On 01.07.2017, one of the biggest tax reforms was introduced in India in form Goods & Services Tax (GST). The idea of introducing GST was ONE TAX, ONE MARKET & ONE NATION. It was aimed at removing cascading effect, reducing tax evasion etc. Till now, GST aided the government in increasing its tax base by increasing the number of taxpayers. Recent developments in GST in terms of ease in GST registration, its compliance & tax filings have helped small business in flourishing & thereby, ease of doing business. So, this article discusses how the Startups are going to be benefited by the GST.
GST by subsuming multiple indirect taxes created an environment of better understanding for startups to understand their tax obligations. This has increased their operational efficiency & optimizes resources.
The biggest advantage of GST is that it is paperless & no human Interface is required. Everything from the registration to return filing happens on the online official portal GST Network. Hence, it reduces the scope of corruption and ensures Quick & transparent transactions among the assessee & Government. Also, the recognition of GST Suvidha Providers across the country helped in Quick solution to Queries of taxpayers resulting in easy compliance by the taxpayer.
Under GST, the threshold for registration is Rs. 20 L meaning thereby that most of startups having turnover less than Rs. 20L are exempt from the requirement of taking mandatory registration.
Startups into service industry can now take the ITC which was not allowed in the earlier regime. It will decrease the cost & will increase the working capital of the startups.
Cost of Compliance
Earlier for startups it was difficult to be tax compliant as there were number of tax with separate compliances. This typically resulted in more compliance cost. Hence, after introduction GST this compliance cost has been reduced as various taxes have been subsumed into one tax thereby leading to less compliance requirement. However, initially it is a bit difficult but constant improvements by government may result in lower & easy compliance procedures.
Earlier, taxpayers constantly faced the problems of long queues at state borders as all the states had different tax structures in terms of CST, octroi etc. But GST removed this backlog to a certain extent by introducing a uniform method to transportation of goods in for E-way Bills thereby reducing Logistics cost. This made easier for the startups for expanding their business beyond the boundaries of the current operating states.
Earlier due to various compliance costs & complex procedures, the start-ups used to restrict their expansion & growth to certain states as it required large operating costs under different laws of every state. With the introduction of GST, startups can now just sell the products in different state even without taking registration in every state. But in every state where they have offices, they are required to take registration. This helped them in increasing their customer base & finally expansion of their business.
Despite these advantages, disadvantages in terms of multiple GST slabs, ITC claiming, amount of filing of returns every month etc. may affect their operational efficiency. But it is expected that GST coupled with other Government policies will help startups in growing.