A Simpler Tax Process With GST Registration
When the government rolled out the Goods and Services Tax regime, it took India by a storm. It completely levelled the old taxation system and then built a new one. No sector, person or business was not impacted by the change. This article takes a look at the effect GST had on start-ups.
- It is not just the process of GST registration that is simple but also the method of paying the tax. Everything can be done online, which makes it far easier for start-ups to pay the tax as compared to the old system. Previously, a small business would have to waste resources and time to register their setup under Service Tax, VAT and Excise Tax by going to different offices. Today, they only need to register for GST, which can be done through the internet.
- The previous VAT system demanded that any business with over INR 5 Lakh turnover had to register and pay their tax. The state-wise threshold differed, but it was not very high. With GST in place, the limit has been increased to INR 20 lakhs. The rise in the threshold has made many start-ups exempt from paying GST. Moreover, if a start-up has a turnover between 20 lakhs to 1 crore, the tax rate is lower under the composition scheme.
Simpler Tax For All Start-ups
Respite from tax burden is just one of the impacts of GST. Simpler compliances and payment are another. Most often, start-ups have a minimal budget. Previously, they had to devote a substantial chunk of it to understand all tax compliances such as services tax, VAT, Excise and CST. With GST in place, all these taxes were subsumed, which implies that the start-up doesn’t have to waste time or other resources in finding with which tax systems they have to comply.
The process of paying the tax has become even more comfortable for a business that deals with both services and goods. Earlier, they had to pay VAT along with service tax. Now, they have to pay only one GST. Another reason tax is simpler for start-ups under GST is the number of payments. Any business with turnover less than INR 1.5 Crore in a year needs to submit taxes quarterly.
· Manufacturing Start-ups Take A Hit
The one kind of start-ups that will feel an adverse impact of GST is manufacturing. Prior to GST, the excise tax was required by those manufacturing units which had an annual turnover of above INR 1.5 Crore. Now, the limit has been reduced to INR 20 lakh putting a more substantial tax burden on manufacturing start-ups.
Tax Credit On Purchases For Start-ups After GST Registration
Start-ups that pay service tax can reduce the amount by setting off the VAT paid on purchases. It decreases their overall tax burden considerably. For instance, say you are a start-up who purchases office supplies worth 30,000 and pay VAT at 5%. For your services worth 50,000, you shell out 15% service tax. Therefore, the company ends up paying 7,500 as service tax and 1,500 as VAT.
With GST in place, the tax to be paid for services at 18% is 9,000. The GST you paid for office supplies is 5,400. The net GST the start-up has to pay will be 9000-5400 = 3,600. That’s a marked reduction in tax which is a big boon for small business starting out. The money saved can be put to use as working capital.
· Online Start-ups Can Easily Move Good Inter-State.
For most start-ups, much of the work is done online. Their goods or services are provided digitally, which means they move from one state to another. Earlier, this was an issue because tax laws altered between states making the movement of goods complicated. For example, an Amazon delivery truck would have to declare VAT with a registration number if they delivered to Uttar Pradesh. Failure to do so led to goods seizure. Under GST, all states have the same law. It has removed all confusing compliances and made it easier for start-ups to keep up with tax laws.
These were some of the effects GST has had on small businesses and start-ups.