8 Benefits Of The New Goods And Services Tax (GST) For Startups In India

by Rohan Diwan Marketing Consultant

With the advent of technology growing at god speed in India, Start-ups have become both a necessity and fashion. It is claimed that 3-4 start-ups born every day in India. In a famous web series, there was a dialogue that goes, “when a young Indian man gets bored of his studies or a 9-5 job, he finds a way out in a Start-up”! Well, this might not really be true, because it takes a great idea and even better execution to build a successful start-up. Speaking of successful start-ups, Flipkart, the e-commerce company which is headquartered in Bengaluru, is placed at the ninth place on the list of the most successful start-ups, with a 2015 valuation of $15 billion dollars, ahead of Elon Musk’s SpaceX!

So, keeping the start-ups in perspective, the Government of India (GOI) introduced the Goods and Service Tax (GST) to better the position of the existing and seeding start-ups in India in terms of lesser compliances and ease of doing business as a whole. It is necessary more than ever, so as to move up India’s 3^rd position on the list of most tech-driven start-ups to get ahead of the United Kingdom and the United States.

GST in itself is a complex law and its implementation in India hasn’t been an ideal one too. But it is an evolving law which will get stabled with time as the GOI is taking necessary and prompt steps to make the transition to GST smooth, especially for the small and new businesses.

Also Read- Benefits of GST to the Indian Economy

Some of the steps that would benefit the Start-ups/small businesses in India are enlisted as under:

Relatively Simpler Taxation System

Start-ups are often working on tight budgets and may not be able to squander resources to pay for the various tax and law compliances under the earlier various laws. GST will encompass all of these, thus bringing down the time wasted on tedious compliances. Also, in a move to make requirements of working capital lesser for new businesses, GST Council allowed businesses with annual turnover up to 1.5 crores to submit returns and pay taxes quarterly. This would definitely lead to the reduction in the burden of tax compliance for start-ups & smaller businesses.

2. Higher threshold for registration

As per the earlier VAT and Service Tax law, any business with a turnover of more than Rs 5 lakhs and 10 lakhs respectively, had to get VAT registration and pay different state VAT. Under GST, this threshold has been kept at 20 lakhs thus exempting many start-ups that cannot afford to pay taxes at the inception itself. GST also has a composition scheme of lower taxes for new/small businesses with turnover up to 1.5 crores, though it’s optional on non-availment of Input Tax Credit (ITC). This will trigger the much-needed ease from tax compliances to newly established start-ups.

3. Start-ups can avail ITC on purchases

A lot of start-ups into the service industry had to pay Service Tax, the ITC of which could not be set off with VAT liability. Under GST regime they can set off the GST paid anywhere on any goods or service on the purchases (say office supplies) with the GST on their sales. Thus it might come as a big boon to the start-up industry which majorly provides services. It will result in the reduction of operating costs thus decreasing working capital requirements to the cash-strained start-ups.

Also Read- HOW TO OBTAIN GST REFUND

4. Simpler Online procedures under GST

The entire GST process starting from registration to filing returns and payment of GST till claiming of refunds is online. Start-ups do not have to run around to tax offices to get various registrations under various Acts. When the proposed plan for “Start-up India” was issued by the Industrial Policy and Promotion Department, the government introduced certain self-certification compliances and none of the supervision measures per se. GST also tries to lay down similar provisions to settle down the regulatory burden on start-ups. Moreover, there should be distinct resolution panels for solving disputes.

5. E-commerce and other online start-ups

Many start-ups are technologically innovative which means they have a huge presence online and provide goods and services over the internet. GST is applicable all over India so there is no complication for inter-state movement of goods. In the old regime, states had different VAT laws. For example, online websites (like Flipkart, Amazon etc) delivering to Uttar Pradesh, had to file a VAT declaration and the registration number of the delivery truck. Most of the times, Tax authorities seized goods when the assessee failed to produce documents. Removing all such complications will benefit the nation as a whole which involves start-ups too.

6. Increase in efficiency of logistics

The transportation and logistics industries in India had to maintain several go-downs across states to avoid the CST and state entry taxes on inter-state movement charged in the earlier regime. There were instances where warehouses/go-downs operated below their capacity levels, which led to rising operating costs. GST united India by removing restrictions on inter-state movement of goods. Due to GST provisions, a lot of logistics operators and E-commerce players have now shown fascination in setting up their go-downs at strategic locations such as Raipur, Bhopal, Telangana, which are considered to be the most centrally and strategically located cities of India and are well connected to the whole of India, geographically. In fact, it is needed because well over 75% of financing was towards just three urban areas – Bengaluru, Delhi/NCR and Mumbai. The bulk of Indian start-ups are also found in these three places. Hence, it is necessary to reduce the logistics and transportation expenses so as to increase the profits for start-ups involved in the supply of goods through these channels.

GST reduced logistics/ transportation costs and time to a great extent by replacing CST and octroi. GST has, figuratively, done away with state borders when it comes to moving goods. The inception of the new form of E-way bill from 1^st April onwards is expected to act as a revolutionary reform for easier movement of goods between states and UTs. The E-way bill will mainly benefit start-ups involved in perishable products as well as e-commerce marketplaces by ensuring timely deliveries as well as quick returns of goods.

7. Transparent ratings

GST introduced a compliance score rating mechanism where prospective buyers could gauge the credibility of a business by its compliance score. This, in turn, makes sure that businesses take all possible measures to possess a better rating. Also, tax authorities are able to determine the speedy release of refunds on the basis of awarded compliance scores. So even start-ups having limited capital have a fair amount of impetus to get correct tax compliances or look forward to reputation distortion and delay in refunds. This will, in turn, change the Indian mindset of not taking compliances seriously.

8. Online GST Training courses

It’s a boon that the advancement of technology has also led various professionals and educational platforms to roll out various variants of GST online classes and lectures in India. These reasonably priced courses are convenient to access anytime, anywhere. The tutors have made sure that the courses/lectures are easy to understand from a layman’s point of view to a professional point of view. These will immensely help the youth to get oriented with the basics of GST and its procedures, as the start-up people could take these lectures and courses in their free time conveniently. Also, the Institute of Chartered Accountants of India (ICAI) has introduced the GST Training course which in addition to the knowledge gives a Certificate for the same validating the knowledge acquired.

Conclusion

GST is a pivotal reform for start-ups. In fact, India is the youngest start-up nation in the world with 72% of the founders being less than 35 years old. The implementation of GST ensures that start-ups have an easier experience with lesser tax compliances additional benefits, such as smoother movement of goods. These provisions and procedures will make sure that the ease of doing business in India is achieved at a faster pace and the start-up culture in India gets a well-deserved boost through all spheres of policy-making and compliances.

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