The Goods and Services Tax (GST) began in India on 1 July 2017. Before GST, people had to pay many different taxes like VAT, service tax, excise duty, and entry tax. Every state had its own rules, and this made business very confusing. GST replaced these taxes with a single system. The aim was to make business simple, reduce confusion, and create “one nation, one tax.”
Big companies have handled GST more easily because they already had accountants and good systems. But for small businesses, GST has been hard. Many small shopkeepers and traders are not used to online filing, strict deadlines, and heavy paperwork. Since small businesses are the backbone of India’s economy, their problems with GST not only hurt them but also slow down the country’s growth.
Small businesses struggle to cope with GST compliance due to:
- Complicated rules: GST has many tax rates like 0%, 5%, 12%, 18%, and 28%. Small business owners find it difficult to know which rate applies to their goods or services. For example, bread has no GST, but biscuits are taxed. Such small differences make it hard for them to understand and apply the correct rate.
- Too many returns to file: Small businesses have to file returns every month or every three months. They need to share details of sales, purchases, and taxes. For a small shop owner who spends all day running the shop, filing returns again and again becomes a big burden. If they miss the date, they have to pay a penalty.
- Online system: GST works online. Registration, filing returns, and issuing invoices are all done on the internet. Many small shopkeepers, especially those situated in small towns and villages, are not comfortable using computers or online systems to do everything. They find it hard to upload invoices, use digital signatures, or make online payments to merchants.
- Problem of cash flow: Under GST, businesses have to pay tax when they supply goods, even if they have not received any money from the customer. Many small traders sometimes sell their products on credit and get paid after weeks or months. This blocks their money because they have to pay GST first from their own pocket.
- Issue with the Input Tax Credit: One big benefit of GST is the Input Tax Credit (ITC). This means businesses can reduce the tax they pay by using the tax already paid on their purchases. But ITC works only if the supplier files their return on time. If the supplier makes a mistake in the return, the buyer cannot get the credit. This creates problems for small traders who depend on many local suppliers.
- Extra cost of compliance: Many small businesses cannot handle and comply with the GST rules on their own. They need to take the assistance of professionals, hire accountants or tax experts to file returns. This adds to their expenses, which is hard when profits are already low.
- Strict penalties: GST rules are strict. Even small mistakes, like entering the wrong rate or filing the return beyond the due date, can lead to fines and interest charges. These extra costs are hard to bear for small businesses.
The law behind GST
GST is regulated by:
- The Central Goods and Services Tax Act, 2017 (CGST Act)
- The Integrated Goods and Services Tax Act, 2017 (IGST Act)
- The State GST Acts (SGST Acts) made by each state
GST: Good and Bad for Small Businesses
| Good Side | Bad Side | |
| Tax System | One single tax instead of many different taxes. | Too many slabs confuse small traders. |
| Input Tax Credit | Helps avoid paying double tax. | If supplier fails, buyer loses benefit. |
| Filing System | Online filing is more transparent. | The online system is tough for non-technical owners. |
| Business Growth | Makes it easy to sell in other states. | The high cost of filing and rules is a burden. |
| Credibility | Registered businesses gain trust with banks and customers. | Small mistakes lead to heavy fines. |
How Small Businesses Can Manage Better?
Small businesses can make GST compliance easier if they take the right steps. Some useful ways are:
- Use simple GST software – There are many affordable software options that help in creating invoices, filing returns, and tracking input tax credit. This saves time and reduces errors.
- Attend training and workshops – Government departments and trade associations often conduct awareness programs. By attending these, small traders can learn basic GST rules and deadlines.
- Hire or outsource to professionals – Instead of struggling on their own, small businesses can take the help of accountants or GST service providers. Outsourcing at a reasonable cost can save both time and penalties.
- Plan cash flow properly – Small traders should keep some money aside for GST payments. This helps them avoid last-minute shortages, especially when they sell goods on credit.
- Maintain proper records – Keeping sales, purchase, and expense records neatly makes filing much easier. Even simple notebooks or spreadsheets can help in the beginning.
- Use government support schemes – The government has simplified returns for very small businesses and offers schemes like the Composition Scheme. Choosing the right scheme can reduce compliance burden.
- Stay updated with changes – GST rules keep changing. By following official GST portals or joining local trader associations, small businesses can stay informed and avoid mistakes.
- Ask for simplification – Industry bodies and small business groups can keep requesting the government to make GST rules simpler, reduce tax slabs, and cut down paperwork.
Conclusion
GST has made India’s tax system modern and uniform. But for small businesses, it has created many problems. Complicated rules, too many filings, online barriers, blocked cash flow, and strict penalties make life difficult. With better awareness, affordable software, and government support, GST can become easier for small businesses. Until then, many small shopkeepers and traders will continue to struggle with compliance.
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