Impact of GST on Start-ups in India

GST, or the Goods and Services Tax Act, was introduced as the Constitution’s One Hundred and First Amendment Act in 2016 and is the government of India’s most recent amendment or reform to the indirect tax act. In the long run, it aims to boost the economy and enhance revenue collections. Since its inception, GST has had an impact on every section of the industry, including start-ups. Let us take a closer look at the Impact of GST on Start-ups in India.

Table of Contents

Start-ups in India

According to the Indian government’s definition, a start-up is defined as “all those firms and commercial efforts that stand to fulfil the following propositions.” The following organizations:

  • For a period of not more than five years, are incorporated or registered inside the physical geography of India.
  • In any of the previous financial years, have an annual turnover of not more than INR 100crores
  • Have been working on new product, service, or process development, innovation, deployment, and commercialization. Technology or intellectual property should drive such products, services, and processes.

How starting a business is simpler now?

  • Previously, new businesses had to comply with a slew of tax regulations in order to get off to a good start. With the advent of GST, all indirect central and sales taxes have integrated into a single bucket.
  • Aim for ease of conducting business if you’re a start-up entrepreneur. Now, only one registration is necessary, resulting in significantly less paperwork and a far more straightforward process.
  • Rather than focusing on and wasting time on complying with onerous tax requirements, businesses may utilise this valuable time to improve their operations.
  • According to the former VAT system, any business with a revenue of more than INR 5 lakh was necessary to register for VAT and pay VAT, which varied by state.
  • This threshold is raise to INR 20 lakhs under the GST regime, exempting SMEs and start-ups from VAT registration.

Registration Threshold with a Higher Limit

A company with an annual turnover of Rs20 lakhs or more is mandatory to register for GST under the GST legislation. Several start-ups with annual revenues of less than 20lakhs are exempt from this rule. GST also supports a lower tax band for enterprises with a turnover of between 20Lakhs and one crore, thanks to the composition scheme. The newly founded start-ups will benefit from these increased tax limits.

Allowance for a Tax Credit on Purchase

Many new businesses in the service industry are necessary to pay service tax. They can deduct the VAT paid by these start-ups on necessary purchases for their operations from the service tax they should pay under GST. This will very certainly lower costs while increasing working capital for these new businesses.

Improvement in Logistics efficiency

  • GST has simplified tax procedures, allowing for faster inter-state distribution of products and services across the country.
  • Previously, a truck crossing state borders had to pay an octroi tax, which differed from state to state. This would raise the cost of doing business by increasing the expenditure.
  • GST combines all of these taxes into a single tax, with the same tax rate applied across the country.
  • The entire GST process conducts online, from registration to return filing and GST tax payment.

Tax structure for Manufacturers

GST will have a negative impact on manufacturing start-ups. Manufacturing companies with a turnover of more than 1.50 crores are mandatory to pay excises under existing rules. The turnover limit is reduced to 20 lakhs as a result of GST. As a result, manufacturing start-ups will have to pay more in taxes in the future.

Start-ups must be well-versed in the tax consequences of the GST. The best approach for entrepreneurs to get the most out of the Goods and Service Tax is to understand it and address it properly

Supports Online Start-ups and Businesses

Many start-ups are technologically advanced, which means they have a large web presence. Many start-ups sell their products and services on the internet. Offering products and services through numerous digital modules is one example. A business can benefit from the hassle-free flow of commodities as a result of GST. They are exempt from complying with the various VAT legislation enacted by different states. Failure to follow these laws may result in the seizure of items. Keeping up with various tax requirements in several states leads to significant corporate losses. Furthermore, E-commerce businesses should expect to follow a typical tax procedure under GST.

What a person should keep in mind before starting their Start-up?

  • A company can be classified as a start-up for up to five years from its formation date if it works on developing, innovating, and deploying commercial products or services with a turnover of less than INR 25 crores.
  • GST registration is necessary for businesses that sell non-taxable goods or export their goods to other countries.
  • Online registration and GST tax payment are now available.
  • Start-up owners can aim for simplicity of doing business after the GST implementation.
  • In terms of taxpayer readiness with the technology infrastructure, GST rollout has its own set of issues.

Conclusion

GST is a whole new tax regime that should be thoroughly understood, particularly in terms of its impact on start-ups. GST has advantages and disadvantages in every industry. External professionals, on the other hand, can assist start-up owners with filing and registrations, letting them concentrate on expanding their business. 

CA Rohit Goyal has experience in multiple spheres including general functions in the field of Auditing, Accounting, and handling Scrutiny Assessments, Taxation Matters along with the specialized functions including Finance, Banking and also handles the field of Stock Audit, Internal Audit and other Various Assignments of Banks.

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