Impact of GST On Small Businesses

. 5 min read
Impact of GST On Small Businesses

In July 2017, the Government of India implemented GST. It was brought into existence with the idea of replacing a lot of indirect taxes with one federated tax. However, it has had a significant impact in all business sectors, including small businesses and start-ups. Small businesses are liable to pay GST as soon as they meet the threshold limit.

Startups and small businesses play a pivotal role in the economic development of a country. India now ranks as the third-highest startup ecosystem in the world with over 27,916 startups according to recent studies. The success ratio of new businesses is a mere 1%, and GST may come as a blessing in disguise. They are expected to comply with taxes more easily and thus flourish.

What is GST?

Goods and Services Tax refers to the single tax that was imposed on all the goods and services in the country and did away with all the existing indirect taxes like Central excise duty,VAT and entry tax. GST was divided into five different slabs- 0%, 5%, 12%, 18% and 28%. Products such as alcohol, electricity and petroleum products are not included under GST and are taxed separately by the State Governments.

The Centre charges Central GST (CGST) while State imposes State GST or SGST on the supply of all goods within a state. For goods transferred from one state to another, Integrated GST or IGST is applied.

It brought about several changes to the tax regime of our country and turned out to be the most significant tax reform in the history of our economy, achieving the “One Nation One Tax Agenda”.

GST: One Nation, One Tax

Impact of GST

The Goods and Service Tax brought about several significant benefits to the small businesses but it also had a few negative consequences as well to suffer from.

Positive Impact

1. Reduction in Logistics cost:

The transportation cost has reduced during the transportation of goods from one state to another as it did away with CST. There has also been a reduction in delivery time, which has helped the small businesses massively.

2. Reduction of tax burden:

Earlier businesses with a turnover of less than Rs. 5 Lakhs did not require to pay the VAT registration fee. This limit has been increased to 20 lakhs now, which came as a breath of fresh air to such businesses.

3. Effect of cascading:

It is the effect when tax is imposed on previously charged taxes. Small businesses feared that this cascading effect could be a severe block in their progress. But thanks to GST, only one tax is applicable, and thus this cascading effect has been well mitigated.

4. Easy management:

Before the introduction of GST, businesses needed to maintain many documents and registration with various tax authorities. Different tax returns also needed to be filed with various tax authorities. But after GST, the amount of paperwork has decreased majorly, as there is only a single registration and calculating GST is not tedious. Businesses now can thus focus more on productive operations rather than on taxes.

5. Expansion:

Most businesses restricted themselves to operating in only one state as there were complicated tax procedures and interstate taxes. But after GST, these inter-state tax complications, as well as transportation costs, have reduced considerably.

6. Filing GSTR:

After GST was implemented, registered persons with a turnover of fewer than 1.5 crores can file GSTR1 quarterly. Thus small businesses only need to file GSTR-1 quarterly and GSTR-3B every month. This is a major boost as it reduces time as well as the cost of compliance massively.

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However, quite a few problems and difficulties crept up, which were not expected.

Some small businesses struggled initially to get the hang of GST

Negative Impacts

1. The decline of freelancers:

Those who do not have a fixed place of business now have to register themselves as a casual taxable person under the regulations of GST. The 20 lakh limit is not applicable in this scenario, and registration is compulsory.

2. Overburden of taxes:

Following GST, it has become mandatory for the businesses to upload invoices or make an e-way bill. They have to keep an eye on the tax compliance regularly, which has a major effect on the time they could use to take their business to the next step.

3. Small businesses under tax net:

Previously businesses having a turnover of fewer than 1.5 crores did not need to pay or get registration. But after the GST bill, the situation changed completely. The threshold was brought down to as low as 20 lakhs, and as a result, many small businesses were included in the tax net.

4. Mechanism of reverse charge:

If the goods are supplied to a firm, registered under GST, by a small business which is exempted from GST, the buyer has to pay the GST by self-invoicing.

5. Challenges in technology:

All the GST compliances such as fillings and registrations have become online. Although GST filing and GST registration online eased the process, it proved to be a problem for some of the small businesses.

Challenges, struggles ultimately led to benefit for many businesses


GST explained the drawbacks of our previous tax system and had a major impact on the small businesses in both positive as well as the negative manner. The positive impact of the GST has been able to outweigh the negatives and successfully paved the way for the growth of the national market. Hence there was a major change due to GST on real estate. Every citizen of the country must be made aware of the GST details so that they can pay tax accordingly and help in the growth of the economy.

To run a business in India and expand it smoothly, one needs to make a GST profile and make payments within the due time. Running businesses without GST registration could lead to hefty punishments.

Also read:
GST: Advantages With Examples
GST: Composition Scheme and More


Q. What is GSTR?

A. GST return is a format by which a registered taxpayer needs GST filing for each registration separately. There are various types of GST returns- GSTR 1, GSTR 2A, GSTR 2, GSTR 3, GSTR 3B, GSTR 4, GSTR 5, GSTR 6, GSTR 7, GSTR 8, GSTR 9, GSTR 9B, GSTR 9C, GSTR 10 and GSTR 11 based on the various types of taxpayers, their kinds of businesses and the goods or services they supply.

Q. How can we pay GST?

A. There are several modes by which GST can be paid.

  • E-payment through net banking
  • Physically paying the money through the deposit of cash over the counter
  • NEFT/REGS with the help of cheque or debit card facilities

The easiest mode of payment is paying GST online from your home. It is a very easy and secure process.

Q. How to do GST registration online?

A. You can register for GST very easily following some simple steps.

  • Visit the GST site and log into the official portal.
  • Fill up GST Registration Form-1.
  • After receiving the reference number, fill the second part of the form and upload the necessary documents. New GST registration is complete following the issue of Certificate of Registration.