On 1st July 2017, India marched into a completely new tax regime, better known as “one nation, one tax”, by adopting a new system of revenue collection called the Goods and Services Tax or GST. This single platform inculcates within itself, a plethora of taxes earlier levied by the center and the states. The taxpayers are now required to pay only one combined tax under this new scheme.
Well, now the focus has greatly shifted to the tax on consumption from the earlier tax being charged on production.
As per the notification issued on April 17, 2015, an entity will be considered a start-up only till up to five years from its date of incorporation and having its turnover not exceed 25 crores of rupees in the last five financial years.
Start-ups are supposed to work towards the development, innovation, and commercialization of new products and services which are fuelled by intellectual property, and technology.
Now, first of all, let’s have a look at How GST works
So, basically, GST is imposed at the point of consumption or sale of goods and not during its manufacturing. The buyer has to pay only those charges in the form of tax, levied by the last mediator in the supply chain. As it enables comparatively cheaper goods to reach customers, it leads to a surge in the profits and the purchasing power of the whole Indian economy.
This article analyses the overall crux of the GST regime and its Positive and Negative impacts on the Start-ups
Positive Impacts of GST on Startups in India
It makes it easier to establish Start-ups
Earlier, a new start-up had to go through a lot of cumbersome procedures before starting with its business. It had to get itself registered with various tax authorities, maintain many documents and file different tax returns to different authorities.
With the implementation of GST, Start-up proprietors can focus on the simplicity of working together. Presently just single enrolment should be finished with less administrative work hence making a bulky procedure a lot more straightforward.
As opposed to concentrating and sitting around idly on the consistency of confounded expense laws, organizations can utilize this vital time for beneficial purposes so as to improve their business.
According to the past VAT structure, any business with a turnover of more than INR 5 lakh needed to get a VAT enrolment and pay VAT which is different from state to state.
Under the GST system, this edge has been expanded to INR 20 Lakhs, thereby excluding SMEs and new businesses from VAT enrolment.
The boom in the logistics efficiency
- The logistics businesses in India needed to keep up different distribution centers across states to stay away from the present CST and state entry charges on interstate travel. There have been situations where stockrooms need to work below their ability, in this manner increasing the working expenses.
- GST will bring India together to do away with inter-state restrictions on the movement of goods and products. This will lead to the consolidation of the warehouse all over the nation. As a result of GST, distribution center administrators and e-commerce enthusiasts have displayed a keen interest in setting up their stockrooms in vital areas like Nagpur, Jamshedpur, etc.
- The decrease in pointless logistics costs will cause an expansion in the profits for new businesses associated with the supply of merchandise through transportation.
Wipes out the chances of double taxation
Earlier, the duty was levied on a product that had already undergone taxation and it, therefore, led to the imposition of tax twice. Subsequently, purchasers needed to follow through on a cost substantially more than what ought to be valued. GST imposes a duty on the merchandise finally produced and no increase in value occurs at each stage, subsequently wiping out the double taxation regime.
Invoicing become simpler as the tax is levied consistently and there will be no differentiation among products and venture thus, it lessens the tax avoidance and benefits from different tax incentives and services.
Apart from this, the various other positive impacts on the start-ups would be the increase in the business outcome and its expansion, removal of the burden of paying multiple taxes and a lot more such benefits will be presented to them via this taxation scheme.
Negative Impacts of GST on Startups in India
The tax burden on the production houses
Earlier, production organizations with INR 1.5 crore turnover were paying the excise duties. The GST has lowered the benchmark to INR 20 Lakhs and in this manner, it has assembled all-new, small manufacturing companies under this domain. This will lead to an increase in the taxation rate on the manufacturing start-ups.
GST will lead to a Stringent Input Tax Credit Process
On the off chance that a provider has not recorded and settled his assessments, at that point he would not be qualified for Input Tax Credit. This will negatively affect new businesses supposing that one connection in the supply network breaks, it will cause serious harm to the business.
Blocked Working Capital
With the presentation of another budgetary system, new businesses need to maintain their assets in electronic structure with the tax department. This obstructs a significant piece of organization’s supports prompting blockage of capital. Additionally, the input tax credit framework will lead to stifled capital. Along these lines’ organizations need to put aside a segment of their working capital under GST (on which they can’t gain any interest).
Estimating the compliance parameter
A numerical figure (GST Compliance Rating) will guide the imminent purchaser to settle on the credibility with the administration much like the individual financial assessment scores nowadays.
Organizations will do everything to get and keep a decent score, seeing the stringent online smaller scale rules about entering the information as well as about installments. A good credit score will come at the expense of some significant pitfalls of explicitly conveyed transmission capacity and assets.
Overall, I would like to conclude by stating that the starting phase of GST will differ according to the varying taxation slabs. In any case, GST will go about as an impetus to give a boost to the Indian start-ups consequently reinforcing them to thrive as the GST paves its way to the Indian market slowly and steadily.
InstaSpaces which is one of the leading virtual office spaces in India that provides cost-effective GST registration services. Making GST registration as a Flipkart seller and Amazon sellers can help you get proof of place of business for GST registration in that particular state, rather than getting any physical office space.
Hope this information is enough to be delivered. If you’ve got any query, visit the web site (InstaSpaces) and connect with our skilled support team for the detailed view.