IMPACT OF GOODS AND SERVICES

TAX ON INDIAN BUSINESSES

 TABLE OF CONTENTS

CHAPTERS PARTICULARS PAGE. NO

1 INTRODUCTION
1.1 Background
1.2 Goods and services
1.3 tax What is tax?
1.4 Constitutional powers
1.5 Taxation provision of
constitution
2 Classification of MSMEs(on
the basis of investment)
3. Review of literature
4. Research methodology
5. Data Analysis and
interpretation
6. CONCLUSION
REFERENCES……………………………………………………………………………….
ANNUXURE…………………………………………………………………………………
 Chapter-1

INTRODUCTION AND BACKGROUND

1.1INTRODUCTION AND BACKGROUND

India is a democratic country and the main goal or objective of the government is to
provide, sustain and enhance the welfare of the general public. As we all know that India is the
second largest populated country in the world after China with a population of about 1.38 billion
and the major chunk of people are middle class people. We also know that India in not a
developed county but an emerging and developing country (EDC).

Some of the characteristics of India as a developing country are:

a) Low per capita income: According to the World Bank estimates for the year 1995,
average per capita income of the developing countries is $ 430 as compared to $ 24,930 of the
developed countries like U.S.A., U.K., France and Japan. The per capita income of India was $
430 according to the 1995 World Bank statistics. The per capita income does not show the
poverty prevailing in the country because it takes into account an average income of all the
people of India. It takes into consideration the income of both the poor people and rich people.
So, taking into consideration the disparity between the rich and the poor the majority population
of India is unemployed, underemployed and poor. Major population of India falls under BPL
(Below Poverty Line) category i.e. those people unable to satisfy the basic human needs such as
food, clothing and shelter.

b) Excessive dependence on agriculture: India is an agricultural country and more than 80 per
cent population earns their living through agriculture. Agriculture is a seasonal activity and many
farmers suffers due to inadequate rainfall or due to climate change or due to lack of human
resource required in farming as many people think farming is a small work so they avoid doing it
.Many farmers nowadays commit suicide due to their inability to pay off their debts due to low
yields.
c) High level of illiteracy: As of 2019 the overall literacy level in India is 69.1 % which implies
almost 1/3rd of the population are not able to read and write. As todays era is an era of
technology, era of information or an era of computer.so an illiterate person is a liability to the
country. Many people are illiterates because of poverty or because of the environment they are
surrounded by. Many people have the desire to go to schools, pursue higher education but due to
lack of funds, lack of support from their families, working from very early age, etc., gives birth
to illiteracy.

b) Lack of better health and educational facilities: As I stated earlier that the majority of the
Indian population belongs to the middle class category who certainly does not have high desires
of owning a big bungalow or driving a Benz car but they definitely desire or expects better
educational, transport, water, drainage and health facilities, etc., They desire for employment
with good pays ,better medical facilities and so on. And to fulfill the desires of the public the
government needs funds and without funds such facilities cannot be provided to the whole
public. So, to overcome the problem of lack or shortage of funds the government collects money
from the public which is called tax. There are also other sources from which the government
earns revenue such as Capital receipts and Non- Tax revenue. The government earns almost
33.57 % revenue from Capital receipts (such as recovery of loans, disinvestment, debt etc.), and
12.66% from non-tax revenue sources (such as dividends, interests etc.). But the majority of
revenue comes from tax collection which contributes to almost 53.77% of the total revenue to the
government. Therefore, Tax is important for running the economy as well as Tax is crucial for
development and growth of an economy.

1.2 WHAT IS TAX?

The word tax has been derived from the Latin word, “Taxo” which means touch sharply
or change.

Definition of tax according to Wikipedia: A tax is a compulsory financial charge or some

other type of levy imposed upon a taxpayer (an individual or legal entity) by a governmental
organization in order to fund various public expenditures. A failure to pay, along with evasion of
or resistance to taxation, is punishable by law.

A tax is a compulsory payment levied by the government through its legislative authority
to the individuals and corporates to finance the public welfare activities of the government.
Therefore, the tax collected by government entity through various sources is used for the welfare
of the general public not specific public such as construction of roads, hospitals, schools,
colleges etc. as well as to maintain the existing infrastructures prevailing in the country. The
taxes collected are also used to pay salaries to the government employees such as Doctors,
Nurses, Armies, Navy Officers, Police Officers, who provide services to the general public. It is
also used to provide financial help to the needy people such as farmers, martyr’s families, natural
calamities victims (such as people who have incurred losses due to earthquakes, floods.
Cyclones, etc.) or to build bridges, dam’s, etc. To put it in a general way, Tax is used for the
wellbeing of the people whether it is fulfilling basic needs of the people such as building houses
for poor people or providing rice, sugar, kerosene at cheaper rates or providing better educational
and health facilities or to protect the country from enemy countries or to invest in research and
development in various fields such as Space Research, Health research and so on.

Tax is a part of a person’s earning or a part of a company’s profit paid to the government.
Or in other words some portion of an individual’s earnings or company’s profit is given to the
government which is used by the government for the welfare of the general public. So, the
government is a body that collects funds from the public in the form of tax and utilizes those
funds for the best interest of the public or collects and channels the funds of the public in a way
that benefits everyone. Individual or corporates who pays tax to the government are called Tax
payer.
 Payment of tax is not uniformly divided but paid as per various factors such as earning
ability, occupation, etc. A person cannot claim that he/she has paid more taxes then others as a
result he should get more benefits from the government. No matter how much you pay high or
low taxes this money is used for the welfare of the general public or for the development of the
nation.

Tax is not a voluntary payment but involuntary or compulsory payment made by the
individuals or corporates to the government. Payment of tax is mandatory for every citizen of
India. Or we can say tax is a liability of a citizen towards its government. Failure to pay tax or
tax evasion is a criminal offence and a punishable act. The punishment may lead to huge penalty
or even in some cases imprisonment.

Since India is a Federal country so Taxes in India are collected by both the Central and
State governments. Local bodies such as municipal corporations also collect taxes on property
tax, drainage, dispose of garbage, water supply, etc.

It is noteworthy that not every citizen is taxed equally but it depends on various factors
such as sources of income, types of occupation an individual is involved in, earning ability,
geographical location of the individual (For example People of Sikkim are exempted from
Income tax), etc.
1.3 SOME REASONS WHY PAYMENT OF TAX IS CRUCIAL

i. To provide basic needs to the public: As early stated that there is a huge disparity
between the rich and the poor and the gap is becoming wider day by day. The rich are becoming
richer and the poor are becoming poorer. The reason for rich becoming rich is that they possess
financial intelligence which is being passed on to generations after generation but the poor
people being financially uneducated does not possess financial intelligence as a result cannot
teach to his/ her coming generations as a result they become poorer and poorer. A global
research organization has found that almost 680 million Indians or 56 per cent of the population
are unable to meet their basic needs such as food, clothing and shelter. So, the tax collected by
government is used to fulfill those needs by giving free meals, building houses for free as well as
providing other facilities such as free electricity, free education, free health and medical
treatment, etc. ii. To finance Government bodies: There are many government bodies at various
levels such as municipality offices, police stations, public schools and colleges, army camps,
panchayat house etc. and to operate them the government needs funds. So, part of the tax
collected is also used for financing various government bodies which provide services to the
public. iii. Building new infrastructures and maintaining the old infrastructures: such as roads,
railways, airports, colleges, schools, hospitals, government offices, etc. to provide better facilities
to the public. iv. Overall development of the nation:

Taxes collected are used for overall development of the nation or economy. According to
sources about 68.4% of the government funds is used for revenue expenditures. Revenue
expenditures are recurring in nature and are incurred by government to finance the operational
cost such as financing the day to day activities of the government such salaries of government
employees in all sectors, pensions, subsidies(food subsidy, fuel subsidy and fertilizer subsidy)
provided to public, grants given to state and union territories, etc. It is noteworthy that money
spent in operating the government infrastructure and providing public services does not create
any asset neither it is a liability.

It is incurred to fulfill their basic obligations towards the public. The country cannot grow
or develop just by spending the funds on the operational activities so the government spends
almost 13.6% on acquisition of various assets such as land, buildings, investment in various
securities. The funds are utilized to construct hospitals, schools, colleges, dams, railway station
and railway tracks, airports which will provide revenue to the government. Such expenditure is
called Capital expenditure and it is considered as an asset because it yields profits or dividends as
revenue for the government. v. Reducing poverty and income inequality: As people pay tax in
proportion to their earnings and this implies that higher income people or rich people will pay
more taxes and low-income people or poor people pay less taxes. One of the main objectives of
collecting tax is to reduce income inequality and move people away from the poverty. This is
done by collecting higher taxes from rich and high-income level which is used for funding social
welfare programs.

Tax helps in redistribution of wealth and reduces the disparity between the rich and the
poor. vi. More employment opportunities: Simply funds are required to build more government
infrastructures such as hospitals, colleges, municipality offices, legal offices, airports to provide
more employment to the public. Fund are also required to pay salaries to individual working in
those organizations. Tax collection helps in building those infrastructures and payment of
salaries to the employees. More tax more funds will be available to the government which can be
used for generating employment in the nation.

1.4 CONSTITUTIONAL POWERS

Constitution of India (COI) is the supreme law and all the laws are formed as per the
constitution and so all the laws and actions of the government are subordinate to it which means
no one go against the constitution and make and law and levy any amount of tax to the public so
Article 265of the Indian Constitution states that “No tax shall be levied or collected except by the
authority of law”. As per Article 246 of the Constitution, Parliament has the powers to make new
laws or to amend existing laws in respect to matters of the Central Government given in Union
List(List I of the Seventh Schedule) and matters given of the State in the State List(List II of the
Seventh Schedule). In case of matters of both the Central and the State Government, the matter is
contained in Concurrent List (List III of the Seventh Schedule), where both the state and central
government have concurrent powers to legislature.

1.4 TAXATION POWERS OF UNION AND STATE GOVERNMENT

India is a three-tier federal structure comprising of the following: a) The Union

Government b) The State Government c) The Local Government In India the power to collect or
levy tax is given to Central Government, State government and local municipal bodies in
accordance with the provisions of the Indian Constitution. These makes up the structure of the
Indian Tax System. The central government levies taxes such as Custom duty, Income Tax,
Service Tax, and Central Excise duty whereas the State government has the power to levy
income tax on agricultural income, professional tax, Value added tax(VAT), state excise duty,
land revenue and stamp duty and the local bodies are given the power to collect tax such as
property tax, taxes on drainage and water supply, electricity bills, etc.

It is noteworthy that not anyone can impose any amount of tax to the public. Even the
government (Central and State) and municipal bodies cannot charge any amount of tax to the
public even though they have the power to impose and collect taxes. In order to impose any tax,
it has to be passed in both the houses i.e. Rajya Sabha and Lok Sabha and signed by the
president to consider it as a legal imposement and collection of Tax. In other words, tax has to be
passed as a law.

1.5 TAXATION PROVISION OF CONSTITUTION

The power to levy and collect taxes are given in the constitution of India and no citizen of
India can make tax laws as per their wish. All tax should be made for the welfare of the general
public and made as per the provision stated in the constitution which are given as follows:

• Article 265: As stated earlier no one can impose tax as per their wish even governments or
Mukesh Ambani who is the richest person of India cannot impose tax as per their wish. Tax
should be levied and collected except by the authority of law. The constitution of India prohibits
arbitrary collection of tax. In India the tax imposement and collection powers are given to Union
government, State government and Local authorities such Panchayats and Municipalities.

• ARTICLE 246: It states that the parliament has exclusive powers to make laws with respect to
any matters of the state or central government individually or in case of matters of both the
central and the state government collectively. The parliament can make laws for the entire nation
or any part of the nation and the State legislature can make laws for the entire state or part of the
state.
• SCHEDULE VII (IN ARTICLE 246): The seventh schedule contains three lists which
contains the matters under which the union and state governments have the authority to make
laws as per the needs. a) UNION LIST (LIST I): The Central government are given exclusive
powers by the Constitution of India to make laws with the help of parliament in respect of
matters of the union government stated in entries between 82-92C of Union List i.e. List I. b)
STATE LIST (LIST II): The constitution of India has given powers to respective state
governments or respective authority to make laws on behalf of matters stated in List II (State
List), entries between 45-63.

c) CONCURRENT LIST

(LIST III): The constitution also has given powers to both Union and State government to make
laws in matters stated in List III (Concurrent List).

1.6 REVENUE AUTHORITIES a) THE CENTRAL BOARD OF DIRECT TAXES: Also

known as CBDT is one of the components of the Department of Revenue under the Ministry of
Finance. The Central Board of Direct Taxes are responsible for formulating policies related to
direct tax in India. They are also in charge to implement the new policies formulated as well as
monitor direct tax laws in the country. b) THE CENTRAL BOARD OF EXCISE DUTY: Also
known as CBEC is also a component of the Department of Revenue under the Ministry of
Finance. The Central Board of Excise Duty is responsible for formulating policies related to
indirect tax in India and they are also in charge for administering customs, central excise duty
and service tax in India. c) THE CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS:
Also known as CBIC is responsible for formulating policies related to GST.

1.7 TAX STRUCTURE IN INDIA

There are basically two types of tax in India via direct and indirect tax.

