Welcome folks to our 5th part of GST India series. This part is very important as it focusses on GST’s implication on the health of startups in the country. In the Union budget presentation, Arun Jaitley made it clear that the move will be pro start-ups. With the government encouraging schemes like standup India, Startup India, it’s expected that GST will bring a much-required push to the start-up sector.
Impact of GST on Startups
- Increased limits for registration:
Under the current tax laws, any business that deals in goods and makes a turnover of Rs 10 lakh per year has to register under the home state tax laws and get a tax identification number. For a service provider, this limit is set at Rs 9 lakh. The GST council however, has chosen to set the limit for registration at Rs 20 lakh (Rs 10 lakh for northeastern states and Uttarakhand).
- Enjoy tax credit on purchases:
A lot of startups are into service industry i.e. they pay service tax. Under GST regime they can setoff the VAT paid on the purchases (say office supplies) with the service tax on their sales which they cannot under current regime.
This will result in reduction of costs thus increasing working capital to the already cash-strained startups.
- Introduction of a ‘DIY’ compliance model:
GST aims to make taxation transparent and with all tax processes going digital, startups that lack the resources to hire tax experts or a dedicated team for handling compliance can breathe easy. From taxpayer registration, return submission, to tax payments and refund claims, startups can file details online.
- Simpler taxation:
Startups often work on tight budget and cannot devote resources to look after the various tax compliances under Excise, VAT, CST, Service Tax etc. GST will subsume all of this thus reducing the time spent for tax compliances. Also, startups dealing with both goods and services will find it much easier to file and pay one GST tax instead of both VAT and service tax.
- E-commerce and other online startups:
Many startups provide goods and services through the internet / online. GST is applicable all over India so there is no complication for inter-state movement of goods. Currently, states have different VAT laws. Respective state’s tax authorities sometimes seize goods when there is a failure to produce documents.
All these differential treatments and confusing compliances will be removed in GST.
- Increased efficiency in logistics:
The logistics industries in India had to maintain multiple warehouses across states to avoid the current CST and state entry taxes on inter-state movement. GST will unite India removing restrictions on inter-state movement of goods. This will bring warehouse consolidation across the country.
Removing unnecessary logistics costs will increase profits for startups involved in supply of goods through transportation.
- Tax burden for manufacturing startups
Under the existing excise laws, only manufacturing business with a turnover more than Rs 1.50 crore has to pay excise. However, with the implementation of GST, the turnover limit has been reduced to Rs 20 lakh thus increasing the tax burden for many manufacturing startups.
Businesses, especially startups, will face challenges initially in transition and application of GST. However, once it gets implemented, India will become one single market where goods can move freely and there will much lesser compliances to deal with for startups.
Want to have a smooth transit to GST? Read our previous articles from the series.
(Source: Cleartax, BW Disrupt)