Advantages and Disadvantages of GST in India (2025 Updated Guide)

Introduction:

One of the biggest tax developments in India’s financial history is the Goods and Services Tax (GST). The country’s tax structure was simplified into a single, unified tax when the Goods and Services Tax (GST) was implemented on July 1, 2017, replacing a convoluted network of indirect taxes like as VAT, excise duty, and service tax. Celebrated annually as GST Day on July 1st, this reform aimed to simplify tax administration, enhance compliance, and create a unified national market.

While GST has brought numerous advantages—such as eliminating the cascading effect of taxes and making online compliance easier—it also poses certain challenges, especially for small businesses adapting to the digital system. 

In this article, we’ll explore the key advantages and disadvantages of GST, with real-life examples and updated thresholds, helping you understand how it impacts your business or profession in today’s economy.

What is GST?

Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax levied on every value addition. It pertains to the distribution of products and services throughout India. GST is divided into:

• CGST – Central Goods and Services Tax
• SGST – State Goods and Services Tax
• IGST – Integrated Goods and Services Tax
• UTGST – Union Territory Goods and Services Tax

Top 7 Advantages of GST in India

1. Elimination of Cascading Tax Effect

Before GST, tax was levied on tax (known as the cascading effect). Under GST, input tax credit allows businesses to offset the taxes they paid on purchases, lowering the total amount of taxes owed.

Example:

• Pre-GST: VAT and service tax applied separately.
• Post-GST: A consultant charging ₹60,000 pays 18% GST but claims input credit on office purchases, reducing net tax liability.

2. Higher Threshold for Registration

Earlier, businesses earning over ₹5 lakh (goods) or ₹10 lakh (services) had to register for VAT/service tax. GST increased this threshold significantly.

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3. Composition Scheme for Small Businesses

Under the Composition Scheme, small firms having annual revenue up to ₹1.5 crore (as of 2025) can pay taxes at a fixed rate:

1. 1% for traders
2. 5% for restaurants
3. 6% for service providers (new additions)

Though these businesses can’t claim input tax credit, they benefit from reduced compliance and lower tax rates.

4. Streamlined Online Compliance

GST compliance is fully digital—from registration to return filing. This benefits startups and small businesses by reducing paperwork and enhancing transparency.

Key Portals:

• GST Portal
• GSTN (GST Network)

5. Better Tax Compliance and Reduced Tax Evasion

With technologies like e-invoicing, QR codes, input credit matching, and GST audits, tax evasion has significantly decreased. The system rewards compliant taxpayers through lower scrutiny and faster refunds.

6. Clarity for E-Commerce Operators

Earlier, states had different rules for e-commerce sellers. GST removed this ambiguity by clearly defining the responsibilities of operators like Amazon, Flipkart, and Meesho.

• TCS (Tax Collected at Source) is deducted by operators
• Unified GST registration for interstate supplies

7. Boost to Logistics and Warehousing

GST eliminated state-wise entry taxes and reduced checkpoint delays. Businesses now consolidate warehouses in strategic locations, improving supply chain efficiency.

Result:

• Reduced transport time by 20%
• Increased vehicle utility and fuel efficiency

Top 5 Disadvantages of GST in India

1. Initial Compliance and Software Costs

Businesses had to shift from traditional billing to GST-compliant software and ERP systems. This meant:

• Purchasing new software
• Training staff
• Hiring consultants

For MSMEs, these costs added pressure to already thin margins.

2. Complex Return Filing Process

Though online, GST return filing involves multiple monthly forms:

• GSTR-1: Outward supplies
• GSTR-2B: Auto-drafted ITC details
• GSTR-3B: Monthly summary return

Small businesses often struggle with deadlines and technical errors, risking penalties.

3. Higher Tax Burden for Small Businesses

Earlier, businesses with revenue below ₹1.5 crore were largely exempt. Now, those crossing ₹20 lakh must register and collect tax.

Even under Composition Scheme, the ineligibility to claim input tax credit may discourage business-to-business (B2B) sales, as customers prefer vendors who offer credit.

4. Digital Divide and Infrastructure Gaps

In rural and semi-urban areas, businesses face challenges due to:

• Low internet penetration
• Lack of IT literacy
• Server downtime during peak filing days

5. Frequent Amendments Create Confusion

Since 2017, GST laws have seen hundreds of notifications, circulars, and changes in rates and procedures. While most aim to simplify the system, they can overwhelm small entrepreneurs without professional guidance.

Also Read: How to Add HSN Code on GST Portal?

GST and the Unorganized Sector

GST has helped formalize sectors like construction and textiles, where transactions were earlier off the books. With GSTIN, e-way bills, and PAN-based authentication, more players are now within the tax net.

Conclusion:

The implementation of GST has undoubtedly reshaped India’s tax landscape by introducing transparency, uniformity, and efficiency. For businesses, especially startups and SMEs, the GST system offers several benefits such as reduced tax cascading, simplified compliance, and better logistics. However, it also brings challenges like higher compliance costs, technology upgrades, and limited benefits under the composition scheme.

Despite its initial hurdles, GST continues to evolve with policy adjustments to address industry feedback and improve user experience. For anyone doing business in India, understanding both the pros and cons of GST is essential for making informed financial decisions. Whether you’re a new entrepreneur or a seasoned business owner, staying GST-compliant is not just a legal necessity—it’s a strategic move for long-term success.