1. 1.7.i DIRECT TAX: Direct tax is those tax which is to be paid by the individual or corporate
entities to whom it is levied. The tax burden cannot be shifted to another person or
tax payer. Therefore, it is a non-transferable tax. Direct tax is directly paid by the individuals or
corporate entities to the tax authorities of the Government of India. The Central Board of Direct
Tax (CBDT) is authorized for planning and framing the policies relating to direct tax. The CBDT
is a statutory authority functioning under the Central Board of Revenue Act, 1963. These
includes wealth tax, gift tax, income tax, etc. The most important feature of direct tax is that it is
a progressive tax which means that if the income of the person increases their tax liability also
increases which result in more payment of tax by the rich people and less payment of tax by the
poor people and helps in reducing the income inequality gap between the rich and the poor
persons.

Some benefits of Direct Tax:

a) CONTROLLING INFLATION: Inflation means the currency value is depreciating as a

result the individual has to pay higher prices for the same goods or services they were
purchasing at lower cost in the past. So, if the incomes of individuals do not rise than the
public will not be able to purchase goods and services as a result the economy will be
stagnant. Inflation is caused when RBI circulates more money in the economy or when a
country faces economic disasters etc. So, to decrease money supply in the economy the
government will charge high taxes to higher income level people as a result the demand
for goods and services will also go as a result inflation is controlled or reduced.
 b) REDUCING INCOME DISPARITY: High taxes are imposed to high income peoples
and minimum taxes are imposed on poor people as a result direct tax helps in reducing
the income inequality between the rich and the poor.
c) REDUCE POVERTY: The direct tax collected from high earned individual are used for
upgrading the poor people and providing benefits to the poor people.

1.7.i(a) TYPES OF DIRECT TAX

DIRECT TAX

CORPORATE TAX WEALTH TAX INCOME TAX CAPITAL GAINS TAX

a) Income Tax: Income tax is a direct tax imposed on the earning of a person from various
sources mentioned below in a particular financial year. Any earning person is liable to
pay income tax to the government. The tax payer must file Income Tax Returns (ITR) on
a yearly basis and failure to file ITR may lead to huge penalty. Tax Deduction at Source
(TDS) is a part of Income Tax. According to Section 2(31) of the Income Tax Act, a
person includes: o An individual o Hindu Undivided Family o A company o A firm
 Associate of person o A local authority o Every individual judicial person not falling
within any of the above categories. If the person stated above is earning income from any
of the below mentioned head of income than they are liable to pay income tax to the
government.
Heads of Income:
Income from salary o Income from house property o Income from profit and gains from
business or profession (PGBP) o Income from capital gains o Income from other sources
(such as dividend incomes, winning from lotteries, horse races, gambling, gifts received
by individual and HUF, etc.)
b) Wealth Tax: Wealth tax is levied to the richer section of the population. It is calculated
on the basis of net worth of a person. Net worth is nothing but all the assets possessed by
a person minus all the liabilities or debts of that person. Individuals, HUF’s, corporates
having a net worth exceeds Rs 30lakhs are liable to pay wealth tax at rate of 1% to the
government. The major intention of charging wealth tax to the rich people is to minimize
income inequality between the poor and the rich people.
c) Corporate tax: As we all know a corporate operates to earn profit and the corporates has
to pay a certain portion of profit as a tax to the government. Corporates are liable to pay
corporate tax annually. Domestic as well as Foreign companies running their business in
India are inclined to pay tax. There are various sources from which the companies earn
profit such profits earned from operating the business, capital gains from various assets,
etc.
d) Capital Gains Tax: It is a tax levied on the profits earned from selling of assets such as
land, buildings, machinery, precious metals, etc. as well profits from selling of
investments (such as bonds, shares, etc.) and all within a predefined period of time. The
capital gain is nothing but the difference between selling price of the assets minus the
cost price of the asset. There are two types of capital gains: o Short term capital gains: If
a person’s sells assets or investments and earns profits within 3 years of acquisition than
it is considered as short-term capital gains and is charged at the rate of 15%. o Long term
capital gains: If a person sells assets or investments and earns profits after 3 years of
acquisition it is considered as long-term capital gains.
1.7.ii INDIRECT TAX:
Indirect tax are imposed on goods and services. Simply put taxes which are not paid
directly to the government bodies is called Indirect tax. Indirect taxes are those taxes that
are not paid directly by the assesse (Individuals and corporates) to the government
authorities and hence tax burden can be shifted from one person to the other. Indirect
taxes are generally levied on transfer of goods and services. As we all know that between
the manufacturer and customer or consumer there are many intermediaries in between
such as whole sellers, retailer’s, etc. So, taxes on goods and services are at first imposed
to manufacturer then passed to the suppliers who later passes the tax burden to the end
user of the goods or services that is customers.

These includes Value Added Tax (VAT), excise duty, etc. The immediate tax liability is
upon manufacturers/sellers/service provider, etc. which ultimately is transferred to the
end user of the product or services i.e. customers. And hence it is indirectly paid by the
consumer as a result it is called indirect tax. Indirect tax is regressive tax which means it
doesn’t take into consideration whether you are rich or poor the government the same
amount of tax from the assesse.

The government imposes high tax rates on harmful or sin products like alcohol, tobacco,
etc. to discourage or reduce consumption of such unhealthy products. Indirect tax is the
major source of revenue for the government. More than 50% revenue of the government
comes from imposing and collecting indirect taxes.
1.7.ii(a) SOME MAJOR TYPES OF INDIRECT TAXES IN INDIA:

a) Sales Tax: Sales tax is imposed on selling and buying of goods and services such as if
we go to mall to purchase clothes than the amount paid includes the price of that
particular cloth as well as the sales tax and this tax collected by the buyer is transferred to
the respective governments. If the sales are inter-state than the sales tax is paid to the
Central Government and if it is intra-state it is paid to the State Government. Intra state
sales tax is also known as VAT. Sales tax are imposed on various household items,
clothing, and other basic requirements. The sales tax is the major source of revenue of
the State Government.
b) Excise Duty: Excise duty is imposed or levied by the Central government on all tangible
items i.e. goods produced or manufactured within the country such as purchase of raw
materials, etc. and is paid by the manufacturer or producer to the government who later
passes the tax burden to the end user of that product. Excise duty is also commonly
known as Central Value Added Tax (CENVAT).
c) Value Added Tax (Vat): The concept of VAT was introduced in India in 2005. VAT is
an indirect tax levied on the transfer or sale of tangible goods within the country. Before
the product is ready for sale it has to pass through various stages such as inbound
 logistics (purchase of raw material), manufacturing, outbound logistics, sales and
marketing and at each stage value is added to the product and at every production and
distribution Value Added Tax (VAT) is charged by the State Government.
d) Entertainment Tax: Entertainment tax is an indirect tax levied on financial transactions
related to entertainment. It is charged on movie tickets, shows tickets, amusement parks,
DTH services, cable services, etc. by the State Government.
e) Service Tax: Service tax is an indirect tax levied on services rendered by an individual
and corporates. The services provided includes legal advices, business consulting and so
on. The service tax is collected from the person who receives those services and later
transferred to the central government.
f) Custom Duty: Custom duty are indirect taxes imposed on import and export of goods
and services in India. Custom duties are governed by the Customs Act, 1962 and in
charge of formulating policies and procedures related to imports and exports of goods
and services.
g) Stamp Duty: It is an indirect tax levied by the State government transfer of immovable
property such as land, building located within the state. Stamp duty charges is not same
in every state and varies from state to state.

1.7. iii DIFFERENCE BETWEEN DIRECT AND INDIRECT TAX:

DIRECT TAX INDIRECT TAX

• Direct taxes are imposed on income or • Indirect taxes are imposed on goods and
earning of a person services.
• Direct tax liability and burden is beard by the • Tax liability and burden is on the different
same person. Tax liability cannot be person. Tax liability is upon different business
transferred from one person to another. units such as manufacturer/purchaser/seller and
later it is transferred to the end user of the
product or services i.e. consumer.

• Direct taxes are progressive in nature. • Indirect taxes are regressive in nature.
• Tax liability cannot be shifted or transferred • Tax liability can be shifted or transferred
from one person to another person from one person to another person.
• Examples: Income tax, wealth tax, etc. • Examples: Entertainment tax, sales tax, VAT,
etc.

a.8 PRE GST-ERA: INDIRECT TAXES IN INDIA

a) Before GST there was the existence of many indirect taxes in the country, more than
14 different indirect taxes collected by the central and state government individually on
manufacture/purchase/sell of goods and services.

b) Tax on goods and services were as high as 50% and normally between 30-35%.

c) We know that the ultimate indirect tax burden is paid by the general public and
since it is a regressive tax it does not take into consideration whether it is paid by a rich
or poor person as they have to pay equally as a result the rich will be richer and the poor
the poorer and hence it is difficult to reduce income inequality in the country as opposed
to direct tax where poor people pay less taxes and rich people pay more taxes thus
reducing the gap between the rich and the poor people.

d)And since more than one indirect tax are imposed on the same product hence the price
of the product increases as a result the public has to pay more taxes. For example, if a
refrigerator is manufactured in Mumbai, after the production of refrigerator in the factory
excise duty is levied, then to reach Sikkim the product has to pass through various states
and entering each state entry tax is imposed on that particular product, then VAT is
charged in Sikkim. So, we can see that in a single product 3 different tax is charged and
there same type of tax is charged more than once in a single product which is called
cascading effect, in this case Entry tax which is charged again and again on entering into
different states within the country which will make the

e) Tax on tax i.e. cascading effect increases the price of goods and services.
f) As the cost of the product or services increases it leads to inflation.

g) Pre GST-era small traders and services with a turnover of more than Rs 5 lakh was
liable to pay VAT. As we all know capital is necessary for the growth of any enterprise
and since small enterprises need to pay tax when its income exceeds Rs 5 lakh as a result
it acted a burden to the growth of the organization.

h) Before GST the person has to register for different indirect tax which makes it
difficult for layman to understand and register it. So due to complicated tax filing it
demotivated many traders and service providers.

i) Before GST all the processes were done manually form registration to filing returns as
a result it was time consuming and can even lead to inaccurate data’s which can cause a
person to pay more tax or less tax or some mistakes can occur which can exempt a person
from paying tax.

j) Before GST there existed many indirect taxes and each tax had different filing
schedules such as excise were to be paid monthly, service tax had to be paid quarterly for
partnership/proprietorship and monthly for company and VAT rates was different for
different states as a result the number of compliances was more.

k) Prior GST regime, there was no tax structure for e-commerce as a result it created
difficulties for online e-commerce companies such as Amazon, Flipkart which has
become a common trend for majority of person to purchase goods.

1.9 NEED FOR GOODS AND SERVICES TAX IN INDIA:

a. MULTIPLICITY OF INDIRECT TAXES: As discussed above there was

existence of many indirect taxes in India such as custom duty, service tax, etc.
which was imposed by Union government and VAT, luxury tax, entertainment
tax, etc. imposed by State Government. So, there was a need to replace multiple
taxation system with a single tax system
b. LESS COORDINATION BETWEEN UNION AND STATE
GOVERNMENT: As in a single good/service the Union government was
charging say excise duty and State government was charging VAT separately so
 there was no or less coordination between Union government and State
Government. So, a new tax system was required to increase coordination between
the Union and State Government.
c. HIGH TAX RATES: In many goods and services more than one tax was levied
which result in increase in price of goods and services and prior to GST the tax
rate was high as 50% and normally between 30-35% so a single tax system was
required to decrease the cost of goods and services.
d. COMPLICATED TAX SYSTEM: Pre GST government used to impose Custom
duty on import on raw materials of goods and services and from manufacturing
phase till the goods are sold the person has to different taxes such as excise duty
on manufacturing, central sales tax if the goods are delivered and sold to various
states within India, and if to sold within the state it is manufactured than VAT was
charged, if any services is used during the manufacturing of the product then
service tax was charged, etc. So, the taxation system before GST was complicated
and difficult both for the government and the person selling goods and services as
they have to understand and follow different tax laws to run a single business so
as a result there was a need to replace or convert complex indirect tax structure to
a simple tax system in India.
e. DIFFICULTY PAYING TAXES: Prior to GST the person has to pay different
taxes and there were difficulties filing return and paying taxes as some CA’ s
practiced only Central Government taxes or State Government taxes as a result
they had to visit different tax practitioners to pay taxes.
f. TIME CONSUMING AND COSTLY FOR TAX PAYERS: Due to existence
of multiple taxes, the tax payer had to register to different tax departments, file
returns on different dates and pay multiple taxes on goods and services which
discouraged many traders, sellers, whole-sellers and so on, so a better tax system
was required to make the taxation system easier so that business can flow easily in
the economy and encourage many people to start and run their own businesses.
g. RISE IN INFLATION RATE: Indirect taxes were the main source for
continuous inflation rate in India as a result the government has to come up with
some solutions to decrease the continuous inflation rate.
 h. CASCADING EFFECT. There was existence of cascading effect i.e. tax on tax
so it was necessary to eliminate cascading effect. Above mentioned are the few
problems and loopholes in the indirect taxation structure prior GST in India which
led to the formation of new indirect tax structure by submersing 17 different
indirect taxes into a single tax system called GST.

