Why Most Startups are Waiting with Bated Breath for GST

 GST and startups

‘Ease of starting a new business’ seems to the pet theme of the Indian government for quite some time now. While this year’s budget have provided a new lease of life to startups and small businesses, all eyes are now fixed on the monsoon session of the Parliament that will start from the 18th of this month.

Why – you ask?

This year’s monsoon session will in most likelihood pass a crucial bill that is of paramount important for startups and small businesses. The bill in talk is popularly known as GST or Goods and Services Tax. The GST bill has already been passed in the Lok Sabha, and remains to be cleared by the Rajya Sabha now.

Once passed by both the houses of the Parliament, it will need a constitutional amendment and then implemented. Thereby, it will renovate India’s indirect taxation system.  

What exactly is GST?

While there has been a lot of talk around and about Goods and Services Tax for the past couple of years. However, for the non-initiated GST can be defined as an all-inclusive indirect tax levy on manufacture, sale and consumption of goods and services. Necessarily, it will replace several layers of taxation that presently exists in the country.

GST would be payable on price actually paid or payable, commonly known as ‘Transaction Value’, which takes into account packing cost, commission, and all other expenses incurred for sales. 

Why GST will be Constructive for Startups?

According to a report from NASSCOM published in 2015, India ranks third globally in the number of startups – 4,200, and the figure is expected to breach the 10,000 mark by 2020. The same report also states that India received a funding of $5 billion last year.

As is evident from the aforementioned facts – in the times to come, startups have to focus more on strategies and increasing their business, as their significance in the Indian economy gets amplified.

Under prevalent systems, startups are needed to obtain a host of registrations under various indirect tax laws i.e., state-wise VAT registrations, service tax, excise and other state levies. With the implementation of GST, there would be a centralised registration cell to obtain registrations revolving indirect tax. Therefore, this will surely lessen the time spent by startups on tax compliance and as a result, they would be able to focus more of their attention on business concerns.

Apart from this, startups are apparently pumped up with Goods and Services Tax for the following reasons:-

  1. Commencing a Business will Become Easier: Under customary norms, startups require a VAT registration from the sales tax department. Moreover, a startup that is present in multiple states has to put up a fight with diverse procedures and fees for every state. With GST, all these will be a matter of the past as it will bring standardization in processes and centralised registration. Thus, initiating and developing startups in multiple states will be a lot easier.
  1. Bye-Bye Complex Taxation: The Goods and Services Tax will lead to simplification of combining all taxes, and make the entire process of taxpaying hassle free. Contrarily, startups now have to invest considerable amounts of time and energy to manage taxes. Furthermore, different states make it a hugely cumbersome job for new businesses to file for taxes.
  1. Higher Tax Exemptions: GST will raise the ‘no-tax’ income limit to Rs. 10 lakh, which presently stands at Rs. 5 lakh. Currently, startups have to pay VAT if the turnover exceeds Rs. 5 lakh. Also, once GST is implemented, businesses with turnover between Rs 10-50 lakh will be taxed at a lower rates. This means startups will get a substantial breather from tax burdens.

While the entire impact of GST can only be gauged once it is implemented, but for now the monsoon session is what most startups and small businesses are looking forward to get a clear picture of the bill.

Also Read: Why Brexit might be Detrimental for Indian Businesses and Startups