India’s manufacturing sector has been growing steadily since the early 2000s, creating new jobs and boosting the economy. The Goods and Services Tax regime has the potential to amp up that growth, especially if you run a small business. With its simplified tax structure and effect on interstate sales, the GST can help your company cut costs and become more competitive. Lets understand in detail the impact of GST on manufacturing sector in India.
Reduced Production Costs
Before GST, cascading taxes were a big problem for manufacturing companies. Each time you bought or sold products, you had to deal with multiple taxes, including VAT, entry tax, and central sales tax. Because of the way these duties were arranged, your company ended up paying tax on other taxes. Inevitably, this resulted in higher costs and compound taxes on raw materials.
GST eliminated these cascading taxes, automatically saving you money. It also created the input tax credit to help lower your tax bill. Under the old system, many of the taxes you paid were not available as a credit. When you pay GST on inputs such as raw materials and factory equipment, you can deduct that amount from the taxes you owe. That way, you’re only paying GST on the value you add to the supply chain.
Easier Interstate Buying and Selling
In India’s old tax regime, interstate transactions were a hassle. When you bought or sold across state lines, you had to deal with complicated state and national taxes. For busy small business owners, this system usually led to three choices: taking time to figure out the paperwork yourself, spending money on a tax professional, or avoiding interstate transactions altogether.
Under GST, the process is much easier. No matter where your vendors and customers are located, you still pay the same GST rate. This gives you the freedom to choose the vendors with the best prices. If you work in Mumbai and find a great deal on raw materials in Jaipur, you can take it without worrying about checking Jaipur’s state taxes. This can cut costs and make you more competitive in the domestic market. What’s more, since GST treats exports like interstate transactions, you also save money when you ship products out of the country.
When the GST regime eliminated state taxes, it also solved a big problem for manufacturers: expensive logistics. Before GST, your truckers could be stalled for hours in long lines at state border checkpoints, increasing overall expenses. The unpredictable wait times created a logistical nightmare, and delayed shipments led to production slowdowns and missed delivery deadlines.
After GST was implemented, many state border checkpoints were immediately shut down. You can now use the e-way bill system to register shipments and pay taxes online. This means you save valuable time on logistics and spend less money on fuel. Plus, since you can better predict when raw materials will arrive, it’s easier to avoid costly production delays.
Although the GST affects each part of the manufacturing industry differently, the overall outlook is positive. As your company adjusts to the simplified system, you can save money and increase sales to new customers across India and the world.