Advantages of GST

  1. 1. Introduction to GST
  2. 2. Advantages of GST
    1. a. Wider the tax base, lower the tax rates
    2. b. Removing Cascading effects
    3. c. Resolution of classification related issues
    4. d. Rationalization of tax structure and simplification of tax procedure
    5. e. Reduction in duplicity of information and compliance cost
  3. 3. Disadvantages of GST
    1. a. Compensation to loss making states for five years
    2. b. Compliance
    3. c. Decision making process in GST council
    4. d. GST Proposal: Not friendly to important service sector like bank
    5. e. Dispute resolution mechanism

1. Introduction to GST

GST stands for Goods and Services Tax levied by the Government in a move to replace all of the indirect taxes. The main reason behind introducing GST is to improve the economy of the nation and that is why it is beneficial.

It was introduced to put an end to multiple taxes like CST, VAT, service tax, sales tax, central sales tax which are levied on different products, starting from the source of manufacturing till it reaches to the end consumer which makes movement of goods and doing business very hard.

2. Advantages of GST

The study of advantages and five disadvantages of GST shall be tabulated in the following manner which shall help us in understanding about GST in it’s entirety.

  • Wider the tax base, lower the tax rates : Currently, a no. of taxes and duties are being imposed on the same item right from the stage of manufacture until the same is consumed. These are levied in form of import duty, excise duty, octroi, luxury tax, service tax, VAT, etc.

    The total of these taxes is around 35% - 40%; while rate of GST is to be kept around 16%-18%. This is one of the key rationales of introducing GST.

  • Removing cascading effects : The foundation of an indirect tax is kept keeping in view the cascading effect and due provisions are framed to lower down the same. However, more the no. of taxes, more the cascading effect.

    When we talk of excise duty, service tax or VAT, there are Cenvat credit rules which allow the credit of input tax/duty suffered by the material or service so used. Still there are cases where the cascading effect is clearly visible but there is no mechanism in the law to deal with it for example : entry tax, octroi, etc.

    Almost every goods are subject to these taxes but no credit is allowable as these are collected normally by local bodies. Thus, ultimately these taxes form part of the cost of product which is further subject to excise duty or service tax or VAT. Thus, cascading effect do exists. This particularly happens when the same goods or service suffers a no. of taxes and no set off facility is available.

    With the insulation of GST in the tax system, there will be a drastic reduction in the cascading effect as most of the indirect taxes prevailing at present will get subsumed in GST and will also initiate availability of input tax credit.

  • Resolution of classification related disputes : One major area of dispute is the “classification of goods and/or services”. It would be interesting to know that there have been cases where the litigation arose on the fact whether a particular item/activity is goods (i.e. excise duty will be levied) or service (i.e. service tax will be levied).

    All these problems will come to an end after implementation of GST.

  • Rationalization of tax structure & simplification of compliance procedure : At present, there are multiple indirect taxes which are levied by different bodies, Central Government, State Government, Local bodies, etc.

    All these governing bodies have their separate offices, rules and regulations. An assessee has to move from one office to another for procedural formalities.

    Goods and service taxes formal visit into the taxation system has brought in substantial reduction in these formalities as there would be only two governing bodies namely Centre for CGST & State for SGST. This will save time, money and energy of assesse.

  • Reduction in duplicity of information and compliance costs : In the present structure, same information is to be filed at several places for the same goods/service.

    As a result, cost to assessee is increased and also the duplicity of information. Not only assessees, overall cost of government; is also increased as the same information is being stored at several places which has to be maintained by employing man, money and energy. This ultimately leads to inefficient utilization of nation’s resources.

  • Increase in product competitiveness in international market : With the implementation of GST, in long run, there will be reduction in overall cost of products manufactured in India. This will make Indian products more competitive in International market.

    It is worth mentioning here that many of our top competitors in the international market have already switched to GST. Introduction of GST in India is a step forward in making the product more cost effective in international market.

3. Disadvantages of GST

  • Compensation to loss making States for five years : It has been proposed that the Central Government will compensate the loss arising out to States on implementation of GST for a period of five years.

    The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year. This has been done to make the States affirmative towards the implementation of GST.

  • Compliance : You need to file returns 3 times a month for every state in which you operate. That means at least 36 filings in a year per state.

  • Decision making process in GST Council : In the proposed GST Bill, one vote has been assigned to each State in the GST Council. As per Government, this has been done to ensure that small states should not lag behind in the GST Council.

    Thus, while assigning the weightage to vote, the population has been made the prime criteria. It is worthwhile to mention here that there are certain states which have very less population but their share in taxes is on much higher side. Such states, though contributing more, will lag behind in the decision making process taking place at GST Council.

  • GST Proposal : Not friendly to important service sector like banks : It is much hyped that GST will bring Indian goods a step forward in the International market. The reasons so given are that the GST will make Indian products cheaper in long run and thus will promote exports.

    In this regard, it is to be noted that the banking sector pays an important role in the exports. Whether it is export of service or export of goods, the role of banks is vital. It is worthwhile to mention service tax @ 14% was levied on the banking transactions pre GST.

    Post introduction of GST, this rate has jumped to 18%. This will ultimately increase the cost of transaction, particularly, in case of imports and exports where huge amount is transacted.

  • Dispute resolution mechanism : It has been proposed that the GST Council will lay down criteria as to how the disputes arising out of its recommendations will be resolved.

    In other words, the disputes arising out of recommendations of GST council body will be resolved by GST council itself. This is like a party to dispute has been given authority to make the judgment. It is against the principles of natural justice.


With the trust of nearly 2 million businesses, Tally is truly the leading business software of choice in India. Be it accounting or GST compliance, you can rely on us to simplify all ends of your business.