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GST: Profit or Loss: Top 10 Differences That You Need To Know Before 1st July, 2017

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A revolutionary change is about to hit Indian Economy in form of GST a.k.a Goods and Services Tax!

As per the Constitution Amendment Bill, multiple existing indirect taxes will be replaced by uniform GST and will be applicable all across India, commencing 1st July, 2017.

In a way this is a welcome move by the government as the existing indirect tax structure proved to be less fruitful and worked as an impediment in nation's economic growth. CST, entry tax, restricted input tax have divided the economy in fragments. Multiple taxes in complex structures elevate the cost of compliances, and hence, the businesses are affected adversely. Thus, the enforcement of GST is going to be a crucial step and is speculated to have a positive impact on current economic scenario. Also, it is likely that some sectors will see a greater impact than others.

Why is that so?

What are the other positive or negative impacts of GST?

How is it going to help the tax structure and economy thereof?

To get a clear insight, let us discuss the top 10 profit loss differences that you need to know before 1st July, 2017:

1. Profit - Boost in Production and Efficient Supplies

The replacement of various tax barriers with a uniform tax entity across the country will propose a seamless credit. This change will introduce India as a common market with boosted production and efficient supplies. The expansion in trade and commerce is quite anticipated as GST is going to have a positive impact on organized logistics industry and modern day warehousing.

2. Profit - A Boost to "Make In India"

With this seamless tax introduction, the cascading tax effect levied on the cost of production and cost of services, will be eliminated. The cost of goods and services will significantly go down while encouraging the concept of "Make in India". The lure for foreign products shall diminish eventually when good quality products are made available in Indian market. The sectors that will see an uplift with regards to "Make in India" and new tax implementation are FMCG, Pharmaceuticals, Consumer Durables, Automobiles, and Engineering Goods.

3. Profit - Ease of Business

It is a well foreseen situation that introduction of GST will bring in a lot of ease with regards to business processes. When various multiple tax entities will get integrated in single GST, a huge number of procedures and costs pertaining to those procedures will be reduced and hence the functioning shall become smooth.

4. Profit - A Boost To Investments: Elevated Jobs

With a transparent and well predicted tax system in place, local and foreign investors will be encouraged to invest in Indian industries which, in result will create a good number of employment opportunities. The financial, economical and social status of the citizens will see a considerable lift.

5. Profit - Reduced Corruption

With the implementation of GST, the processing of tax returns, payments and refunds will be monitored electronically which will reduce the human interference to a extensive level. There will be a built-in check on all business transactions, as offered through seamless credit, and all ITR processing will be under efficient control. There will be no scope left to generate black money, and the available capital will be used productively and judicially. With this, the corruption and frauds related to business transactions and taxation will go down, resulting in augmented financial and economic situation of the entire nation, and citizens therefore.

6. Profit - Lower GST Rates

Product and area based tax exemptions will witness a substantial low under GST. Consequently, the revenue neutral rate will go down as the tax base is widened. Hence, the government will be encouraged to keep the taxation slabs and rates considerably low, further reducing the prices of goods in medium slab.

7. Profit - Elimination of Double Taxation

Currently, due to tax dispute on the nature of transaction, whether it should be taxed for supply of goods or provision of services, certain sectors face double taxation. These sectors can be identified as licensing of intellectual properties, patents, copyrights, software supplying, e-commerce trade, and leasing services. These sectors will benefit as the double taxation will be eliminated and they will be paying a single tax under GST.

8. Loss - Increase in Documentation

While this prolific implementation is going to simplify the tax structure immensely, there is a down side to it too. The procedural documentation for any business will increase manifolds, to keep the relevant supporting papers in place as the number of business tax returns to be filed in a year will increase substantially. Just for an example, a real estate builder will be required to file 61 returns in a year as compared to 24 in current system. Also, in the prevailing system, a business offering services from various states can file a centralized tax registration. This will alter under GST. A return from all the states from which a business is functioning, will be required to be filed.

9. Loss - Impact on Cash Flow and Working Capital Due To Stock Transfers

Businesses that require to maintain a high inventory of goods in different states will experience a negative impact. Their cash flow and working capital will see a reduction, as they will be mandated to pay full rate GST on moving the stock from one state to another. The current system levies CST/VAT on sales only and not the stock transfers from state to state.

10. Loss - Lesser Benefit of GST to Some Sectors

The business sectors which survive on significant inputs from plastic and polymer industry, fertilizer industry, metal industry, telecom industry, air transport and real estate will not be able to reap the full benefits of GST. The reason being, all the indirect taxes will not be subsumed in GST on the introduction. Electricity duty, stamp duty, excise duty, and VAT on alcoholic beverages, petroleum based products and likes will not fall under GST. These will form a part of cost of production goods which are used as inputs in downstream products. Hence, the loss.

The industries that will be impacted adversely in terms of inflation would be telecom, banking and financial services, air and road transport, and real estate development.

It's true that GST is eagerly awaited and dreaded at the same time. Yet, there are greater profits and lesser losses, which eventually will write-off as the system comes in place and starts to smoothen the deep embedded creases.

Let us just wait and watch till the next quarter gets over in September 2017!