CENTRAL TAXES SALES TAXES

• Central Excise duty • State VAT/Sales Tax
• Additional duties of excise • Central Sales Tax
• Excise duty levied under Medicinal & Toilet • Purchase Tax
Preparation Act • Entertainment Tax (excluding tax levied by
• Additional duty of customs (CVD & SAD) municipal bodies)
• Service tax • Luxury Tax
• Surcharges & Cesses • Entry Tax
• Taxes on lottery, betting & gambling

1.10 DEFINITION: GOOD AND SERVICES TAX

Article 366(12A) defines “Goods and Services tax” means any tax on supply of goods, or
services or both except taxes on the supply of the alcoholic liquor for human consumption.

Sl. No.

Definition Article Definition

1 Goods 366(12) Includes all materials, commodities, and articles. 2 Services 366(26A)
Anything other than goods [Introduced vide 101st Constitutional Amendment Act] 3 State
366(26B) With reference to article 246A, 268, 269, 269A, and article 279A includes a Union
territory with Legislature. [Introduced vide 101st Constitutional Amendment Act] “Goods and
Services tax” law of India Is a unique indirect taxation system but while having unique
principle, it has taken significant elements of prior Central and State laws and is also inspired by
VAT/GST legislation of EU, Australia, Malaysia, etc. who have already implemented GST
before India along with International VAT/GST guidelines of OECD.
CENTRAL TAXES

• Central Excise duty • Additional duties of excise • Excise duty levied under Medicinal & Toilet
Preparation Act • Additional duty of customs (CVD & SAD) • Service tax • Surcharges &
Cesses

• State VAT/Sales Tax • Central Sales Tax • Purchase Tax • Entertainment Tax (excluding tax
levied by municipal bodies) • Luxury Tax • Entry Tax • Taxes on lottery, betting & gambling •
Surcharges & Cesses

SALES TAXES

Goods or Services Tax (GST)

Goods or Services Tax or GST is a single uniform indirect tax levied on more than 1200 goods
and services to replace almost 17 different indirect taxes and 9 cesses levied by Central and State
Government. As stated earlier due to the various loopholes in the indirect tax structure prior
GST, both the government and the indirect tax payers were facing difficulties such as complex
indirect tax structure, multiple compliances, cascading effect, inflation, etc. so there was a need
to reform the preexisted indirect tax structure into a simple and clear taxation system. So, GST
was implemented at midnight on 1st July 2017 by the President of India and the Government of
India.

GST is considered as the biggest tax reformation in India since Independence because it provided
solutions to various loopholes that existed in previous indirect taxation system in the nation such
cascading effect, multiple compliances, etc. and eliminated or submersed 17 different indirect
taxes into a single tax called GST thus making the flow of goods faster in the economy, reduced
transportation costs, and making the registration, filing and paying of tax easier and faster which
will encourage more people to start their own business or be selfemployed. The population of
India is approximately 1.3 billion population and pre-GST there were only 60 lakh people who
were under the Indirect tax regime but only after 7 months of implementation of GST the number
of people has increased from 60 lakh to almost more than 1 crore.
[NOTE: In the previous indirect taxation system prior to GST public had to pay almost 20
different indirect taxes but after the implementation of GST public have to pay only tax on all
goods and services called Goods and Services Tax i.e. GST]

DEFINITION OF GST ACCORDING TO WIKEPEDIA: “Goods and Services Tax (GST) is

an indirect tax (or consumption tax) used in India on the supply of goods and services. It is a
comprehensive, multi-stage, destination-based tax.”

GST is a comprehensive tax because it will subsume all the 17 different Indirect taxes that
existed in the previous Indirect taxation system or bring all the indirect tax under one umbrella
thus making a unified taxation system.

GST is a multi-stage taxation system: Multi- stage taxation system implies that at every stage tax
is charged at every stage of production. As we all know that before the goods reaches the end
user i.e. customer it has to pass through various stages and business units such as Manufacturer,
whole-seller, retailer, and customer (end-user) and at each stage value is added to the product as
shown below:

value
manufacturer Whole-seller retailer customer
added

At first the manufacturer procures or purchases raw material and converts it into finished product
so a value is added to the raw material than value is again added such as labeling, packaging in
the warehouse and the product is sold to whole-seller who distributes it to various retailers and
then it is sold to retailer who markets the product thereby, adding value to the product before it
finally reaches the end-user.

GST is a destination-based consumption tax: Prior GST tax was collected on the location where
goods was manufactured but after the implementation of GST tax will be collected on the
location where it is sold or consumed. This is the most important feature because it eliminates
cascading effect. For example, before GST, tax was imposed on place where goods were
manufactured of produced but after the implementation of GST tax is imposed on the place
where it is sold and not where it is manufactured. For instance, if a good is manufactured in
Mumbai and sold in Sikkim than before GST, tax was imposed on the place where it was
manufactured i.e. Mumbai but after the implementation of GST tax will be imposed on the place
where it is sold i.e. Sikkim. By doing so the direct tax imposed on that particular good will be
eliminated and the public will have to pay only one tax i.e. GST. For example, if a refrigerator is
manufactured in Mumbai, after the production of refrigerator in the factory excise duty is levied,
then to reach Sikkim the product has to pass through various states and entering each state entry
tax is imposed on that particular product, then VAT is charged in Sikkim. So, we can see that in
a single product 3 different tax is charged and this tax on tax is called Cascading effect and GST
eliminates it.

GST is one indirect tax for the whole nation.

1.11 COMPARISON BETWEEN PRE-GST INDIRECT TAX SYSTEM AND TAXATION

AFTER IMPLEMETATION OF GST:

 Prior to GST there was existence of
various indirect taxes in India.
 Due to cascading effect the assesse had
to pay high taxes normally between 30-
35% and was as high as 50%
 More compliances
 Pre-GST tax structure was very
complex as the assesse had to pay
different taxes on goods and services
and assesse had to pay almost 20
different indirect taxes
 After the implementation of GST only
one type of tax will be charged on
goods and services I.e. GST.
Whole
 Elimination of Cascading effect.
 Few compliances.
 GST is a simple tax because the assesse
has to pay one tax on all goods and
services
1.12 PROCESS AND FRAMEWORK OF GST:

The then Union Finance Minister Mr. P. Chidambaram while presenting the Union Budget for
the financial year 2007-2008 announced to implement comprehensive indirect tax reform in the
country and also announced to introduce GST from01/04/2020 and for the implementation of
GST from the specified date an Empowered Committee of State Finance Ministers was
constituted or established. The committee was formed with a purpose that the committee would
work with the central government and assist the government to prepare a road map for
introduction and implementation of GST in India.

After the announcement of formation of Empowered Committee of State Finance Ministers, they
decided to setup a joint working group on 10th May 2007. The joint group after having many
meetings and discussing on various issues and interaction with experts and representatives of
Chambers of Commerce and Industry submitted its report to the Empowered Committee in
November 2007. And many suggestions were also taken from various interest groups including
trade and industry bodies in the last decade.

The then Finance Minister Mr. Arun Jaitley also while presenting the budget speech during July
2014, announced that GST would be implemented by the beginning of the financial year 2015-16
but due to various reason it could not be implemented. Again, the Finance Minister hoped to
implement from 01/04/2016 and the government tried its best to pass the GST bill in the
parliament and it was passed in the lower house but it was not passed in the upper house i.e.
Rajya Sabha because the government could not get consensus in favor of implementation of
GST.

In principle GST is similar to VAT already implemented in the nation but the only major
difference is VAT is a sales tax imposed on goods only and not on services but GST will be a
VAT on both goods and services.

As per the GST bill the Central government will impose and administer Central GST i.e. CGST
and the State government will impose and administer State GST i.e. SGST and the compliances
will be monitored independently at the two levels. GST council will state the rates of both CGST
and SGST whose members will be State Finance/ Revenue Ministers and the chairman will be
the Union Finance Minister. After the implementation of GST individual states will lose their
right set tax rates as per their interest.

1.13 BENEFITS OF GST

➢ Before GST both the central and state government levied various taxes on different goods and
services mentioned above but due to implementation of GST a single type of tax is levied on
various different goods and services.

➢ Before GST the public had to pay high taxes on various goods and services, generally 30-35%
and in some cases it was as high as 50% but due to implementation of GST the maximum tax
rate is only 28%.

➢ Before GST the public had to pay almost 17 different taxes on goods and services but after
the implementation of GST the public have to pay only one tax i.e. GST making India “one
nation one tax” economy. Implementation of GST eliminated various existing tax such custom
duty, additional duty of customs, VAT, Sales tax, Central Sales tax, State sales tax, entertainment
tax, luxury tax and many more.

➢ Before GST, tax was imposed on place where goods were manufactured of produced but after
the implementation of GST tax is imposed on the place where it is sold and not where it is
manufactured. For instance, if a good is manufactured in Mumbai and sold in Sikkim than before
GST tax was imposed on the place where it was manufactured i.e. Mumbai but after the
implementation of GST tax will be imposed on the place where it is sold i.e. Sikkim. By doing so
the direct tax imposed on that particular good will be eliminated and the public will have to pay
only one tax i.e. GST. For example, if a refrigerator is manufactured in Mumbai, after the
production of refrigerator in the factory excise duty is levied, then to reach Sikkim the product
has to pass through various states and entering each state entry tax is imposed on that particular
product, then VAT is charged in Sikkim. So, we can see that in a single product 3 different tax is
charged.
1.14 GOODS AND SERVICES TAX SLABS:

More than 1200 goods and services are taken into under consideration by the GST council and
these goods and serves in four slabs under Goods and Services Tax which ranges from 5% to
28% according to which tax will be charged. As per the government out of more than 1200
goods and services, 81% of goods and services i.e. 960 goods and services fall under the 18%
slab rate. Although there are some goods and services where is GST not charged and on luxury
goods GST along with CESS is charged.

TAX SLABS GOODS/SERVICES 5% Household necessities or everyday items such as Sugar,

tea leaf, baby milk food, footwear under Rs.500, clothes under Rs.1000, etc. 12% Honey, ghee,
nuts, LED lights, sports equipment, umbrella, mobile phones, etc. 18% Hair oil, toothpaste,
soaps, cornflakes, packaged soups, instant foods, computers, television, etc. 28% Luxury items
such as air conditioner, refrigerator, washing machine, shaving cream, cars, two wheelers, digital
camera, etc.

GST TAX SLABS IN MORE DETAIL:

Goods SERVICES
 Poultry Products – Fresh Meat, Fish,  Hotels and lodges with tariff below RS.
Chicken, Eggs 1000
 Dairy Products – Milk, Curd, Butter  Education
Milk, Jaggery (Gur), Lassi, unpacked
Paneer
 Hulled cereal grains like barley, wheat,  Jan Dhan Yojana
oat, rye, etc. Jan Dhan Yojana

Fresh Fruits & Vegetables Healthcare

 Food Items – Natural Honey, Flour  Bank charges on the savings account
(Atta & Maida), Pulses, Basmati Rice,
Gram Flour (Besan), Bread, Vegetable
 Oil, Religious Sweets (Prasad),
Common Salt
 Cosmetics & Accessories – Bindi,  IIM course books
Vermillion (Sindoor), Bangles
 Stationery – Stamps, Judicial
Papers, Printed Books, Newspapers
Handloom Products
Textile – Jute, Silk Contraceptives

Dairy Products – Ice Cream Accommodation at hotels with tariff of more than 2500 INR but less
than 7500 INR Preserved Vegetables Supply of food / drinks in AC / 5 star and above rated
restaurants Food Items – Biscuits, Pasta, Corn Flakes, Pastries, Cakes, Soups, Instant Food
Mixes, Processed Foods Telecom Services Beverages – Mineral Water IT Services Branded
Garments Financial Services Footwear – above 500 INR Works Contract Personal Hygiene –
Shampoo, Tissues, Toilet Paper, Hair Oil, Soap Bars, Toothpaste Cinema Tickets worth more
than INR 100 Stationery – Envelopes, Fountain Pens Branded garments Electronic Equipment –
Printers, Monitors, camera Outdoor catering pandal Iron & Steel Products Composite supply
works Biri wrapper leaves (Tendu Patta) Biscuits Textile – Man-made fibre and yarn

28% GST TAX SLAB:

GOODS SERVICES Food Items – Chocolates, Chewing Gum, Custard Powder

Accommodation at hotels with tariff of more than 7500 INR Beverages – Aerated Water Race
course and casinos betting Personal Hygiene – Deodorants, Shaving Cream, After Shave, Hair
Shampoo, Dye, Sunscreen, Perfume, Face Creams, Detergents Cinema Tickets worth more than
100 INR

Vacuum Cleaner, Shavers, Hair Clippers, Washing Machines, Dish Washers, Water Heaters &
other Home Appliances

Speakers and cameras Personal Aircraft Automobiles & Motorcycles Ceramic tiles Housing
Materials – Paint, Wallpaper, Ceramic Tiles, Cement Weighing Machines, Vending Machines,
ATM, dishwasher Fireworks Luxury / Demerit Goods* - Pan Masala, Tobacco, Bidis, Aerated
Drinks & Motor Vehicles

GOODS KEPT OUTSIDE GST: Jewelry, gold, gems - 3%

Precious and semi-precious stones such gemstone, pearl, etc. – 0.25%

1.14.i COMMODITIES NOT INCLUDED UNDER GST:

a) ALCOHOL: GST is not levied on alcohols for human consumption. Taxes on alcohols are
collected by the respective state governments after implementation of GST also. b)
PETROLEUM PRODUCTS: Petroleum products such as crude oil, spirit, diesel, petrol, natural
gas, aviation turbine fuel, etc. also does not fall under the regime of GST. c) ELECTRICITY:
Electricity bill also does not come under the regime of GST.

