impact of gst on msme india

Effects, Impact and advantages of GST on small manufacturers like SME in India.

Goods and service tax GST is the talk of the town today. Businesses in India are eagerly waiting for the final bill and implementation of this bill. Here we will look at how will GST affect SMEs in Inda.
MSME’s play an important role in the development of Indian economy. Upcoming government plan of introducing GST bill should further boost the ease of doing business in India. The government is also planning to give ratings to MSMEs on some 50 parameters that will enable the sector to improve the quality of manufacturing and may give an additional advantage in the international market. Other initiatives such as setting up of Bankruptcy Bill will also help SMEs to do business with less complexity. All these reforms paired with the government pushing for passing the GST bill this monsoon session of Parliament must bring a strong backing to the SMEs in India.
SMEs are the major contributor in promoting balanced economic development. It negates the effects of large enterprises and provides all round development for the nation. They have helped in industrializing the rural and backward areas by providing employment and other opportunities to reduce regional imbalance that has assured an equal distribution of income.
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What does MSME mean? Defining SME in India.

MSME ( Micro, Small & Medium Enterprises ) are mostly privately owned companies in India defined as per the size of their investments. SME enterprises India they form a very important role in nation’s economy. Their contribution is major when it comes to output, employment, and export. The majority of unskilled labours are employed with them significantly raising manufacturing sector and exports.

Though the primary responsibility of promotion and development of MSMEs is of the State Governments, the center has passed an Act in 2006 to empower the sector and also has formed a Ministry (Ministry of MSMEs).  It was the Micro, Small and Medium Enterprises Development (MSMED) Act which was notified in 2006 that defined the three tier of micro, small and medium enterprises and set investment limits.

How are MSME classified in India?

Classification of the MSME Ceiling on Investment in Plant and Machinery (in Rs)
Micro Below 25 Lakhs
Small 25 lakhs to 5 crores
Medium 5 crores to 10 crores

For the service sector, the investment limits are Rs 10 lakh, 2 crores and 5 crores in terms of investment made in equipment. In 2015, the government has introduced an amendment bill to enhance the investment limit in all categories.

These entrepreneurs and MSME’s have grown tremendously even after facing several highs and lows due to the challenging environment. The Indian economy is expected to emerge as one of the leading economies in the world and likely to become a $5 trillion economy by 2025, the major impetus is being given to strengthening the backbone of our economy – the MSME sector.
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What does GST mean?

Full form of GST is Goods and Service Tax and is expected to be in use from 1st July 2017. GST is one of the biggest tax reform since India got independence in 1947. One of the main aspects of bringing out this change is it will integrate and make the process of the indirect TAX system in India very easy. GST will replace the traditional tax systems like State Value Added Tax ( VAT ), Central Excise, Service Tax, Octroi etc.

GST will be applicable on the sales value which includes various expenses like commissions, packaging and other expenses that happen during the sale. One major benefit of GST specially to SME is that it will bring uniformity in taxation across the nation.This can bring the small scale industries into the mainstream economics of the country.

Goods and service tax will give small industries an equal chance to compete with the big companies in India. The current tax system in India that includes VAT ( value added tax ) needs to contribute in both central as well as state treasury because of which a manufacturer in India has to contribute hugely towards these taxes. Hence GST will ease the tax hurdles faced by SME s of the nation which in turn is borne by the end user or the customer.

Check out the difference between VAT and GST ( VAT vs GST ).

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How can GST impact small-scale manufacturers like SME in India?

1. Excise and VAT, with other taxes, will be merged into GST.
2. GST will provide tax credit benefit at every stage in the chain.
3. Small businesses may escape GST, if they are below the threshold limit.
4. This will allow SME segment to expand their reach beyond their current borders.
5. GST will not distinguish between sales and services.
6. GST is aimed to simplify such tax hurdles and will be ultimately borne by the customer.
7. Manufacturing will get more competitive.
8. GST will be applicable at all stages from manufacturing to consumption.
9. Makes India one common market.
10. Lower logistic and tax cost is expected because of this new GST bill.
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7 Major Advantages of GST for Manufacturers in India.

1. Ease of doing business in India.

The forefront of Goods and Service tax has been One India One Tax. Hence ensuring easy registration and ease of doing business among states. A Huge benefit for the SME sector who had to knock many doors before registrations.

2. Makes it easy to file returns.

Though initially there can be confusion around GST. Since it brings excise, VAT, and other indirect taxes under one domain, it can not be hard for anyone to say that filing and payment of taxes will be easier.

3. May improve revenue

GST will replace all 17 indirect taxes with a single tax. The increase in product demand will ultimately increase tax revenue for state and central government.

4. Can generate more employment.

Goods and service tax in India can really increase the demand for products nationwide, hence the production might go up. This can create huge opportunities for new employment and businesses too.

5. Competitive domestic product.

By abolishing the interstate taxes can give a huge boost to the SME sector. It may lower the cost of interstate tax and logistics. Making the SME compete with the world.

6. Growth in GDP numbers.

Naturally, if the demand will grow even the production will grow. thus this can increase the GDP of India by 4.2%.

7. Might reduce tax evasion.

Since GST is a single tax which will include various taxes, will make the tax system more efficient. This might lead to fewer tax evasions and subsequently corruption in the system.


There may be a lot of confusion or doubts regarding Goods and service tax in India. Also there are a lot of private firms and even government of India is trying to create awareness about the new changes and developments. You can check the tutorial here.

But overall it is a welcome move by the Gov. of India. This will boost the overall productivity of the nation. Make One India One tax and One India One Market. may improve the quality of the product for the end user.

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NEW  Effects, Impact and advantages of GST on small manufacturers like SME in India.

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