Everything MSMEs Need To Know About GST

MSMEs are the backbone of the Indian economy, therefore, the need to assist them to operate seamlessly is important. Know everything about gst here!

16 Nov,2022 08:29 IST 1937 Views
Everything MSMEs Need To Know About GST

The introduction of the Goods and Services Tax (GST) restructured the indirect tax system of India, and nearly every sector of the economy underwent significant changes. All consumption taxes (indirect taxes) that were previously assessed separately on goods and services combined to create a comprehensive tax. The GST council determines the rates and the goods and services that fall under them with exemptions. As per the council's decision, these things may change. The same applies to GST on MSMEs for the products and services they provide.

Here’s everything an MSME should know about GST.

What Are The Different Types Of GST?

GST categorisation ensured a more straightforward new tax system in India. Below are the four types of GST.

• Integrated Goods and Services Tax or IGST:

This tax applies to imports, exports, and cross-border transactions. In this case, the central government is responsible for collecting the tax.

• Central Goods and Services Tax or CGST:

It is a tax levied on intrastate exchanges of goods and services which the central government collects.

• State Goods and Services Tax or SGST:

This tax is similar to the CGST. State governments collect the tax and it applies to intrastate sales and services.

• Union Territory Goods and Services Tax or UTGST:

This tax applies to transactions within Indian union territories.

What Are The Different Tax Slabs Of GST?

India has four GST slabs: 5%, 12%, 18%, and 28%. The GST council may need to revise those slabs at times. The lowest tax slab is for essential items like food medicines, while the highest is for luxury items like AC, gutkha, tobacco products, etc. The table below explains GST rates and the articles covered by them.

GST Rates

List of Goods and Services

5% GST slab

Food items: Tea, coffee, oil, sugar, fish fillets, baby foods, cashew nuts, spices, mithai or Indian sweets, etc.

Fuel: Coal and biogas.

Additionally, lifesaving drugs, clothing, footwear under INR 1000, fertilisers, newspaper printing, tailoring, transportation services provided by AC cabs, incense sticks, accessories used by the handicapped, economy class flight tickets, tour guide services, aircraft leasing, and flying ash blocks fall under these tax slabs.

12% GST slab

Dairy products: Paneer, butter, ghee, and cheese

Processed food items: ketchup, fruit juices, sauces, cakes, frozen meats, etc

Utensils used in cooking: Ladles, forks, spoons, tongs, etc

Additionally, these tax slabs include drinking water, sewing machines, handmade matches, photographs, business class tickets, natural gas mining, handbags, dry fruits, movie tickets under 100 rupees, chit fund services provided by foremen, corrective spectacles, plastic beads, etc.

18% GST slab

Food items: Chocolate, pastries, biscuits, soups, Ice cream, pasta, mineral water, chewing gum, etc

Household items: Shampoo, shaving products, detergent, hair oil, etc

Electronic appliances: Lights, vacuum cleaners, fans, camera, refrigerator, washing machines, etc

Capital goods: Optical fibre, aluminium foils, roller bearing, parts of pumps, ball bearing, etc

Additionally, these tax slabs apply to cosmetics and make-up, weighing devices, outdoor catering, binoculars, movie tickets over 100 rupees, telecom and IT services, goggles, theatres, sports goods, some cooking utensils, stationery items and so on.

28% GST slab

Food items: Instant coffee, sugar syrup, chocolates without cocoa, custard powder, etc.

In addition, aircraft, sports events, AC, tobacco products, wigs, casinos, ATM vending machines, etc., are subject to these taxes.

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Benefits Of GST For MSMEs

The implementation of GST has benefitted MSMEs in the following ways.

1. Single Tax

Businesses across the country used to pay multiple indirect taxes, including VAT, service taxes, and more, before the GST regime. The entire taxation system was previously disorganised. GST has simplified and integrated the taxation system.

2. Lightened Tax Burden

MSMEs had to contend with multiple taxes before GST, resulting in a higher tax burden. Federal and state taxes together amounted to roughly 32% of their income. Now, businesses only need to pay 18 to 22% GST.

3. Cost-effective

MSME production costs have decreased significantly. Transport of final goods is now less expensive for MSMEs since it falls under the lower GST slab. It resulted in a more cost-effective production process.

4. Expansion

Under the previous tax regime, MSMEs found it challenging to expand their businesses while paying high taxes. Due to complex tax structures, SMEs were unwilling to expand their business into other states. Multiple taxes resulted in increased production costs.

As GST eliminates multiple tax rules and payments, MSMEs can expand across state borders.

5. Easy Registration Process

The signup process was previously complicated, lengthy, and often delayed for MSMEs since they had to register under different tax systems. GST registration is simpler and quicker than the previous system. By visiting the official GST registration website, MSME owners can complete the process.

Apply For A Small Business Loan with IIFL Finance

IIFL Finance offers small business loans tailored to meet its customer’s needs. Interest rates for MSME business loans are attractive and affordable, making repayment easy.

With no collateral required, IIFL Finance offers MSME loans up to Rs 30 lakhs. You can apply online, and we will disburse the funds directly into your bank account within 48 hours of approving your application.


Q1. Is GST good for MSMEs?
Ans. The GST benefits MSMEs in many ways, including reduced tax burdens, reduced transportation costs, ease of expansion, and simplified registration procedures.

Q2. Can MSMEs complete the GST registration process online?
Ans. Yes, MSME owners can register for GST online by visiting the official GST registration website.

Sapna aapka. Business Loan Humara.
Apply Now

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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