1.14.ii SERVICES NOT COVERED UNDER GST:

a) Service given by an employee to employer during the course of his/her employment.

b) Services such as judgement given by court/tribunal services working in District Court,
High Court and Supreme Court.
c) Duties performed by Panchayats, Municipalities, member of parliament, State
Legislature, etc.
d) Services of a funeral, burial, crematorium or mortuary including transportation of the
deceased of any religion.
e) Sale of land and sale of building .
f) Supply of goods from a place in the non-taxable territory to another place in the
nontaxable territory without such goods entering into India,
g) Actionable claims (other than lottery, betting and gambling) Actionable Claims’ means
claims which can be enforced only by a legal action or a suit, example a book debt, bill of
exchange, promissory note. A book debt (debtor) is not goods because it can be
transferred as per Transfer of Property Act but cannot be sold. Bill of exchange,
promissory note can be transferred under Negotiable Instruments Act by delivery or
endorsement but cannot be sold. Actionable claims are neither products nor services.
They can be considered as something in lieu of money. So, GST will not apply on these.
 h) Supply in Customs port before Home consumption: (a) Supply of warehoused goods to
any person before clearance for home consumption; (b) Supply of goods by the consignee
to any other person, by an endorsement of documents of title to the goods, after the goods
have been dispatched from the port of origin located outside India but before clearance
for home consumption.
i) 1.15 COMPONENTS OF GST:

There are four components of GST which are described in detail below:

a) CENTRAL GOODS AND SERVICES TAX(CGST): CGST is a tax levied on intra state
supplies of both goods and services (supply within the state) by the Central Government and will
be governed by the Central Goods and Services Act, 2017 under GST. In case of intra state
transaction of goods and services along with CGST, SGST will also be levied and governed by
the State government. However, such supplies do not include alcoholic liquor for human
consumption. Further, the liability to pay CGST shall only arise at the time of supply of goods or
services and not at the time of manufacturing.

Example of CGST: XYZ enterprises, a refrigerator manufacturer in Sikkim supplies 100 pieces
of refrigerator worth Rs 1,00,00 to ABC Ltd situated within Sikkim only. In this typical example
ABC Ltd has to pay GST @ 18% i.e. 18,000(18% of 1,00,000) and since it is an intra state sale
the revenue generated gets deposited to both Central and state governments which implies that
18,000 will get deposited into State and Central government equally. This means Rs 9000 gets
deposited into CGST account and remaining Rs 900 gets deposited into SGST account.

b) STATE GOODS AND SERVICES TAX(SGST): SGST is another component of GST. It is

an indirect tax levied and collected by the State government on intra state supplies (i.e. within the
state) of both goods and services. It is governed by the State Goods and Services Act,2017. As
stated above, in case of intra state transactions or supply CGST will also be levied along with
SGST but it will be the levied by the Central government. And similar to CGST, the liability to
pay SGST will arise at the time of supply of goods and services and not at the time of
manufacturing or production of goods.

Example: XYZ enterprises, a refrigerator manufacturer in Sikkim supplies 100 pieces of

refrigerator worth Rs 1,00,00 to ABC Ltd situated within Sikkim only. In this typical example
ABC Ltd has to pay GST @ 18% i.e. 18,000(18% of 1,00,000) and since it is an intra state sale
the revenue generated gets deposited to both Central and State governments which implies that
18,000 will get deposited into State and Central government equally. This means Rs 9000 gets
deposited into CGST account and remaining Rs 900 gets deposited into SGST account.

c) INTEGRATED GOODS AND SERVICES TAX(IGST): IGST is also a component of

GST. It is an indirect tax levied by the Central government on the inter-state supplies or
transaction of goods and/services (i.e. transaction or supply of goods from one state to another).
It is governed by the Integrated Goods and Services Tax Act, 2017. IGST will also be imposed
or levied on import of goods and services into India and export of goods and services from India.

Example: A television set is manufactured in Haryana and sold in Sikkim than it is as inter -state
transaction as a result IGST will be imposed by the Central government. For instance, the price
of the television set is Rs 100000 @ 18% than the GST will be Rs 18000 (18% of Rs100000)
which will be deposited in the IGST account of the Central government.

d) UNION TERRITORY GOODS AND SERVICES TAX(UTGST): India consist not only of
states but also union territories so as result people of union territories are also liable to pay GST
called Union Territory Goods and Services Tax. It is an indirect tax levied and collected by the
Union Territory on the intra-state supply of goods or services. It is governed by the Union
Territory Goods and Services Act, 2017.

According to the UTGST Act, 2017, UTGST will be applicable to the following territories:
Andaman and Nicobar Islands Lakshadweep Dadra and Nagar Haveli Daman and Diu
Chandigarh Other Territory Delhi and Puducherry are the other two Union Territories. But this
Act is not applicable there as they have their own State Legislature and Government. For both
the territories, State GST is applicable.

1.15.i WHAT DETERMINES IF CGST, SGST, OR IGST IS APPLICABLE?

Since GST is a destination-based tax system so it is not charged on the place where it is
manufactured but it is imposed on the place where it is sold. So, the main criteria to determine
whether CGST, SGST, or IGST will be applicable is whether the transaction is an intra state i.e.
within the state or inter-state.
Or in other words, to levy GST, supplies are classified into two categories which are inter-state
that refers to transaction of goods and services from state to another and intra-state supplies
which refers to transactions within the state.

INTRA STATE SUPPLY OF GOODS AND SERVICES:

If the goods are manufactured and sold within a particular state i.e. location of buyer and location
of the supplier and the place of supply is within the state than both CGST and SGST are imposed
by the state and central government respectively and the revenue is shared between the Central
and State government equally. In case of intra state transactions, a seller has to collect both
CGST and SGST from the buyer and the CGST gets deposited with the Central Government and
SGST gets deposited with the State government.

Example: ABC Ltd. is a dealer in Sikkim who sold goods to Anjali Ltd. in Sikkim worth Rs.
10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such
case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government and Rs.
900 will go to the Sikkim Government.

INTER-STATE SUPPLY OF GOODS AND SERVICES:

Inter-state supply of goods and services means transaction of goods and services is between two
or more states I.e. location of the buyer and the location of the supplier and the place of supply
are in different states. In case of import of goods in India or export of goods from India and
transaction of goods or services is made to or by a SEZ unit, the transaction is assumed to be
inter-state and IGST is levied. In case of inter-state supply of goods and services CGST and
SGST is not charged as in case of Intra-state supply of goods and services but IGST is imposed
by the central government but the revenue is shared between the central and the state
government. So, in case of inter-state sale of goods and services, a seller has to collect IGST
from the buyer.

Example: ABC Ltd is a manufacturer of a particular goods in Delhi and if the goods are sold in
other states apart from Delhi than it will be considered as inter-state supply of goods and services
as a result IGST will be imposed. So, ABC Ltd has to collect IGST from the buyer which will
later be deposited in the central government account as it is levied by the central government.
For instance, if the price of good is Rs 200000 per unit than for each sale ABC Ltd has to charge
Rs 36000(18 % GST) as IGST from the buyer.

1.15.ii WHY THE SPLIT INTO SGST, CGST, AND IGST?

India is a federal country where both the State Government and Centre Government have the
powers to levy and collect taxes and since GST is a single tax structure for the entire nation so
both the Centre and State are simultaneously levying GST.As a result GST is divided or split
into three parts called SGST, CGST, AND IGST to ensure that there is coordination between
state and Centre government to levy and collect tax and to ensure that there is no confusion or
misunderstanding between both government in the matter of tax levying and collection.

In simple words the division of GST into SGST, CGST, and IGST clearly depicts who will levy
and collect which tax on goods and services.

1.16 JOURNEY OF GST

The idea of GST came in a meeting between the Prime Minister Atal Bihari Vajpayee and his
advisors, including three former governors IG Patel, Bimal Jalan and C Rangarajan when they
were discussing about the uniformity of tax throughout the country. Atal Bihari Vajpayee was
very much impressed with the idea, as a result in the year 2000 he set up a committee to draft
GST model. CPM leader and the then Finance Minister of West Bengal Asim Dasgupta was in
charge of the GST committee. Asim Das Gupta was the key person of the GST because he was
considered as a great economist in the nation and his unmatchable expertise in handling financial
statistics. GST was not implemented in India during the NDA government period of 1999-2004
so when United Public Alliance led by Indian National Congress replaced the NDA government,
the then Prime Minister Manmohan Singh refused to replace him with other person and admitted
that Asim Das Gupta was heading one of the most important reform process in the country. So,
after working for GST model formulated by Atal Bihari Vajpayee Dasgupta also headed another
committee formed by the then Prime Minister Dr. Manmohan Singh to structure GST bills.
Finally playing a key role in modelling GST (2000-2004) and structuring GST (2004-2011) he
resigned in 2011. Asim Das Gupta was succeeded by the then Finance minister of Kerala KM
Mani who continued the work related to GST left by Das Gupta. He also played a key role on
finalizing the GST bills such as he interacted with all the various key people such as trader
bodies and all about the benefits of GST over preexisting indirect tax structures so that they will
accept the new tax structure. But during his period as a head of GST committee he was
embroiled in a corruption scandal in the year 2015 and finally had to quit as the head of the GST
committee. The then Finance minister Amit Mitra succeeded KK Mani after je resigned as the
head of the GST committee.

He was also an economist and the secretary general of the Federation of Indian Chambers of
Commerce and Industry (FICCI). His main work during his period as the head of the GST
committee was that he held a series of meeting with the state governments and interacted with all
the state governments regarding GST convincing them that implementation of GST is for the
welfare of the people of nation without submersing the interests of the stated under the new
indirect tax regime. His efforts did not go in vain and as a result most states agreed to implement
GST in the country. However, during his period also GST was not implemented in the nation
even the central government had agreed implement on July because he advocated a more
calibrated approach while implementing the biggest tax reform.

The implementation of GST took almost 2 decades during which the GST council held almost 34
meetings wherein major issues were discussed and recommended to the government for effective
and efficient tax system in India. The GST council discussed on issues such as reducing
compliance burden for taxpayers, providing sector specific relief measures, etc.

Some of the key issues discussed by GST council and recommended to the government includes:

a) . Rationalization of tax rates: As we all that the major population section of India consist
of middle class persons so in order for GST to be accepted by the major population many
necessary commodities which were kept in high tax bracket i.e. 18% and 28% were
reviewed and the tax rate on such essential goods were reduced considering such items as
necessities and not luxurious and were taxed at 5% or in most basic amenities no tax were
imposed. As a result, only few items were placed in high tax slabs to suit the Indian
population.
b) As we all know that many indirect taxes levied by both the central and state government
existed prior GST and different taxes had different tax compliances such as different
registration dates, dates for filing returns, reconciliation statements, etc. So, keeping this
in mind and to make GST more easy and simple tax compliances were simplified for a
section of taxpayers by extending the due dates, online return filings, reconciliation
statements. Introduction of simplified return filing system, introduction of nationwide e-
way bill, etc
c) GST rates for under-construction properties were reduced to 1% (for affordable housing)
and 5% (for non-affordable segment) with an intention to boost the real estate sector in
the economy.
d) The GST council also recommended relief measures for MSME sector (i.e. Micro,
Small, and Medium Enterprises) such as increasing the registration threshold limit,
introducing composition schemes. Extending composition scheme to service providers
and so on which have been welcomed by taxpayers.
e) The GST council has also recommended the formation of Group of Ministers(GOP) to
study the revenue trend, analyze the various factors affecting the tax collection in various
states, to examine the tax rate and issues in specific important sectors of the economy
such as real estate, lottery, and other issues related to GST.
f) The CBIC, on the other hand, has played an active role in giving effect to GST Council’s
recommendations, providing various Suo-moto reliefs to the taxpayers in terms of
extending the due dates for various return filings, providing waivers from interest and
penalty, etc. Further, CBIC has issued various clarifications and FAQs to address the
business concerns and sector-specific issues. Some of the key clarifications issued by the
CBIC during the past year include: • Non-inclusion of tax collected at source (TCS) for
the purpose of determination of value of supply under GST as it is an interim levy not
having the character of tax; • Clarification on tax implications/treatment and input tax
credit in respect of various sales promotion activities offered by companies such as
distribution of gifts or free samples, buy one get one free offer, treatment for primary and
secondary discounts, etc.; • Tax implications under reverse charge basis in case of import
of the outsourced services; • Doing away with the requirement of physical submission of
documents in case of export refunds. g. The clarifications issued by CBIC during the
initial years of implementation of GST will play an important role in guiding taxpayers
on interpretation of tax provisions and also mitigate potential litigation. h. In addition to
the above measures, the CBIC has also introduced the facility for ‘IT grievance redressal
mechanism’ along with a helpdesk facility to resolve the difficulties faced by the
taxpayers owing to technical glitches on the GST portal. i. Besides the GST Council and
CBIC, the Authority for Advance ruling (AAR) established in various states have over
the last year pronounced important rulings providing clarity on issues such as
classification of good/services for determining the GST rate, determining the time and
value of supply of goods/services, registration requirements, etc. An advance ruling
brings certainty in determining the tax liability, as the AAR’s ruling is binding on the
applicant as well as tax authorities. Further, it helps in avoiding long drawn and
expensive litigation at a later date. The AAR’s ruling can be appealed before an
Appellate AAR. Such rulings even though applicable only to the applicant, have a
persuasive value for other taxpayers undertaking similar transactions. Keeping in view
the conflicting rulings of AAR on some of the critical issues and representations made by
the tax payers, the government has recently notified creation of a National Bench for
Goods and Services Tax Appellate Tribunal which will further help in bringing in
certainty and clarity on various GST matters and thus reduces the litigation. j.

