The retail sector in India is composed of organised and unorganised retail segments. It is surprising to know that the unorganised industry holds a more significant share of contribution to overall trade, in comparison to the organised sector. With huge potential, you can open a local store to enter the retail industry.
A decision to do so shall entail pooling together of various resources and examination of the taxation implications. If you have been planning to open up a new local store, here are a few things which you must understand regarding the impact of taxes.
Impact of Taxes on Local Stores
With the introduction of GST, almost every indirect tax which applied to the trade of goods and services has been repealed. GST has replaced the indirect taxation regime which has imposed several restrictions and provisions on traders of local stores in India.
Here are the most prominent regulations which every such owner will have to comply with, at the time of opening a new local store.
- A comprehensive and complete system of accounts and records will have to be maintained for each financial period. This compliance is expected to raise the administrative cost for the owner by INR 10,000 every month.
- Expenditure by consumers is unlikely to face any significant alteration. However, with the increase in compliance requirements, the unorganised retail components, such as local stores, are likely to come under the limelight utilising more significant contribution to taxes.
- Purchase of goods from an unregistered dealer will have to be paid by a registered dealer with the system of reverse charge. As a result, for your new local store, it is recommended that you make purchases only through registered dealers.
- With the implementation of uniform gst rates in india, the unorganised sector stands to make significant gains. As opposed to the previous system of taxation, your local store will stand to benefit from the policy of the tax credit, which can be availed for payment of GST at the previous point of the transaction.
- If the turnover of your new local store does not exceed INR 1.5 Crore (INR 75 Lakh in select cases) in a given financial year, you will be entitled to opt for the composition scheme under GST. Under this scheme, you will be required to pay a single tax at the rate of 1% on the value of your combined sales. Additionally, you will be able to avail relaxation from the mandatory requirements to maintain books of accounts and records of sales and purchases.
- You will be required to obtain registration under GST only if your business turnover exceeds INR 40 Lakh (INR 10 lakh for select cases). If your business does not exceed the said limit, you will not need to get your business registered under GST.
- If your local store is engaged in selling your goods through an eCommerce platform, you will be required to maintain individual records. Further, you may be liable to a TDS (Tax Deducted at Source) of 2%.
Ease of Setting Up
Initially, you might have to incur individual administrative costs to get yourself registered under GST. This will include the cost of setting up a computerised system, a billing mechanism and the cost of availing the services of an expert on the matter.
Though at first sight, it may appear as though the costs bear an unfair burden on the existing values of setting up your local store business, there are many advantages to the system, which will be yours to reap as your business flourishes.
Furthermore, the system of the input tax credit is likely to ensure that the cost of items sold by you remain the same, as you will be able to take credit for taxes paid at the earlier stages of the transaction.
The impact of GST seems a prosperous one for the retail sector, especially newer units which are planning to enter this domain. The well-structured system of gst invoice, uploading of GST challans and the input tax credit ensures that things run smoothly for the retail sector in its endeavour to continue and service their customer base.
As opposed to common perception, the current system of GST taxation isn’t a complicated one. It is highly beneficial for the scores of local stores which are currently in operation and yet others, who are planning to open up soon.