How Did GST Impact The Startup World In India?
Being at the peak of a mushrooming startup scene, India is turning into a ground for innovation and employment.
It successfully is catapulting a number of companies like Paytm, Flipkart, Ola etc. to a unicorn status i.e. startups being valued at $1billion or more, crucially playing a boss in bringing the unorganized sector into the section of organized sector.
Among the world nations with most startups, India is ranked number third with more than 4000 currently. And with each day the number is only growing and is anticipated to cross a mark of 10,000 in a few years.
Though the introduction of GST routine is not completely helpful for startups, it definitely is said to help the growth. Let’s take a tour of the pros and cons of GST and its impact;
Starting A Business: There were a number of tax compliances that had to be followed earlier to start a new business, but after GST coming into the picture all the sales and indirect central taxes have been consolidated. Presently the paperwork has been reduced and the registration is single as well. The time consumed in this process can be now devoted to more constructive means in the business. Any business that has a turnover of less than 20 lakh does not need to anymore register for VAT which was not the case earlier. Presently all the startups and small businesses are exempted from a structure of this nature.
Logistics Cost: The reduction in the tax procedures after the introduction of GS%T has majorly helped in multiplying the inter-state deliver of goods and services all through the country. From state to state there was OCTROI tax that had to be paid before crossing the borders which would eventually increase the expenditure of the business. Presently there has been a uniformity bought in the same tax all through the country. The entire process of registration and payment of tax has been made available online.
Multiple Taxations: There were taxes levied on goods multiple times which eventually swelled the price they were paying for the goods in comparison to the original price. The introduction of GST has eliminated such taxation by valuing tax on only the goods produced as the final product.
Invoice: There has been a uniformity bought in the application of taxes resulting tot which the distinction between the goods and services has been evaded. There are a number of advantages that can be availed now in terms of tax incentives.
Consolidation: Difficult interstate movements, complicated taxes, cost of compliance, and more have all come to an end after GST came into being. Under this regime, there is only one tax to be paid ensuring that the whole procedure is centralized.
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Tax Problem: In the prior years the excise duties were paid by the business that extracted a turnover of INR 1.5 crore but since the GST has reduced the number to 20 lakh, small businesses have also come under its cap. The tax burden on the manufacturing startups has hence increased.
Tax Credit Process: You will automatically not be eligible for Input Tax Credit if the supplier has not filed and paid their taxes. The major drawback about this is that if in the supply chain even one of the link has failed, it will result in great damages to the company.
Technological Challenges: One of the major problems in a country like ours is technology and this has impacted the process of GST and the startups because the complete process has now been shifted online. And this online process may not be completely successful due to lack of technology or even the basic knowledge of it.
Tax Collection: In the initial phase the cost is endured by the startup but later the TCS (tax collected at source) has to be paid by the owner and they would receive the refund only after filing the return.
Capital Blocking: Since the GST routine has been introduced, the funds have to be uploaded by the startups in electronic form with the tax department which will lead in blocking of funds substantially. A startup will have to basically set aside a portion resulting in choking of the capital in the input tax credit system.
Compliance Parameter: If there is a prospective buyer, they will be at the disposal to check the GST compliance rating and decide about the credibility of the company like the credit score. The guidelines are extremely stringent of the compliance and come at a certain bandwidth and cost.
Reverse Charge: If the goods are transferred from one business that does not need to pay GST, to another that is obliged to pay, in this case, the buyer is the one who would be taking care of all the taxes. They have to self-invoice and then upload the same on the GSTN while they file their return. This is nothing but just a bad debt that has to be paid by the buyer.
The Goods and Services Tax (GST) was introduced in India in July 2017 to replace multiple indirect taxes levied by the central and state governments. Here are some ways in which GST has impacted the startup world in India:
- Increased compliance costs: Under the GST regime, startups are required to comply with various rules and regulations related to tax filings, registrations, and invoicing. This has increased compliance costs for startups, particularly for those with limited resources.
- Streamlined tax structure: GST has streamlined the tax structure in India and made it easier for startups to do business across state borders. This has led to a reduction in logistics costs and improved supply chain efficiency for startups.
- Impact on working capital: GST requires businesses to pay taxes upfront, which can impact their working capital. For startups that operate on tight budgets, this can be a significant challenge.
- Increased transparency: GST has increased transparency in the taxation system and reduced tax evasion. This has helped level the playing field for startups and small businesses that were previously at a disadvantage compared to larger businesses with better tax compliance.
- Impact on exports: GST has simplified the process of exporting goods from India, making it easier for startups to sell their products and services abroad. This has opened up new opportunities for startups to enter global markets.
Overall, while GST has increased compliance costs and impacted working capital for startups, it has also streamlined the tax structure and improved transparency, which can be beneficial for startups in the long run.
Freelancers: If the business person does not have a fixed place to do the business from they have to enroll themselves as a casual taxable person under GST. It becomes mandatory for the person to do the registration because they do not come under the bar of 20 lakh being freelancers.
There is no sector that is not dealing with the pros and cons of GST. We are running in the period of transition, it will face its ups and downs. There will be a lack of technological skills and implementation but there also will be an overcoming from it.
Startups will face a few problems but will always be on the fancy to be saved by the experts in the business. The experts can always lend a hand for registrations and filing letting the owner concentrate on thriving in the business better.