The GST regime also provides for a National Anti-Profiteering Authority (NAA) which
ensures that the benefit of reduction in the rate of tax on goods or services or the benefit
of the input tax credit is passed on to the customer by way of a commensurate reduction
in prices. Over the last year, the NAA has dealt with few cases where penalties have been
imposed on a cross section of taxpayers for not passing on the tax benefit to the
consumers. In cases where the ultimate customer is not identifiable, the taxpayers have
been directed to deposit the amount in the Consumer Welfare Fund. However, application
of the anti-profiteering provisions has been fraught with litigation as the current GST
provisions do not prescribe any methodology/mechanism for taxpayers to determine the
quantum of the benefits to be passed on to the consumers. Appropriate guidance from the
government is awaited on this area to reduce unnecessary disputes and litigation. k.
Stabilization of GST collections over the past one-and-a-half year is evidence of the GST
 regime overcoming initial teething issues, gaining stability and gradually entering a
growth phase. The total GST revenue collections during the financial year 2018-19 was
11.77 crore with a monthly gross average of 98,114 crore. It is expected that the trend of
reforms will continue with focus on further simplifying compliances, providing relief
measures for the certain industrial sectors which have been adversely impacted after the
implementation of GST, ensuring fast-track clearance for pending export refunds, etc.
among others. l. The government, the administrative machinery, industry associations and
businesses deserve kudos for making GST a reality today. There are not many examples
in the recent history of a policy change of this scale being implemented successfully in
such a short span of time. Hopefully, as the tax rates are further reduced, slab rates are
further rationalized and compliances become easier, it will lead to GST to becoming ‘one
Nation, one tax’ in a true sense.
1.17 MAIN FEATURES OF GST ACT
a) All transactions and processes only through electronic mode – Non-intrusive
administration
b) PAN Based Registration
c) Registration only if turnover more than Rs. 20 lakh
d) Option of Voluntary Registration
e) Deemed Registration in three working days
f) Input Tax Credit available on taxes paid on all procurements (except few specified items)
g) Credit available to recipient only if invoice is matched – Helps fight huge evasion
of taxes
h) Set of auto-populated Monthly returns and Annual Return
i) Composition taxpayers to file Quarterly returns
j) Automatic generation of returns
k) GST Practitioners for assisting filing of returns
l) GSTN and GST Suvidha Providers (GSPs) to provide technology-based assistance
m) Tax can be deposited by internet banking, NEFT / RTGS, Debit/ credit card and over
the counter
n) Concept of TDS for certain specified categories
o) Concept of TCS for E-Commerce Companies
 p) Refund to be granted within 60 days
q) Provisional release of 90% refund to exporters within 7 days
r) Interest payable if refund not sanctioned in time
s) Refund to be directly credited to bank accounts
t) Comprehensive transitional provisions for smooth transition of existing tax payers to
GST regime
u) Special procedures for job work
v) System of GST Compliance Rating
w) Anti-Profiteering provision

1.18 ADVANTAGES AND DISADVANTAGES OF GOODS AND SERVICES

TAX: ADVANTAGES:

a) LOWER TAX RATES: Prior to GST many indirect taxes and duties were levied on the
same goods or services starting from manufacturing to the sale due to which the tax rates
were as high as 35-40%. But after the implementation of GST many indirect taxes are
subsumed and tax is charged at the point of sale and not in the manufacturing orduring
the movement of goods from one place to another as a result the tax rates are likely to be
reduced and hence after the implementation of GST the standard tax rated is 12% and
18% and the highest tax rate is 28% which is imposed on luxury items only. This is one
of the most significant advantage of introducing GST.
b) ELIMINATION OF CASCADING EFFECT: Cascading effect basically means “Tax
on Tax”. Prior to GST more than one tax were imposed on a single good or service and
this is called cascading effect and because of this the price of the good or services was
much more expensive for customers. But after the implementation of GST more than 17
indirect taxes (such VAT, Wealth Tax, Entertainment Tax, Sales Tax, Service Tax, etc.)
were subsumed into one indirect tax called Goods and Services Tax thus eliminating the
cascading effect. Elimination of cascading effect has made the tax structure simple and
reduced the cost of good or service.
c) HIGHER THRESHOLD FOR REGISTRATION: Prior to GST any business with a
turnover of more than Rs 5 lakh per annum were liable to register and pay VAT but after
the implementation of GST only those businesses with an annual turnover of Rs 20 lakh
 instead of Rs 5 lakh need to register for GST. The turnover threshold for GST registration
in the northeastern states is Rs 10 lakhs. As a result, many small traders and service
providers are exempted from paying tax as a result it will encourage more people to
indulge in MSMEs which are crucial for the economic growth of the nation.
d) SIMPLE TAX COMPLIANCES: Prior to GST there were existence of various
indirect tax levied by different bodies such as Central Government, State Government,
Local bodies, etc. and different tax has different tax compliances such as different
registration dates, rules, regulation and office. So, it was a complex tax compliance but
after the implementation of GST tax compliances are made simple and easy.
e) SINGLE REGISTRATION: Prior to GST the business owner has to go to various
departments and register for different tax i.e. prior GST the taxation system was offline
where the taxpayer has to visit various departments to register and file different tax as a
result it was hectic and costly for the taxpayer and business owners but after the
implementation of GST the entire process of registering and filing returns are online,
simple and easy.
f) PROTY OF LOGISTICSDUCTIVI: Prior to GST every state used to charge entry tax
on entry of goods in a particular state as a result the logistic companies had to maintain
multiple warehouses across the nation to avoid state entry taxed on the inter state
movement of goods but after the implementation of GST entry tax imposed by state
government has been eliminated or subsumed under GST as a result they can freely move
goods within the nation without paying any entry tax as a result the restriction on inter
state movement of goods has been reduced.
g) EASE OF DOING BUSINESS: Prior GST the business had to face lots of difficulties
such as they had to register for different taxes such as VAT, Excise Duty, etc. by visiting
various offices and officers and after registration, they had to visit different offices to pay
taxes of different rates at different dates. As a result, the process of doing business in
context to tax was quite complicated which discouraged many people to start their own
venture after the implementation of GST the business has to register for only one tax i.e.
GST and all the GST related work such as registering and filing returns can be done
online. They don’t have to visit different departments to file returns and as a resultit had
 made doing business easy and simple in context to tax which will encourage many people
to start their own venture.
h) REDUCTION OF LITIGATION: Prior to GST there was less coordination between
the state and central government in terms of imposement and collection of tax due to
existence of multiple indirect tax but after the implementation of GST there is clarity
about imposement and collection by taxes by the Central and State Government as a
result GST aids in reducing litigation towards the jurisdiction of taxation between the
Central and State Governments.
i) DEVELOPMENT OF COMMON NATIONAL MARKET: Implementation of GST
introduced a uniform taxation law across countries and different sectors with respect to
indirect taxes. It would make it easier to supply goods and services hasslefree across the
country. It helped in removing economic distortions and formed a common national
market. GST gave a boost to India’s tax to gross domestic product ratio and thus help in
promoting economic efficiency and sustainable long-term economic growth.
j) TRANSPARENCY IN TAXATION SYSTEM: As the entire GST process in online so
with the help of GST online network portal, the taxpayer can directly register, file returns
and make payments digitally without interacting or visiting and office physically. Also, a
mechanism has been devised to tally the invoices of the supplier and the buyer which will
keep a check on tax evasion and frauds in the taxation system. In nutshell, GST will
create transparency in the taxation system in the nation.
k) COMPOSITION SCHEMES FOR SMALL BUSINESSES: Businesses with a
turnover of Rs 75 lakh per annum can lower their tax rates as the new taxation system
gives them the option to utilize composition schemes. Composition Scheme is a simple
and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST
formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any
taxpayer whose turnover is less than Rs . 1.5 crore.
l) COMPETE IN THE INTERNATIONAL MARKET: As the implementation of GST
will reduce the overall price of goods and services manufactured in India so in the long
run the domestic business products can compete with international products in the
international market. India can compete with countries which produce goods at low price
such as China, Taiwan, etc.
DISADVANTAGES:
a) INCREASED COST: As all the GST process are online so the existing and new
businesses need to purchase a software usually GST software to carry out all the tax
related activities online. So, the businesses have to spend their funds to buy GST
software. There is also additional cost such as training employees for an efficient
utilization on the new billing software.
b) BURDEN FOR MSME’S: Prior to GST only small and medium enterprises with an
annual turnover of more than Rs 1.5 crore were liable to pay excise duty but after the
implementation of GST small and medium enterprises with a turnover of more than
Rs 40 lakh are liable to pay GST as a result it is a burden for MSMEs which can
discourage many people to indulge in MSMEs.
c) COMPLEX REGISTRATION COMPLIANCED FOR INTER STATE
TRANSACTIONS: It is mandatory for every business to register for GST in every
state they operate and hence such compulsions increase the burden such as paperwork
of the businesses.
d) GST WAS NOT IMPLEMENTED AT THE CORRECT TIME: As GST was
implemented on the 1st of July 2017, businesses followed the old tax structure for the
first 3 months (April, May, and June), and GST for the rest of the financial year.
Businesses may find it hard to get adjusted to the new tax regime, and some of them
are running these tax systems parallelly, resulting in confusion and compliance issues.
e) GST FAILED TO UNIFORM THE MARKET: GST was implemented with an
idea of “One Tax One Nation” but as Petroleum, liquors are not under the regime of
GST and are taxed at different rates by different state governments as a result it is
contrary to the idea of “One Nation One Tax”.
f) COACHINGOF TAX OFFICERS: there is inadequate training that is provided to
the Government officers for practical usage and implementation of such systems
since the GST administration heavily banks on information technology. GST in India
was a sweeping reform and benefits of GST and has changed the way businesses are
conducted. Businesses are being included in the formal economy through GST
implementation. GST and its benefits have provided long term returns for the Indian
 economy on a large scale which have been welcomed as a new change by all the
stakeholders.
g) COMPENSATION TO LOSS- MAKING STATES FOR 5 YEARS: As many
indirect taxes levied by state governments are eliminated or subsumed under a single
tax after the implementation of GST as a result the state government will lose their
revenue so to compensate for the loss the central government will finance 100% of
their losses for the first three years, 75% in the fourth year and lastly 50% in the fifth
year. But after 5 years the state governments have to bear their losses on their own
which is unfair for the state government
h) NOT FRIENDLY TO BANKS: Banks are one of the most important part of any
economy. Banks play a significant role in the economic growth of the nation as it
lends funds to businesses and to investors and they also play an important role in
exports of both goods and services. Implementation of GST has made the domestic
products cheaper and competitive in the international market and as a result it can
exports goods to foreign countries but after the implementation of GST has increase
from 14% to 18%. This will ultimately increase the cost of the transaction in case of
exports where a huge amount Is transacted.
i) GST IS AN ONLINE TAXATION SYSTEM: Prior to GST all the task related to
registration, filing returns and tax payment were done offline but implementation of
GST has totally switched the offline mode to online mode. All the process of GST are
done online so any businesses or business owners who do not have adequate
education or skills to operate computer or GST software is in trouble or any small
business who don’t need computers are forced to purchase a pc and even a new
employee to carry out the GST process
j) GST WILL INCREASE THE OPERATIONAL COST OF THE FIRM: As
registration and filing of tax are done online and it needs to filed monthly, quarterly
and annually so for this purpose the business owners has employ tax professionals
and employing tax professionals such as Chartered Accountants will gradually
increase costs for Micro, Small and Medium Enterprises. There are also additional
operational costs such as training or hiring of new employees, etc.
CHAPTER 2: MICRO, SMALL
AND MEDIUM
ENTERPRISES

(MSME)
 CHAPTER 2

MICRO, SMALL AND MEDIUM ENTERPRISES (MSME)

Micro-Small and Medium Enterprises (MSMEs) are small sized enterprises defined
in terms of their size of investment. According to Micro, Small and Medium
Enterprises Development (MSMED) Act, 2006, MSMEs are manufacturing and
service enterprises. Manufacturing Enterprises: Manufacturing enterprises are those
enterprises engaged in production or manufacturing of goods pertaining to any
industry specified in the first schedule to the industries (Development and regulation)
Act, 1951 or employing plant and machinery in the process of value addition to the
final product having a distinct name or character or use. The Manufacturing
Enterprise are defined in terms of investment in Plant & Machinery.

Service Enterprises: The enterprises engaged in providing or rendering of services

and are defined in terms of investment in equipment. These two categories of MSME
are further categorizes into Micro, Small and Medium Enterprises in terms of
investment made in plant and machineries (in case of manufacturing sector) and
investment in equipment for service sector companies

2.1 CLASSIFICATION OF MSMESs (ON THE BASIS OF

INVESTMENT)

MANUFACTURING SECTOR
ENTERPRISES INVESTMENT IN PLANT AND
MACHINERY
 1) Micro Enterprise 1) Investment is less than Rs. 25 lakhs
rupees
2) Small Enterprises 2) Investment is more than Rs. 25 lakhs
but does not exceed Rs 5 crores.
3) Medium Enterprises 3) Investment is more than Rs. 5 crores
but does not exceed Rs. 10 crores.

