Are you in the manufacturing business? If yes, then the implementation of GST would affect your business. For this reason, you must know the mechanisms of GST. For example, what is GST or what to do with your gst registration limit 40 lakhs? This article will explore more on the topic.
What is GST?
GST or Goods and Services Tax is a value-added tax at each stage of the supply of the goods and services on the amount of value addition achieved. The objective of GST is to eliminate the inefficiencies in the tax system, which results in cascading of taxes.
GST is a destination-based tax on consumption. This means that the state’s share of taxes on interstate commerce will go to the one that is home to the final consumer rather than the exporting state. It has two equal components of state GST and central GST.
This unified tax system revolutionizes the indirect taxation in India. Some benefits of GST include a reduction in tax frauds, streamlining of tax payments, and ease of doing business. GST will have a direct impact on manufacturing as the previous tax structure was very complicated.
What are CGST, SGST, and IGST?
The GST has explicit provisions on which areas the centre and state are allowed to collect revenue from taxation. This helps in preventing the overlapping of tax collection.
The Central GST or CGST is where the centre has the taxation capabilities, and the state has the taxation capabilities on State GST or SGST.
The Integrated or IGST is for the movement of goods within the states of the Indian union.
When Should You Apply for GST?
You will have to register under GST India if:
- Your annual turnover is over 20 lakhs.
- You pay taxes under Reverse Charge Mechanism.
- You registered for VAT under previous law
- You make interstate transactions
- You are the producer of the final product
- You are a supplier to an e-commerce aggregator.
Advantages of GST for Manufacturer
Reduced Cost of Production
Earlier, you would have had to pay an excess of 25-26% as the production costs of your goods due to cascading taxes like excise duty and VAT. This was because you were taxed on two different taxable events. This was an extra cost to your company which was passed on to the consumer.
With GST in the picture, the tax would be levied on a single taxable event. This would mean that the manufactured goods can get cheaper as the cost of production will be lower. This, in turn, means reduced pricing for the consumer, which will help in driving more sales.
Lower Cost and Better Quality of Goods
Most of the taxes on domestic supplies which were not creditable earlier will now be available for set-offs. This would reduce the burden on your business and help in setting up a steady flow of credit.
Since most of the taxes would get subsumed under the GST structure, participants in the supply chain will also gain. For instance, the retailers and distributors will be able to avail credit on the taxes levied.
With the accessibility of input tax credit at various stages, the price of the goods would get reduced. Lastly, with the burden of indirect tax lessening on the manufacturers, you will be able to focus on improving the quality of the product at the same price.
Ease of Registration
Earlier, you had to register each manufacturing facility separately even if they were in the same state. The registration with GST will simplify as you can record all the manufacturing facilities within the same state. Thus, the single registration process has made the entire process of registration easier.
Streamlined Supply Chain
GST has the concept of ‘one-nation-one-tax’ which has required manufacturing companies to re-engineer and realign their supply chains. This will encourage you to focus more on optimizing business efficiency and operability. With a single tax regime, the supply chain structures will focus on driving capabilities.
Let us take an example of a warehouse. You won’t need multiple warehouses in different states, and you can eliminate the extra layers of the supply chain. According to the old tax regime, warehouse management was based on arbitrage between the varying VAT rates across states. That has changed with GST.
You can now focus on strategizing your supply chain for your demographic, economic, and geographic targets. This would help in improving inventory management, reduced storage costs, and less time wasted at various checkpoints of the supply chain.
Simplification of Taxes
The implementation of GST has removed taxes of different valuations. For instance, under the old tax structure, excise duty was calculated based on different methods which included Tariff Value, Specified duty, or Ad Valorem duty.
All these will be streamlined, and you will be more comfortable with calculating as gst payment will be for transaction-based valuations only.
Elimination of Assessment by Multiple Tax Authorities
Earlier, there were separate tax assessment authorities to take care of varied taxes like VAT, Central Excise, or Service Tax. This resulted in very time-consuming and chaotic procedures. Moreover, it left you vulnerable to deal with tax queries. This would have been problematic if you didn’t know how to navigate them.
Now, the tax assessments have a three-fold system. The state authorities will look after SGST assessments, and the Central authorities would handle CGST and IGST assessments. This only means one thing – a more efficient tax assessment system. It would save some time and enable you to deal with the taxation system better.
You Can Opt for Composition Scheme
If you are a small manufacturing business with a turnover of under 75 lakhs, you can avail the Composition Scheme under GST at a rate of 2%. This will provide you with some tax relief.
However, exceptions will apply regarding which manufacturing businesses can and cannot opt for this scheme. Understand the rules before you avail the same.
As a manufacturer, you must be GST compliant. Understand all about it, and it will benefit your manufacturing business in more ways than one. Take full advantage of this streamlined process and watch your business prosper.