territory(s) and make your sales depot at a different state(s) or
Territory(s).

B. Accept your sales consideration as deposit without settlement of your
receivables from customers '(Most trending these days)'.

a. According to the definition of consideration as per section 2 (31) of CGST Act, 2017,
Consideration in relation to the supply of goods or services includes :-

aa. Any payment made or to be made, whether in money or otherwise, in respect
of, in response to, or for the inducement of, the supply of goods or services,
whether by the recipient or by any other person but shall not include any subsidy
given by the Central Government or a State Government;
ab. The monetary value of any act or forbearance, whether or not voluntary, in
respect of, in response to, or for the inducement of, the supply of goods or services,
whether by the recipient or by any other person but shall not include any subsidy
given by the Central Government or a State Government:

b. PROVIDED that a deposit, given in respect of the supply of goods or services
or both shall not be considered as payment made for such supply unless the
supplier applies the deposit as consideration for the said supply;

c. Every Indirect Tax in India whether in past or in present, follows the principle of
Expense Policy to levy Indirect Tax on the supplier of goods, services or both.

d. Previously department has made efforts to levy Indirect Tax on Investment
Policies also, but their efforts are very limited on it. This is because due to
Constitutional propaganda, to follow other provisions of the act which are present
for the time being in force.

f. Application of section 41(4) of Income Tax Act, 1961: Section 41(4) deals with
write off of Bad Debts. Debtors from whom you have taken deposits and are

43. outstanding let’s say for more than 5 years or more or even crossing the time limits
mentioned in Limitation Act, 1963, IT department cannot force the assesse to write
off the same from the books of assesse on the opinion that such debtors are
outstanding for more than time period mentioned in Limitation Act, 1963. Unless
assesse himself write off the debts from his books, department cannot force the
assesse to write off the same from his books.

g. Application of Limitation Act, 1963: According to Limitation Act, 1963, debt
recovery has a limitation period of 3 years only. But Limitation Act, 1963 has no
implication in GST on Transactions Valuation and its taxability thereof; on amount
due from customers even though the due is outstanding for a period of more than
3 years also.

44. 11. Conclusion:-

The introduction of GST will be a very noteworthy step in the field of indirect tax
reforms in India. By merging a large number of Central and State taxes into a single
tax, GST is expected to significantly ease double taxation and make taxation
overall easy for the industries. For the end customer, the most beneficial will be in
terms of reduction in the overall tax burden on goods and services. Introduction to
GST will also make Indian products competitive in the domestic and international
markets. Last but not least, the GST, because of its transparent character, will be
easier to administer. Once implemented, the proposed taxation system holds great
promise in terms of sustaining growth for the Indian Economy.
It can be concluded from the above discussion that GST will provide relief to
producers and consumers by providing wide and comprehensive coverage of tax
credit set-off. More than 150 countries have implemented GST. Efficient
formulation of GST will lead to resource and revenue gain for both Centre and
States. It can be further concluded that GST have a positive impact on Indian
sectors and industry.

45. 12. References: -

a. Clear tax.com;
b. Blog.capitalfloat.com;
c. Times of India.com;
d. Economic times.com;
e. Comprehensive Guide to Indirect Tax Laws by Dr. Yogendra Bangar & Vandana
Bangar
f. GST Videos on You tube by Consult Ease
g. GST Videos on You tube by CA Farooq Haque.
h. Research Paper on an Impact of Goods and Service Tax (GST) on Indian
Economy by Shefali Dani
i. Effect of GST on Indian Growth by Eva Van Leemput and Ellen A. Wiencek
j. Discussion with Mr. Ankur Gupta
k. Discussions with Mr. Chandra Shekhar Tiwari