SERVICE SECTOR
ENTERPRISES INVESTMENT IN EQUIPMENTS
1) Micro Enterprises 1) Investment is less than Rs. 10
2) Small Enterprises lakhs rupees
2) Investment is more than Rs. 10
3) Medium Enterprises lakhs but does not exceed Rs 2
crores.
3) Investment is more than Rs. 2
crores but does not exceed Rs.5
crores.

2.2 GOVERNING BODY OF MSME :The Ministry of Micro, Small and Medium
Enterprises (branch of Indian Government) is the governing body of the MSMEs around
that nation. It is the executive body for the formulation and administration of rules,
regulations and laws relating to MSMEs in India.

The governing body of MSME is headquartered in New Delhi and is headed by Nitin
Gadkari since 31st May 2019. In 2018, a cabinet meeting was by the Ministry of Micro,
Small and Medium Enterprises which proposed to change the definition of MSMEs. It
was decided that MSMEs (both manufacturing and service enterprises) will be defined
and categorized or classified on the basis of annual sales turnover of the enterprises
instead of the investment criterion and there will be no distinction between manufacturing
and service enterprises.
 2.3 CLASSIFICATION OF MSMESs (On the basis of Annual Sales Turnover)

MANUFACTURING/SERVICE SECTOR ENTERPRISES ANNUAL SALES

TURNOVER Micro Enterprises Annual sales turnover is up to Rs 5 crores. Small
Enterprises Annual sales turnover exceeds Rs 5 crores but does not exceed Rs. 75 crores.
Medium Enterprises Annual sales turnover exceeds Rs 75 crores but does not exceed Rs
250 crores.

2.4 SIGNIFICANCE OF MSMES :

Although MSMEs are small but their contribution to the Indian economy is enormous
and significant which can’t be neglected. However, because of its smaller size it is under
estimated but being India a knowledge-based, entrepreneurship driven economy of which
MSMEs are the major part and the contribution towards its economic and social growth
by the MSMEs are enormous. That’s why it’s said that MSMEs are the silent performers
who are carrying India’s 5 trillion goal on their shoulders. As of October, 2019 there are
almost 63.4 million MSMEs in India which contributes to about 1/4th of the India’s GDP,
output(about 45% of the manufacturing output), exports(about 40% of the total
exports) and employment(about 69 million persons in over 29 million units throughout
the country).MSMEs also helps in industrialization of rural areas by providing huge
employment opportunities at comparatively lower capital cost than large industries.

2.5 IMPORTANCE OF MSMEs

a) Employment generation: MSMEs is the second largest employment generator sector

after agriculture by providing employment to more than 63.4 million people across the
nation. India is country having scarce capital but abundant manpower with low wages
and MSMEs are sector which requires low capital and more manpower than large scale
industries so it perfectly fits the Indian economy and if capitalized well MSMEs can
provide enormous economic and social growth to the nation. And due to this reason, the
government is continually encouraging people to enter into the MSME sector by
 formulating favorable policies and providing various government schemes to promote
MSMEs in the nation.
b) Contribute to GDP: As already stated MSMEs contribute about 27% to the India’s GDP
and has set a target to increase its contribution to GDP to 50% and more by 2025 as
Prime Minister Narendra Modi has started a mission to make India a $ 5 trillion
economy.
c) Nation Development: SMEs also play a prominent role in Nation development through
high contribution to Domestic Production, Significant Export Earnings, Low Investment
Requirements, Operational Flexibility, Location Wise Mobility, Low Intensive Imports,
Capacities to Develop Appropriate domestic Technology, Import Substitution,
Contribution towards Defense Production, Technology – Oriented Industries,
Competitiveness in Domestic and Export Markets thereby generating new entrepreneurs
by providing knowledge and training.
d) To sustain economic growth and increase exports: More than 90% of the MSMEs are
engaged in manufacture and export of non-traditional products (such as readymade
garments, plastic products, etc sports goods,.). These products are manufactured and
handcrafted by unskilled or semi-skilled employees and are eco-friendly as a result there
exist an enormous potential or opportunity to expand the quantum of MSME led exports.
It also helps in raising manufacturing sector production and extending support to large
industries by supplying raw material, basic goods and other vital components, etc.
e) Exports: MSMEs contribute 40% of the total outputs.
f) Manufacturing output: It contributes about 45% to the manufacturing output.

2.6 LIST OF ENTERPRISES THAT ARE ENGAGED IN

PROVIDING OR RENDERING SERVICES

• Small road and water transport operators (original investment in vehicles up to Rs.200.00
lacs under Priority sector)
• Retail trade (with credit limits not exceeding Rs.20.00 lakhs) • Small business (whose
original cost price of the equipment used for the purpose of business does not exceed
Rs.20.00 lakhs)

• Professional and self-employed persons (whose borrowing limits do not exceed Rs.10.00
lakhs of which not more than Rs.2.00 lakhs should be for working capital requirements
except in case of professionally qualified medical practitioners setting up of practice in semi-
urban and rural areas, the borrowing limits should not exceed Rs.15.00 lakhs with a sub-
ceiling of Rs.3 lakhs for working capital requirements)

2.7 GOVERNMENT SCHEMES TO PROMOTE MSMES

a) Credit Linked Capital Subsidy Scheme (CLCSS) is operational for upgradation of

technology for MSMEs.
b) Udyog Aadhaar memorandum: Aadhaar is a 12 digit individual identification number
issued by the Unique Identification Authority of India on behalf of the Government of
India. The number serves as a proof of identity and address, anywhere in India. In this,
the Aadhaar card is a mandatory requirement. The benefit of registering in this scheme is
ease in availing credit, loans, and subsidies from the government. Registration can be
done both ways in the online mode or the offline mode.
c) Udyami Mitra Portal: launched by SIDBI to improve accessibility of credit and
handholding services to MSMEs.
d) Digital MSME Scheme: It involves usage of Cloud Computing where MSMEs use the
internet to access common as well as tailor-made IT infrastructure
e) A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE):
creates new jobs & reduce unemployment, promotes entrepreneurship culture, facilitates
innovative business solution etc.
f) Prime Minister Employment Generation Programme: It is a credit linked subsidy
program under Ministry of MSME.
g) Zero Defect Zero Effect: Any goods that are manufactured for export have to adhere to
certain standard so that they are not rejected or sent back to India. So, to make sure that
 the goods exported are not sent back to India the government has launched this scheme to
check the quality of the goods and to be sure that those particular goods are eligible for
some rebates and concessions.
h) Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI):
organizes traditional industries and artisans into clusters and make them competitive by
enhancing their marketability & equipping them with improved skills.
i) National Manufacturing Competitiveness Programme (NMCP): to develop global
competitiveness among Indian MSMEs by improving their processes, designs,
technology and market access.
j) Micro & Small Enterprises Cluster Development Programme (MSE-CDP) - adopts
cluster development approach for enhancing the productivity and competitiveness as well
as capacity building of MSMEs.
k) MSME Sambandh: To monitor the implementation of the public procurement from
MSMEs by Central Public Sector Enterprises.
l) MSME Samadhaan -MSME Delayed Payment Portal –– will empower Micro and Small
entrepreneurs across the country to directly register their cases relating to delayed
payments by Central Ministries/Departments/CPSEs/State Governments.

2.8 CONTRIBUTION OR SHARE OF MSMEs IN INDIAN

ECONOMY:
According to the Planning Commission,2012 the Micro, Small and Medium Enterprises
contributes
a) about 45% of manufacturing output,
b) about 1/4th of the total GDP.
c) about 40% of the total exports of the country
d) provide employment to about 69 million persons throughout the nation which is the
second largest employment generation after agriculture in India.
e) About 80 million people are engaged in over 29 million units throughout the country
Out of total registered MSMEs around 54.27% of them are located in urban areas
and 45.35% in rural areas and g) It has created about 11.10 crore jobs in the nation.
2.9
 OBJECTIVE OF MSME SECTOR: Objectives of MSME sector according to the
Twelfth Plan are as follows: Promoting competitiveness and productivity in the
MSME sector. Contribute more in exports. Improved managerial processes in
MSMEs pay taxes of different rates at different dates. As a result, the process of
doing business in context to tax was quite complicated which discouraged many
people to start their own venture after the implementation of GST the business has to
register for only one tax i.e. GST and all the GST related work such as registering
and filing returns can be done online. They don’t have to visit different departments
to file returns and as a result it had made doing business easy and simple in context
to tax which will encourage many people to start their own venture
f) Increase Customer Base: Prior to GST Central Sales Tax(CST) was levied on inter
state sales which restricted small and medium enterprises to reach their potential
customers outside their state due t o additional tax but after the implementation of
GST Central Sales Tax(CST) is eliminated and as a result there are no restrictions or
additional cost to reach their potential customers within the nation. 2.12(b)

NEGATIVE IMPACT OF GST ON MSME:

a) Expensive: As all the process from registration to payment of tax are online in the new
taxation system so all MSMEs need to purchase GST software to carry out the GST
related work. There are also other expenses such as training of employees or recruitment
of employees who possess the skill to use the GST software.
b) Lack of Tax Differentiation for Luxury Items and Services: Under the new taxation
regime i.e. GST there is lack of differentiation between luxury goods and services and
normal goods as a result same tax is charged for both normal and luxury goods and
services. This will impact the poor people badly as they have to spend the same amount
for both the luxury and essential items.
c) The burden of higher tax rate for Service Provider: Presently Service Tax rate is
15%. GST rate will be around 18%. The scenario in the service sector will further be
impacted as the concept of Centralized Registration has been done away with and each
unit in different states will have to take separate registration. Thus, even if services are
 supplied by company's one Unit in State A to another Unit in State B then also taxes will
be payable.
d) Burden for MSMEs: Prior to GST the threshold limit was 1.5 crore but after the
implementation of GST the threshold limit is reduced to 20 lakh and in the north eastern
states it is 10 lakh as a result implementation of GST has been burden to the MSMEs as
prior to GST business with an annual turnover of more than Rs 1.5 crore were liable to
pay tax but after the implementation of GST businesses with an annual turnover of Rs 10
lakh in northeastern states are liable to pay GST
e) Not uniform taxation system: GST was implemented with an idea to levy a single tax
for all goods and services around the nation and create a uniform market but GST is not
applicable to Alcohols, petroleum, etc. hence it fails to create a uniform market.
f) Excess Working Capital Requirement: Taxation of stock transfer will primarily impact
the working capital requirements. The quantum of impact will vary depending on stock
turnaround time at warehouse, credit cycle to customer, quantum of stock transfer, etc.
Higher amount of Capital Requirement Jill increases interest cost which ultimately will
increase the price of Finished Goods.
g) Complex Registration Compliance for Inter State Transactions: It is mandatory for
every business to register for GST in every state they operate and hence such
compulsions increase the burden such as paperwork of the businesses
h) GST was not implemented at the correct time: As GST was implemented on the 1st of
July 2017, businesses followed the old tax structure for the first 3 months (April, May,
and June), and GST for the rest of the financial year. Businesses may find it hard to get
adjusted to the new tax regime, and some of them are running these tax systems
parallelly, resulting in confusion and compliance issues.
OBJECTIVE OF THE STUDY:

a) To understand the loopholes in indirect taxation system prior to GST in India.

b) To understand the concept and features of new indirect taxation system i.e. Goods and
Services Tax in India.

c) To study and analyze the impact of GST on major MSME’s in Lucknow, Uttar Pradesh.

d) To offer suggestions based on the findings of the study.

 CHAPTER 3
REVIEW OF LITERATURE
 CHAPTER 3

REVIEW OF LITERATURE

2.1 REVIEW OF LITERATURE

Sharma (December 2017) in his work entitled “A Study of Impact of GST on Micro,
Small and Medium Enterprises- A Critical Analysis” stated that elimination of various
indirect taxes by a single tax called GST will benefit MSME’s as well as the consumers
as it will lead to increase in manufacturing output, generate employment and also help in
economic development of the nation.
B of BA LLB of Saveetha Institute of Medical and Technical Sciences, Saveetha
University, Chennai, Tamil Nadu in his study entitled “GST and its impact on Small
Scale Businesses in Tamil Nadu” found that GST has the potential to improve business
conditions of the state in small and medium enterprise sector. According to him GST has
enabled MSMEs to extend their customer base but GST had no effect on their profit
margin i.e. they are earning same amount of profit as in case of VAT taxation system.

Franco and Chellammal (June 2018) in their work entitled “GST- Positive and Negative
Impacts on Small Scale Industries” stated that implementation of GST will have a
positive impact on the MSME sector as it will reduce the borrowing cost of MSMEs
because pre GST the MSMEs had to pay interest rates to the NBFC’s or money lenders
that ranges between 20% to 100% but after the implementation of GST it will be reduced
to only 18%. And by doing so it will boost the MSME sector in the nation where capital
is scarce.

Agarwal, Sekhani & Mohan of O.P. Jindal Global University in their study entitled,
“Short term impact of GST on Micro, Small and Medium Enterprises” found that
transition cost of businesses from the previous tax structure i.e. VAT system to GST in
the markets of Rudrapur, Uttarakhand, and Malappuram, Kerala was somewhere around
 Rs. 2320. They concluded that these amounts were 3.5 times less than cost of obtaining
the VAT and service tax numbers in the past. According to them the 90% of the
businesses after the implementation to GST faced difficulties with the increased fees of
professional tax practitioners such as Chartered Accountants, etc. on their behalf which
resulted in the compliance cost by 2.025 times.

