GST- A New Hope for startups
GST or Goods And Services Tax bill has been implemented from 1st of july, 2017. It took us more than 60 years to pass a bill which will make taxation system easier in our country.
What is GST?
Goods And Services Tax bill is expected to be a substantial indirect tax bill since our independence (1947). GST is launched with the motive of making the process of indirect taxing effective and simple. From now onwards you as a tax payer will only pay a consolidated tax instead of a list of taxes including VAT, service tax, entry tax, central excise etc.
“The debate of various challenges faced by business in India due to complex tax system is going on for a very long time” said R Narayan, Founder and CEO of Power2sme. The difference between services and goods will be reduced slowly which will make tax system simple. GST will be applied on manufacture, sale and consumption of all various services and goods at the state and central levels. Various developed countries like USA and UK use such type of a tax bill to make the tax system error free. GST has embarked a journey to make understanding of the Indian tax system easy and straightforward. Analysts believe that proper implementation of GST will increase the index of ease of doing business and will bring more foreign investments in India.
When GST was first introduced in Lok Sabha, no one believed that GST can be a game changer. Most of the parties were against it. But after a period of time everyone started to understand the significance of GST and now all states (except Tamil Nadu) are in support of GST.
How GST will benefit startups in India?
Simplicity of doing business
Earlier anyone who wanted to start a new business needed a VAT registration from the sales tax department. Any business which operated in various states had to go through different procedures and pay huge sum of taxes according to each state. This caused a lot of frustration. Now with GST, the process of various procedures and payment of taxes for each state has been made simpler.
Tax exemptions to startups
Earlier any business who has a turnover of more than 10 lakhs has to get a VAT registration from the sales tax department and pay VAT. Now GST has increased this limit to 20 lakhs. This is a huge relief for startups having turnover less than 20 lakhs as they can now function without getting any registrations. Currently startups have to pay excise duty, service tax and VAT which combines to be 25%. GST will lower this to 18%.
No check points
According to a study done by TCIL, a truck in India covers an average distance of 250-300 kms a day and a truck in USA covers an average distance of 700-750 kms a day. This is because a truck in India has to go through a lot of checkpoints and pay huge amounts of entry fee. GST has now removed entry fees in all states which means no checkpoints and easy flow of goods and services in our country.
Ease of paying taxes
As of now, every startup in India has to understand and pay various taxes at different stages in its business. Much of their time is lost just to make a list of taxes to be paid. Such a long list of taxes can easily cause errors while calculation. GST has integrated all taxes into one consolidated tax which is easier to understand and calculate.
Increase in Liquidity
In the beginning, many businesses in India don’t get enough funding. This is because the government has their startup capital as a refund claim. Without proper funding businesses are not able to function effectively. GST will make sure that there is a proper refunding procedure online which will help getting businesses their refunds on time. Therefore it will increase the liquidity of businesses in India.
Right now GST is at it’s initial stage and there is a lot that GST has to cover but we can easily believe that GST will help increase support for startups and promote digital India.