GST for MSMEs: Benefits, Business Management & Govt Actions

GST for MSMEs: Benefits, Business Management & Govt Actions

GST is a new tax regime that came into effect on 1st July, 2017. It was implemented to simplify the way businesses operate and also to reduce their compliance costs. The Goods and Services Tax (GST) replaced the existing Central Sales Tax (CST) and State Value Added Tax (VAT). The aim of GST is to achieve better alignment between various indirect taxes currently levied by various states on products sold in India.

What is GST?

GST is an indirect tax levied on the supply of goods and services. It’s levied at each stage of the supply chain, from manufacturers to dealers selling their products to consumers.

GST is a single tax, which subsumes all other indirect taxes such as excise duty, octroi surcharge or luxury cesses like entry tax etc., but it has been replaced by new-age GST in India now that we have become one nation with just one tax system called Goods and Services Tax (GST).

Benefits of GST for MSMEs

The benefits of GST for MSMEs include:

  • Reduction in tax rate. The earlier rate of 12% was replaced with a reduced rate of 6% on raw materials, semi finished goods and finished products. This will benefit both manufacturers and dealers as it reduces their overall cost as well as compliance costs.
  • No cascading effect of taxes. If you sell your products through an agent or directly to consumers, then you are not required to pay any additional sales tax at the retail level—only when you sell your product to another party does this apply again! This means that if one business wants to buy from another business but doesn’t want them paying too much tax on that transaction (for example if one company buys from another company), then they can do so without having their own customers having their own costs increase just because they bought from someone else first; all parties benefit from this system because there is no extra cost incurred by anyone except when necessary due to legal requirements like inventory management systems etcetera…

Read More About GST Registration Documents

How GST affects the MSME sector?

MSMEs are the backbone of the Indian economy and contribute to over 70% of its Gross Domestic Product (GDP). As a single tax on the supply of goods and services, GST is a destination based tax which means that it will only be levied when an item is sold to consumers at point-of-sale (POS). This makes it transparent, simple and easy to administer.

GST also offers benefits like:

GST and E-commerce

The goods and services tax (GST) is not applicable on the supplies made by e-commerce companies to their customers. However, it will be applicable on the goods and services purchased by customers from these companies. Similarly, GST will also apply when a person sells goods or provides services through an intermediary e-commerce platform like Amazon or Flipkart as well as other similar portals.

GST and Digitalisation

The government has also announced that it will provide incentives to businesses to encourage digitisation in various sectors. Under GST, there are several benefits for digitalising your business operations and filing returns electronically. For example:

  • Digitalisation will help you comply with the new rules and regulations of GST better than before. It allows you to file your return faster than before by eliminating manual work such as writing down data on paper or making screenshots of software programs at different stages in the process; this reduces time spent on compliance activities which can be used towards other productive purposes like hiring employees!
  • Using an e-commerce platform like Shopify or WooCommerce will help you manage inventory better than before since these platforms offer tools that allow users access their products from anywhere using internet connection (e.g., smartphones). This saves money on transportation costs because there aren’t bulky boxes coming back from shipping companies every day!

How will GST impact the prices of products and services?

GST will bring down the cost of goods and services. It will increase the efficiency of supply chain, which in turn will lead to a reduction in tax evasion. Additionally, it will help improve competitiveness of Indian products in global markets.

GST is expected to result in inflationary pressures when implemented on 1 April 2020 but it should moderate over time as:

  • There is no change in taxation rates for manufacturers or traders; only an additional tax on inputs like raw materials or labour costs (which are already covered under existing laws). This means that businesses have less incentive to raise prices due to higher input costs;
  • Prices paid by consumers remain unchanged during this period since they don’t pay any additional taxes yet;

GST Rate Slab in India (as of Dec 2018)

The GST rate slab for MSMEs is 0%, 5%, 12%, 18% and 28%. The rate slabs are as follows:

  • Rate slab 0%: All goods and services except petroleum products, gold and silver are taxed at zero per cent. This includes all raw materials used in the production process of a business, including electricity bills paid by manufacturers to power their factories; rent paid by companies that operate out of residential premises; interest payments made on loans taken from banks or NBFCs etc., even if they are not related directly with their business activities.
  • Rate slabs 5%: Items like food items (including pulses), tobacco products, medicines etc., cinematograph films will be taxed at 5 per cent (later reduced down by 1%). This means that if your company sells more than Rs 50 lakh worth of goods annually then it has to pay an additional amount equal to 5% on top of the existing tax rates imposed on such products/services

It is necessary that manufacturers and retailers understand the impact of GST on their business.

It is necessary that manufacturers and retailers understand the impact of GST on their business. The following points explain how GST will impact the prices of products and services:

  • The basic rate will be 15% while luxury goods with a duty rate over 7% would attract 35% duty.
  • Most products will attract 12% additional tax under the new regime as it has been introduced as an additional tax in lieu of duties levied by States or Union Territories (UTs).


In conclusion, the introduction of GST for MSMEs is a great step forward in the efforts to enhance India’s manufacturing sector. The government has taken this initiative to ease the burden on taxpayers and make it easier for them to file their returns. This will help reduce corruption by ensuring that there is no scope for tax evasion or avoidance through under reporting of income. It also provides relief from unnecessary compliance costs while providing more transparency in tax administration

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