A Highly Debated Topic
Today’s topic is highly debated in print, TV and Social Media. GST that is Goods and Services Tax which was introduced in India last year that is in the year 2017 pitted many people against each other. Whether it was mere politics to score brownie points is another issue. We want to understand how GST has affected us common Indians and how can we dream of getting financially strong in the GST regime.
Intention behind GST
To be frank, the intention behind GST is good. The effect of it will not be seen at once. At least not in these six months of its implementation. Along with the strategies of Make in India and Digital India , GST will bring benefits to common man in the long run. The condition is that the benefit must reach the final customer that is us. If not, we will be spending more on our daily needs which brings us back to our tip no 1 from ‘5 tips to strenghten your finances in a big way‘ which tells you to save in order to make your finances strong. It is not possible to save money if the costs go up.
But I must say that GST has brought about an ease in doing business as never seen before in India. Many people who got irritated with the levels of taxation and double taxation which was present till last year. They went on to quit doing their business and started doing a day job. GST is good for businessmen as it has replaced 17 previous taxes. It has even removed tax on taxes which is called as a cascading effect. So Businesses now do not need to keep a track of many taxes and their returns filing dates. Also the dates of payment of those taxes which made them pay huge fines.
They also get input tax credit(ITC) on raw materials which they can use for paying their taxes. This input tax credit is the real game changer for GST. This is the reason why it is said that Goods and Services Tax will help reduce prices. It avoids double taxation for manufacturers and they can transfer that benefit to their customers.
How GST Works
For eg. If a manufacturer buys raw material from a supplier say for 100 rupees at 10% tax, the manufacturer has to pay Rupees 110 off which Rs 10 is tax which is paid by the vendor to the Government. The manufacturer can claim that Rs. 10 as input tax credit. When the manufacturer adds all other costs and sells his manufactured product for say Rs. 150, he has to pay Rs. 15(assuming tax rate is 10%) as GST. But since he got Rs. 10 as input tax credit, he has to pay only Rs. 5 as tax. This benefit is transferred to distributors, wholesalers and retailers when each of them adds their profit margin and pays GS tax minus their input tax credit in a similar fashion.
Since the final customer cannot claim credit as it is not allowed, indirectly the customer pays full GST, but that is relatively lower than what final customer paid prior to GST. If the benefits of ITC reach the final customer, then we can say that the Goods and Services tax has benefited common people of India.
GST certainly will benefit Indian economy as it encourages more people to start businesses and generate more employment. It will also benefit the citizens. They will have to shell less money to buy products which were costlier prior to GST. This will result in more savings which means you can invest that money somewhere in order to strengthen your finances.