Jayalakshmi and Venkateswarlu (April 2018) in their study entitled “Impact of GST on
Micro, Small and Medium Enterprises” found that businesses and taxpayers will face
after implementation of GST in the short run but in the long run it will make the MSMEs
more competitive with the large enterprises as well as with the foreign businesses coming
from cheap cost centers such as China, Philippines and Bangladesh.

2.2 RESEARCH GAP:

Implementation of GST has created a new indirect taxation system in India and as of now it has
been almost 6 years since the GST was launched on 1st July 2017 and due to its implementation,
it has directly impacted the MSME sector. Hence, the present study has been undertaken to
ascertain the impact of GST on MSME sector in Lucknow region by knowing the views of
entrepreneurs of MSME of Lucknow region regarding GST
OBJECTIVE OF THE STUDY:

a) To understand the loopholes in indirect taxation system prior to GST in India.

b) To understand the concept and features of new indirect taxation system i.e. Goods and
Services Tax in India.

c) To study and analyze the impact of GST on major MSME’s in Lucknow, Uttar Pradesh.

d) To offer suggestions based on the findings of the study.

 CHAPTER 3

RESEARCH METHODOLOGY
 CHAPTER 3

RESEARCH METHODOLOGY

3.1 NEED OF STUDY:

The MSME sector is one of the important segments of the Indian economy because it is the
second largest employment generating sector after agriculture in the nation. There are more than
30 million MSME employing around 100 people all around the nation and the main feature of
MSME is that it makes the people independent or self- reliable(not reliable on government) as a
result they are not the burden of the nation but are assets to the nation continually contributing to
the economic growth of the nation. MSME plays a significant growth in the economic growth of
the country by creating employment and thus helps to reduce income inequality or to reduce
poverty. It contributes almost 8 percent to the country’s GDP, 45 per cent to the manufactured
output and 40 per cent to the country’s total exports. MSME has set a target to increase its
contribution to GDP of the nation from 8 percent to 50% by 2025. In Sikkim it also plays a
crucial role in providing employment and help in the growth of the State along with the growth
of the nation.

3.2 SCOPE OF THE STUDY

In the present study old indirect taxes and its loopholes are studied. The study also covers how
the loopholes are eliminated by the new taxation system i.e. GST as well as it covers the
fundamental challenges faced by the government while implementing the new taxation system as
it took almost two decades to implement GST. And the main thing the study covers is the
concept, features, advantages, disadvantages, comparative study between the proposed GST and
the old tax regime, and impact of GST on MSME’s in Lucknow, Uttar Pradesh. However, the
study does not contain any experimental analysis.

3.3 SALIENT FEATURES OF STUDY AREA

4.6 Lucknow, the capital city of Uttar Pradesh, boasts a rich heritage of traditional crafts,
providing a strong foundation for its Micro, Small, and Medium Enterprises (MSMEs).
Government support, a growing entrepreneurial ecosystem, and infrastructure development
initiatives have propelled the city's MSME sector forward. Challenges such as access to finance
and bureaucratic hurdles persist but can be addressed through concerted efforts. Lucknow's
strategic location and market access make it an attractive destination for MSMEs. With the right
support, the city's MSMEs have the potential to drive economic growth and job creation,
contributing to India's overall prosperity.

4.7 RESEARCH METHOD:In this project due to co-vid 19 primary data and one on one
interaction with the MSME retailer’s or shopkeepers could not be done as a result secondary data
is used from various journals, GST and tax books, internet and so on and questionnaire method is
used by sending questionnaires to relevant persons on social medias such as WhatsApp and
messenger.

4.8 SOURCES OF DATA: The study consists of both primary and secondary data but due to
co-vid pandemic it was not possible to personally meet entrepreneurs and collect adequate
primary data so survey was done by preparing questionnaires and sending it on various social
medias platforms such as Facebook, WhatsApp, etc. and contacting them through calls and
messages. So, this study consists mainly of secondary data collected from various published and
unpublished reports, handbooks, GST journals & magazines, GST textbooks, Official GST
portal(https://www.gst.gov.in) and from various GST blogs on google.
3.8 QUESTIONNAIRE: A questionnaire containing 10 questions was framed for the study
which was sent to various MSMEs located in Lucknow through e-mails, WhatsApp, etc. as it
was not possible to meet them personally and do a survey due to co-vid 19 pandemic. The
questionnaire consisted of various questions related to the objective of the study stated above and
to know the viewpoints on MSMEs perception towards it. In brief the questionnaire was framed
to measure the impact of GST on MSMEs in a particular area in Lucknow, Uttar Pradesh.

3.9 STATISTICAL TECHNIQUE:

As already stated a questionnaire was prepared and sent to various MSMEs located at Lucknow,
Uttar Pradesh through e-mails, WhatsApp, Facebook, one to one conversation and their response
and feedback was received through social medias only and the data’s are entered in the
excesheets and analyzed through various diagrammatic representation such as pie charts, bar
graphs, etc.
 CHAPTER 5

DATA ANALYSIS AND

INTEPRETATION
 DATA ANALYSIS AND INTEPRETATION

Questionnaire was circulated to various MSMEs in Lucknow through e-mails, WhatsApp,

Facebook, etc. as it was not possible to meet them personally due to the pandemic and were
asked to tick on the most appropriate option according to them and after receiving, data were
recorded and converted into percentage and analyzed through pie charts and bar graphs as
follows.

Implementation of GST hasTABLE:

made MSME
1 starting and running business easy
as compared to previous tax system?

Opinion Frequent perecent Frequent Count

Strongly Agree 50% 5
Agree 30% 3
Neither Agree Nor Disagree 10% 1
Strongly Disagree Nil 0
Disagree 10% 1
Total 100% 10

One of the main objectives of implementing GST was to subsume all indirect taxes with a single
tax i.e. GST to make the process of commencing the business easier and encourage more people
in the MSME sector. In this connection, the opinion was gathered from 10 respondents on impact
of GST on ease of starting and running MSME. Table – 1 depicts that 50% of the respondents
strongly agreed and 30% respondents agreed that, “implementation of GST has made MSME
start and run business with ease as compared to old taxation regime” whereas no respondents
strongly disagreed and 10% respondents disagreed that implementation of GST has made them
more difficult to start and run MSME and similarly 10% respondents were undecided with
respect to the statement made.
 Pie chart-Implementation of GST MSME
made business easy as compared to previous
tax system?

0%
10%

10%
strongly agree
50% agree
neither agree nor disagree strongly disagree
disagree
30%

In general, we get a fair picture (as shown in figure 1.1 above) that implementation of GST has
made a positive impact (i.e. GST has made easy and simple to start and run business in the
MSME sector) on starting and running business in the MSME sector

TABLE: 2
Implementation of GST has made tax compliances easier for MSMEs as compared to
previous tax regime
Opinion Frequent percent Frequent Count
Strongly Agree 70% 7
Agree 20% 2
Neither Agree Nor Disagree 10% 1
Strongly Disagree - 0
Disagree - 0
Total 100% 10
As we all know that many indirect taxes levied by both the central and state
government existed prior GST and different taxes had different tax compliances
such as different registration dates, dates for filing returns, reconciliation
statements, etc. So, keeping this in mind GST was implemented to simplify tax
compliances for a section of taxpayers by extending the due dates, online return
filings, reconciliation statements. Introduction of simplified return filing system,
introduction of nationwide e-way bill, etc. In this connection, the opinion was
gathered from 10 respondents from Lucknow, Uttar Pradesh on “whether
implementation of GST has made the tax compliances easier as compared to
previous tax system”. Table 2 depicts that 70% respondents strongly agreed and
20% agreed, respectively to the statement made, 10% of the respondents were
undecided and the good part is none of the respondents strongly disagreed or
disagreed on the statement made.
 Pie chart-Implementation of GST made tax
compliances easy for MSMEs

0% 0%

10%

strongly agree
20% agree
neither agree nor disagree strongly disagree
disagree

70%

Figure 2:Pie chart-Implementation of GST made tax compliances easy for MSMEs

In general, the overall response depicts that majority of the respondents are facing difficulties
with the new tax system i.e. GST as result they feel it’s a burden to them and the customers.

TABLE: 3
GST is a burden to both the customers and MSMEs?
Opinion Frequent percent Frequent count
Strongly Agree 50% 5
Agree 20% 2
Neither agree neither - 0
disagree
Strongly disagree 10% `1
Disagree 20% 2
Total 100% 10
.
GST was implemented in India on 1st July, 2017 to simply the indirect tax structure in India.As
there were existence of many indirect tax levied by both the central and state government on a
single good so it was causing problem for both the government and the tax payers so the
government came up with the idea of “one nation one tax” which would bring transparency in
the taxation system , simplify tax compliances, eliminate cascading effect, reduce the tax burden
for the common man and improve ease of doing business for tax payers in the long.

However. the GST law is ambiguous and it will likely cause difficulties among the tax payers in
the short run although the government has promised that it will be beneficial for everyone in the
long run. In this connection, the opinion of respondents was collected or gathered on “whether
implementation of GST is a burden to both taxpayers in the MSME sector i.e. MSME dealers or
owners and customers”. Table-3 reveals that 50% respondents strongly agreed and 20%
respondents agreed on the statement made to them whereas no respondents were undecided and
10% strongly disagreed and 20% disagreed that GST is a burden to the taxpayers.

Implementation of GST has made a negative impact on your business?

Opinion Frequent Percent Frequent Count Strongly Agree 30% 3 Agree 10% 1 Neither Agree
nor Disagree 20% 2 Strongly Disagree 20% 2 Disagree 20% 2 Total 100% 10 Prior to GST we
all know there existed many indirect taxes as a result MSMEs also have to pay various different
taxes to the respective governments on different dates and for which the MSME owners or
manufacturers have to run to various tax departments to fulfill all the tax- related
documentations. As a result, we can say that the tax compliance was complex. So, to make the
process of paying tax easier many indirect taxes were subsumed with one tax called GST so that
they do not have to pay different taxes to various departments and the total tax levied by the state
government add up to 32% but after the implementation of GST, the business owners of MSME
have to pay a maximum of 18-22 %. So, from this we can conclude that it will make the job of
every business owner easier. In connection to this, the opinion from few business owners from
Lucknow region were gathered on “impact of GST on MSME sector”. Table- 4 reveals that 30%
of the respondents strongly agreed and 10% of respondents agreed that implementation of GST
has made a negative impact on their business.
This shows that they are facing difficulties with the new taxation system and not finding it
beneficial although it was to be beneficial to them as tax compliances are made simple as well as
tax rates were reduced. 20% of the respondents were undecided whereas 20% of the respondents
strongly disagreed and 20% of the respondents disagreed that implementation of GST has made a
negative impact on their business.

GST is burden to both customers and

MSMEs?

20%
strongly agree
agree

10% 50% neither agree nor disagree

strongly disagree disagree
0%

20%

Fig.3: Pie chart-GST is burden to customers and MSMEs?

In general, it shows (as shown in figure 3)that 30% and 10% of the respondents strongly agreed
and agree respectively that implementation of GST has a negative impact on their business
whereas 20% of the respondents were undecided or they had no idea whether implementation of
GST has a positive or negative impact on their business and the remaining 20% of the
respondents strongly disagreed that implementation of GST has a negative impact on their
business and 20% of the respondents too disagreed on the statement made.

Implementation of GST has made the MSME industry more competitive? Opinion Frequent
Percent Frequent Count Strongly Agree 20% 2 Agree 10% 1 Neither Agree nor Disagree 40% 4
Strongly Disagree 10% 1 Disagree 20% 2 Total 100% 10 The government has promised that
implementation of GST will simplify tax structure and unify the market. In the MSME sector
implementation of GST has simplified the tax compliances as a result starting a business will be
easier as compared to previous taxation system where every

Sales

20%
30%
strongly agree
Agree
20%
neither agree nor disagree
10%
strongly disagree disagree
20%

Fig:4 Implementation of GST has made a negative impact on your business?

Business in India was required to obtain VAT registration which were different in different state
and the rules and regulations were also different. Is short the process prior to GST was
ambiguous but after the implementation of GST they only have to register for GST. Also, the tax
rates have been reduced from 32% to around 18-22%, and prior GST it was mandatory for
business to make a VAT payment on an annual turnover of more than Rs. 5 lakhs in some states
and Rs 10 lakh in other states and this differences causes confusion but after the implementation
of GST one rate of tax is charged in the entire nation such that business having an annual
turnover of Rs 10 lakhs have to register for GST and pay taxes as a result business which have an
annual turnover between Rs 5-10 lakhs don’t need to pay any tax under new taxation regime i.e.
GST. In brief the government has formed a policy that will encourage more people to enter into
the MSME sector and thus will result in more competitiveness in the MSME industry or sector.
In this connection, the opinion was gathered from 10 MSME owners from Lucknow region to
ascertain their opinion on the above made statement.
It is found that 20% of the respondents strongly agreed and similarly 10% of the respondents
agreed that implementation of GST has made their industry more competitive. 40% of the
respondents were undecided which implies they were not certain whether implementation of
GST has made their industry or sector more competitive or less competitive. Remaining 10% and
20% respondents strongly disagreed and disagreed respectively to the statement made to them.

