The Impact of GST on Indian Businesses 1

In July 2017, India’s Goods and Services Tax (GST) was implemented, aiming to replace the complex system of indirect taxes applied on goods and services across states. The GST replaced multiple taxes with a fixed rate nationwide, providing a simplified and unified taxation system that promised to improve business competitiveness, efficiency and transparency. But how has the GST affected Indian businesses? Let’s find out.

Impact on Start-ups and Small Enterprises

The introduction of GST had a considerable impact on small and medium-sized enterprises (SMEs) in India. Initially, the GST was introduced as a single tax rate across the nation for small businesses. However, during the transitional period, several smaller businesses had to bear high compliance costs to align their businesses with the new GST regulations. Lack of technical expertise and infrastructure to manage the GST filings added to the cost burden for these firms, leading to decreased margins and reduced profits. Measures such as the increase in the annual turnover threshold for GST registration, and the introduction of the Composition Scheme, a simpler tax compliance regime for small businesses, have aimed to bring relief to SMEs. However, the long-term impacts of GST on small enterprises remain to be seen.

Impact on E-Commerce Businesses

The implementation of GST has had a significant impact on India’s e-commerce sector. The GST abolished the cascading tax effect that led to higher taxes on goods or services as they moved through the production chain. However, this increased the tax burden on e-commerce businesses, as goods moved between states under the GST regime. For instance, previously, e-commerce businesses were exempt from state taxes if their sales were less than a certain threshold. Under GST, however, an e-commerce business operating across multiple states comes under the mandatory GST registration rules, which added to their compliance burden. Consequently, this led to a significant increase in costs for e-commerce businesses, impacting their profitability.

Impact on Manufacturing

The GST’s main intent to unify the nation’s tax system proved beneficial for the manufacturing sector. The GST replaced several state-level taxes and central excise duties. The removal of these taxes meant that manufacturers could now claim tax credits for input products and services procured, leading to a reduction in tax leakage. This reduction in tax at all levels of supply chain positively impacted the overall production cost of goods, making them more competitive in the market. The transparent nature of GST required companies to maintain detailed invoices on their sales and purchases and file returns regularly on the GST portal, promoting a culture of transparency and compliance in the industry and reducing tax evasion.

Impact on Service Providers

The GST allowed for service providers to offset the input tax on raw materials or overhead costs against the output tax paid on sales. This helped to decrease overall costs of service providers and positively impact margins. Furthermore, the GST’s unified tax structure meant that a common tax rate applied across services, which reduced the previous state targeted tax differential, producing a more competitive business environment. Service providers had to adapt to the GST’s compliance requirements and take added measures for accounts, tax returns, and invoice generation.


The GST implementation had a varied impact on the Indian businesses, with certain sectors benefiting more than others. While the GST improved tax transparency and compliance across the business environment, smaller players in the economy are bearing significant costs in the short run. However, measures introduced to support the SME sector, and the overall reduction in tax leakage can result in a more robust and competitive business environment over the long term. Want to dive deeper into the topic? indianewstime, external material we’ve put together for you.

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The Impact of GST on Indian Businesses 2


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