With the introduction of GST a centralized tax system for all the goods and services acr0ss India, it made a huge impact on Indian Economy and especially in Small and Medium Enterprises (SMEs). The main purpose of introducing the GST was to bring every indirect tax on one roof i.e one nation one tax system which will allow the government to have a better grip on the taxpayers. This should be capable of evolving the entire tax system.

Impact Of GST on SMEs

GST brings new concept on tax for every individual and SMEs withness great transformation because of the more transparent and paperless tax system, there are many factors which affect the SMEs in India in both positive and negative ways-

Reduction on tax burden- Before the introduction of GST the threshold limit of turnover for any business was Rs.5 lakhs but according to new GST rule only business with more than Rs 25 lakhs of turnover needs to pay tax to the government which is a great relief for SMEs in India.

One tax for all Goods and Services- Earlier there were different Goods and Services, GST ensures that there is no ambiguity between goods and services. This will simplify various legal proceedings to file a tax. As a result, there will no longer be a distinction between the material and the service component, which will greatly reduce tax evasion.

GST also brings negative impact along with so many good impacts for SMEs and their fears may not be totally invalid. The tax neutrality that the SMEs enjoy may be one of the prominent benefits. However, reduction in duty threshold is one of the key concerns that has led them to be wary of the GST bill. Under the existing excise tax, no duty is paid by a manufacturer having a turnover of less than Rs 1.50 crores. But, post GST implementation, the exemption limit gets significantly lowered as rupees 25 lakh. As a result, a large number of SMEs and startups will be mandated to come under the tax net and will have to pay a large chunk of their earnings towards tax. Furthermore, GST regime won’t differentiate between luxury goods and normal goods; this will it hard for the SMEs to compete against large enterprises. GST that is ultimately levied on supply will not be available for input credit. This will lead to an increase in the cost of the products for businesses that will affect directly to end users.