In general, (as shown in figure 5.)majority of the respondents were unaware whether their
industry has become more competitive or less competitive after the implementation of GST . and
30% respondents were in favor of the statement made to them and the remaining 30% opposed to
the statement made to them that “Implementation of GST has made MSME sector more
competitive

Implementation of GST has made the MSME industry more competitive?

 - Implementation of GST has made the
MSME industry more competitive?

12%
25%
strongly agree
agree
neither agree nor disagree strongly disagree

13%
50%

Fig 5: Pie chart- Implementation of GST has made the MSME industry more
competitive?

Implementation of GST has lowered tax rates and thus given enormous relief from tax burdens?
Opinion Frequent Percent Frequent Count Strongly Agree 60% 6 Agree 10% 1 Neither Agree
nor Disagree 10% 1 Strongly Disagree - 0 Disagree 20% 2 Total 100% 10 GST treats goods and
services as one and the same as a result tax burden on MSMEs has been reduced as well as tax
rates has been reduced from 38% to 18-22% as well as tax compliances, registration and filing of
tax returns have been simplified and electronic mode will be used for registration, filing returns,
etc. as a result electronic compliances will bring more transparency to the system and it will also
reduce the compliance cost.

In brief implementation of GST has lowered tax rates and has given enormous relief from tax
burdens. In connection to this, opinions were gathered and were found as follows. 60% of the
respondents strongly agreed that implementation of GST has lowered tax rates and have given
enormous relief from tax burdens followed by 10% respondents agreed on the statement made to
them. 10% of the respondents were undecided, no respondents strongly disagreed and 20 % of
the respondents disagreed to the statement that implementation of GST has lowered tax rated and
have given enormous relief from tax burdens.

In general, figure 5 depicts that majority of the respondents (60-70%) agreed or strongly
agreed to the statement that implementation of GST has lowered tax rated and have given
enormous relief from tax burdens, small portion of the respondents(10%) were unaware whether
new taxation system has lowered tax rates and reduced their tax burdens and 10% of the
respondents denied that implementation of GST has lowered tax rated and have given enormous
relief from tax burdens but the good news is that no respondent .

implementation of GST has lowered tax rates

rateds and thus given enormous relief from tax burdens?

20%
strongly agree
0% agree

10% neither agree nor disagree

strongly disagree
60%
disagree
10%

Fig.6: Pie chart- Implementations of GST lowered tax rates and given enormous relief from
tax burdens?
GST is a cost and time saving indirect taxation system for MSME? Opinion Frequent Percent
Frequent Count Strongly Agree 40% 4 Agree 30% 3 Neither Agree nor Disagree 20% 2 Strongly
Disagree 10% 1 Disagree 0% 0 Total 100 10 Implementation of GST has made all the
compliances related to MSME such as registration, payments, returns, refunds are made simple
and easy because it is carried out through online

GST is a cost and time saving indirect taxation system for MSME?
Opinion Frequent Percent Frequent Count
Strongly Agree 40% 4
Agree 30% 3
Neither Agree nor Disagree 20% 2
Strongly Disagree 10% 1
Disagree 0% 0
Total 100 10
Source :Primary data

Implementation of GST has lowered tax rates and thus given enormous relief from tax burdens?

Strongly Agree

portals so as a result the taxpayer doesn’t have to visit different tax departments and department
officers and all. In this way GST will save cost, time and effort of MSMEs. In connection to this
a questionnaire was sent to 10 MSME owners and following response was received. 40% of the
respondents strongly agreed and 30% of the respondents agreed that GST is a cost and time
saving indirect taxation system, 20% of the respondents were undecided to the above MADE
statement, 10% of the respondents strongly agreed and no respondents disagree.
 Pie chart-GST is a cost and time saving
indirect taxation system for MSME?
0%

10%

strongly agree
20% 40%
agree
neither agree nor disagree strongly disagree
disagree

30%

Fig.7:Pie chart-GST is a cost and time saving indirect taxation system for MSME?

Agree 20% 2 Neither Agree nor Disagree 30% 3 Strongly Disagree 10% 1 Disagree 10% 1
Total 100% 10 Prior to GST, Central Sales Tax (CST) were levied on sales between different
states as a result it attracted more taxes and cost of the product were costly due to more tax
which discouraged MSMEs to reach their potential customers across India thereby reducing their
customer base.

But after the implementation of GST, inter-state sales have become cheaper compared to old tax
regime as the input tax credit can be transmitted irrespective of location of buyer and seller. So,
implementation of GST will enable MSME to expand their customer base. In connection to this,
following response or opinions were recorded. 30% of the respondents strongly agreed and 20%
agreed that GST has enable them to increase their customer base wider.30% of the respondents
were undecided and 10% each respondent strongly disagreed and disagreed to the statement
made.
 Figure 8. clearly depicts that almost half of the respondents (50%) were in the favor that GST
has enabled them to extend their customer base across state borders and reach to their potential
customers across India. 30% of the respondents were unaware whether GST has enabled them

Pie chart-Implementation of GST made

MSME extend customer base wider?

10%

10% 30% strongly agree

agree
neither agree nor disagree
strongly disagree disagree

30%
20%

Fig.8: Pie chart-Implementation of GST made MSME extend customer base wider?

to increase their customer base. A small portion of the respondents (20%) were of the favor that
GST has not enabled them to extend their customer base. Implementation of GST has unified the
market? Opinion Frequent Percent Frequent Count Strongly Agree 20% 2 Agree 30% 3 Neither
Agree nor Disagree 10% 1 Strongly Disagree 20% 2 Disagree 20% 2 Total 100% 10 GST was
implemented with a slogan “One nation, one tax”. And according to it only one tax will be levied
on all goods and services with the same tax rate around the nation and all the indirect taxes will
be subsumed levied by both central and state government of different tax rates. As a result, there
will be uniform procedures, uniform payment of fees, and a smooth and uniform tax structure in
all states thus making it easier and cheaper to start a business in multiple states. In connection to
this, 20% and 30% of the respondents strongly agreed and agreed respectively on whether GST
has unified the market whereas 10% of the respondents were uncertain whether GST has unified
the market or not and 20% respondents strongly disagreed and the remaining 20% also disagreed
to the statement made.
 Pie chart-Implementation of GST has unified
the market?

20% 20%
strongly agree
agree
neither agree nor disagree

20% strongly disagree

30% disagree

10%

Fig.9: Pie chart-Implementation of GST has unified the market?

From the above data it can be clearly seen that 50% of the respondents were in favor of the
statement that GST has unified the Indian market, 10% were uncertain and remaining 40%
denied that GST has unified the market and the reason may be that alcohols, petroleum and all
does not come under the GST regime. But we can ascertain the majority of the respondents were
in favor of the statement.

Implementation of GST has led to the growth of MSMEs?

Opinion Frequent Percent Frequent Count Strongly Agree 20% 2 Agree 40% 4 Neither Agree
nor Disagree 10% 1 Strongly Disagree 20% 2 Disagree 10% 1 Total 100% 10 In connection to
this, 20% and 40 % of the respondents strongly agree and agree respectively on the statement
whereas 10% of the respondents are uncertain about the statement and 20% and 10% respondents
strongly disagree and disagree on the statement made.
 Pie chart-Implementation of GST has unified
the market?

10%
20%
strongly agree
20% agree
neither agree nordisagree stronglydisagree
disagree

10%
40%

Fig.10: Pie chart-Implementation of GST has unified the market?

As it can be clearly seen in figure 10.1 majority of the respondents agree with the statement
whereas 10% of the respondents were uncertain and 30% of the respondents disagreed
with the statement.
 CHAPTER 6

CONCLUSION AND SUGGESTION

\
 CHAPTER 6

6.1 CONCLUSION
Micro, Small and Medium Enterprises (MSMEs) are life blood of the Indian economy.
As stated, earlier MSMEs are enterprises that requires less capital and more manpower and India
is country with abundant manpower and scarce capital hence MSMEs perfectly fits the Indian
economy. MSMEs are playing a crucial role in the socio-economic growth of the nation as it
contributes about 27% to the Gross Domestic Product (GDP), 45% of manufacturing output,
about 40% of the total exports and provide employment to around 63.4 million people around the
nation. It provides employment to rural peoples so hence MSMEs are also playing in the
urbanization of rural areas. MSMEs are also playing a significant role in promoting domestic
products and making the public skillful and self-reliant as 95% of the goods manufactured are
non- traditional handcrafted products such readymade garments, plastic products, etc. MSMEs
are also eco-friendly as they are handcrafted. As our Prime Minister Modi has set a vision to
make India a $5 trillion economy by 2024 and to fulfill this vision the MSME has set an
objective to increase their contribution to the nation GDP from 27% to more than 50% in coming
days. As we all know that tax is an important part of any business whether Micro, Small or
Medium Enterprises so this study was undertaken to ascertain the impact on GST on MSME
sector as we all know that new taxation system is in effect from July 1, 2017.

From the study it has been found that GST will have a positive impact in the long run even
though many MSMEs have faced lots of difficulties in the short run because implementation of
GST has made the tax compliances simpler, threshold has been reduced, tax rate has been
reduced, etc. and this will likely encourage more people to enter into the MSME sector.
Although many people have been negatively impacted by the implementation of GST such as
purchasing new software to carry out the GST related work or to hire or train employees so that
they may be familiar with the new taxation system, etc. But these problems are for the short term
and it will require some time for the business to be familiar with the new taxation system and can
be easily overcomed and by overcoming it the new taxations system will boost the MSME sector
in the future. In this study questionnaire method is used to analyze the impact of GST on the
MSME sector in a particular region Lucknow, Uttar Pradesh and a total of only 10 people could
be
contacted due to the covid-19 pandemic. Out of 100 responses from 10 people on 10 question
61% of the respondents werin favor that GST has made a positive impact on their business, 23%
of the respondents were in favor that GST has made a negative impact on their business and the
main thing to concern is that 16% of the respondents were uncertain whether new taxation
system has made an impact on their business or not. However, majority of the respondents have
been benefited by the implementation of GST but few people are negatively affected and some
are uncertain and for the optimum growth and contribution of the MSMEs towards the social and
economic growth of the nation these flaws should be eliminated.

. Out of 100 responses from 10 people on 10 question 61% of the respondents were in favor that
GST has made a positive impact on their business, 23% of the respondents were in favor that
GST has made a negative impact on their business and the main thing to concern is that 16% of
the respondents were uncertain whether new taxation system has made an impact on their
business or not. However, majority of the respondents have been benefited by the
implementation of GST but few people are negatively affected and some are uncertain and for
the optimum growth and contribution of the MSMEs towards the social and economic growth of
the nation these flaws should be eliminated.

6.2 SUGGESTION

Even after years of implementation of GST 100% of the people in the MSME sector have
not been benefitted by the impact of GST so major steps should be taken to improve the
MSMEs. Firstly, survey should be performed to find out the problems of the MSMEs whether its
their inability to use the software, or training employees, etc. Secondly, workshop and training
should be provided to the needed one from time to time and after any update has been made in
the GST system. Thirdly, people should be made aware of various government schemes to
encourage them to enter into the MSME sector
 REFRENCES

1. Sharma (December 2017) in his work entitled “A Study of Impact of GST on

Micro, Small and Medium Enterprises- A Critical Analysis”.
2. Franco and Chellammal (June 2018) in their work entitled “GST- Positive and
Negative Impacts on Small Scale Industries” .
3. Jayalakshmi and Venkateswarlu (April 2018) in their study entitled “Impact of GST
on Micro, Small and Medium Enterprises”.
4. You tube
5. Various Journals on GST and MSMEs
6. GST books
 ANNUXURE

Q.1 Implementation of GST has made MSME starting and running business easy as
compared to previous tax system?
a) Strong Agree b) Agree
c) Neither Agree nor disagree d) Disagree
e) Strongly Disagree

Q.2 Implementation of GST has made tax compliance easier for MSMEs easier as
compared to previous tax regime?

a) Strong Agree b) Agree

c) Neither Agree nor disagree d) Disagree

e) Strong f)Disagree

Q.3 GST is a burden to both the customers and MSMEs?

a)Strong Agree b)Agree

c)Neither Agree nor disagree d)Disagree
e)Strongly Disagree

Q4. Implementation of GST has made a negative impact on your business?

a) Strong Agree b) Agree c) Neither Agree nor disagree d) Disagree

Q.5 Implementation of GST has made the MSME industry more competitive?

a) Strong Agree b) Agree

c) Neither Agree nor disagree d) Disagree

e) Strongly Disagree
Q6. Implementation of GST has lowered tax rates and thus given enormous relief from
tax burdens?
a) Strong Agree b) Agree c) Neither Agree nor disagree d) Disagree e) Strongly
Disagree

Q7. GST is a cost and time saving indirect taxation system for MSME?
a) Strong Agree b) Agree

c) Neither Agree nor disagree d) Disagree

e) Strongly Disagree

Q8. Implementation of GST has made MSME to extend their customer base wider
with ease?
a) Strong Agree b) Agree
c) Neither Agree nor disagree d) Disagree
e) Strongly Disagree

Q9. Implementation of GST has unified the market?

a) Strong Agree b) Agree c) Neither Agree nor disagree d) Disagree e) Strongly

Disagree
Q10. Implementation of GST will help MSMEs complete with the international
market goods and all?
a) Strong Agree b) Agree c) Neither Agree nor disagree d) Disagree e) Strongly.