On 1st July 2017 GST (Goods and Services Tax) was introduced which replaced 17 different kinds of indirect tax including Sales Tax, Central Excise duty, Service Tax. Before the implication of GST, under each indirect tax law, there was different limit specified under which the person would have to take the registration and has to comply with each law. However, after the introduction of GST, the registration becomes compulsory for all the persons who fall under the provisions of section 22 or 24 of CGST Act, 2017. In simple words, GST has made a drastic change in the taxation system. However, if there is a positive effect then there would also be its negative impact. Same applies to GST. since some of the sectors have received a positive impact from GST along with that few of them have received a negative impact. In this article, we will discuss the impact of GST on MSME (Micro, Small and Medium Enterprises).
Before understanding the impact of GST on MSME, we will first have to understand the concept of MSME. MSME is the major source for the growth of our nation. Just because of MSME, more than 110 million people are employed and most of them are self-employed. Due to which, the Government of India has provided many schemes and benefits for such entities. As the name suggests, it defines 3 kinds of entities which are Micro Enterprise, Small Enterprise, and Medium Enterprise. The status of the MSME is being decided as per the investment made by such entity and the schemes and other benefits can be claimed as per the status of the entity.
So, when you will be called an entity an MSME, the criteria is as follows:
| If MSME is in Manufacturing Sector | |
| Enterprises | Investment in plant & machinery |
| Micro Enterprises | Does not exceed Rs.25 Lakhs |
| Small Enterprises | More than Rs.25 Lakhs but does not exceed Rs.5 Crore rupees |
| Medium Enterprises | More than Rs.5 Crore rupees but does not exceed Rs.10 crore rupees |
| If MSME is in Service Sector | |
| Enterprises | Investment in equipment’s |
| Micro Enterprises | Does not exceed ten lakh rupees: |
| Small Enterprises | More than ten lakh rupees but does not exceed two crore rupees |
| Medium Enterprises | More than two crore rupees but does not exceed five core rupees |
Likewise, we will look after the Impact of GST on MSME in the article below.
Positive Impact of GST on MSME
- Now you can register under GST online, hence it saves the time of MSME for the owner of MSME can devote its time on his business.
- As per section 54, the taxable person is eligible for the refund under which he shall have the time period of 2 years from the relevant date.
- As we already discussed above that before application of GST, there were multiple indirect tax laws and the applicability of each law is different For example, if the turnover is more than 5 crore in some states then the registration would become compulsory and for same registration the turnover limit shall be considered as 10 Lakhs. This may confuse you that is why under GST, a simple registration limit has been defined under which a person shall not require not have required registration if the annual turnover is less than 40 lakhs in case he is supplying exclusively in goods and 20 lakhs for others. This is applicable to every state in India except in Manipur, Mizoram, Tripura, and Nagaland where the registration limit is Rs.10 lakhs only.
- If the person is making interstate supplies of goods then as per the latest changes in the GST law, the limit for the registration has been increased from 20 Lakhs to Rs.40 Lakhs
- MSME’s may have a place of supply in more than 1 state. That means there is no geographical restriction on MSME for doing their business.
- Before the application of GST, there was a very complicated definition was defined for capital goods for taking the credit. However, as per GST law, any supply which has been capitalized in the books by the supplier shall be called as capital goods and he shall be eligible to take the credit on such goods.
(Note: if he is taking the depreciation on GST amount, then he shall not be able to claim ITC on such assets. In simple words, the taxable person can claim either depreciation or Input Tax Credit on capital goods.)
- Before, if the person is having the VAT credit then he would not be able to set off with the service tax payable, but under GST, it is now possible. In simple words, GST made a unified market for every person.
Negative Impact of GST on MSME
- In a positive impact, we have discussed that now registration becomes online however, this benefit becomes a loss for those entities which does not have access to an internet connection.
- If the causal taxable person is claiming his refund then he shall be eligible for the refund only when he has filed a valid return.
- Although, one of the objectives of the GST is to vanish double taxation and multiple taxes but still there are some items on which GST is not applicable yet like Alcohol/Liquor for human consumption and Petroleum-based businesses. That means the registered person who is engaged in the business of Alcohol/Liquor for human consumption and Petroleum-based businesses are still required to pay Sales tax and excise duty.
- There are 5 types of rates has been specified under GST different slabs of rates under GST, the GST rate slabs are 0%, 5%, 12%, 18%, and 28%.
Currently, GST is working as a helping hand in the MSME sector and it will surely transform the way enterprises operate and do business. We hope that in the future, there would be it will make a positive impact on the economic growth of our country.