Goods and Service Tax or GST is an indirect tax levied on every resource manufactured in India. It is introduced in the legislation on 1st July 2017. Officially named as One Hundred and First Amendment) Act, 2016. Hence, addressed as Goods and Service Tax in India. Thus substituting all Indirect taxes levied on goods and services by the Indian Central and state governments through GST registration.
The role of Goods and Service Tax is pivotal in the Indian constitution not only for startups but also for every other established organisation. According to Startup Blink India ranks in the 23rd position in the startup ecosystem.
Nonetheless, we have companies like OYO, One97 Communications, Swiggy and Meesho are startups that are estimated at more than $1 billion. Around 39,114 startups were operated in India in the previous year as uncovered by the Startup India portal. The number is only expected to grow, potentially crossing the 10,000 mark by 2020.
Benefits of having GST Registration in Startups
Any tax regime, we all know, is unfavourable to startups. Let us analyse the benefits and drawbacks of GST registration online to assess the net profit.
- Developed Logistics System- When it comes to transporting commodities, GST has effectively eliminated state boundaries. The arrival of the e-way bill on 1 February is intended to serve as a mechanism for an ever more seamless flow of goods between states. The e-way bill will mostly help startups dealing with perishable goods as well as e-commerce marketplaces by ensuring timely delivery and prompt returns of goods. Likewise, efficiencies in the transportation of products would unlock doors for entrepreneurs to enters the logistics room, ushering in technological advances for the sectors.
- Taxation has been Standardized–GST eliminated various indirect tax levies across states, removing the need for startups to deal with confusing VAT statutes in- jurisdiction, as was the case before GST. This lowers the cost of tax collection while still optimising capital. Similarly, solely filing returns and paying GST electronically background research for startups.
- Easier to attain Compliance–Startups venture make profits from the composition scheme as well. This scheme is open to any business with annual revenue of less than Rs.1.5 crore. Instead of submitting regular monthly returns, they pay an annual fee of tax on their annual turnover– either 1 or 5%, based on the scale of the business they are running. This scheme enables startups and small companies to concentrate on maintaining and developing activities rather than following the time-consuming method of tax enforcement.
- Composition Tax Includes Limitations–On the other hand, any company that participates in the composition system is not eligible for input tax credit(ITC)or to allow an interstate supply of products. This severely limits the opportunities that GST provides to a new business that uses the composition scheme. They still cannot sell goods via e-marketplaces because GST requires e-commerce to collect tax deducted at the point of sale(TDS). Although the composition system significantly eliminates the regulatory pressure for startups, it also serves as a barrier to growth in certain ways.
- Clear-Cut Ratings—GST introduced a compliance score rankings mechanism, which allows potential customers to assess a company’s credibility based on its compliance performance. As a result, companies are compelled to do everything possible to obtain a ‘strong’ grade. In addition, tax authorities use enforcement ratings to assess the place at which refunds are issued. Even startups with small capital have a strong desire to get tax enforcement right or risk having their image harmed and receiving missed refunds.
- Inclusion of Funds–The long-term essence of financial inclusion resolves around the vast repository of data provided by GST. Such data may be useful in two aspects–[i] Forthcoming startups will have access to data that specifies if their tax conformity is adequate and their compliance ranking is high, ensuring transparent, credible and valid data entice buyers. [ii]. Additionally, before engaging with young and ambitious startups, FinTech organisations and ventures investors would have access to details regarding their activities.
Mistakes while filing for GST Online
Any kind of inaccuracies while filing GST registration online would create havoc on your business. Let’s further look at the common mistakes done while filing GST online.
- Incorrect GSTN or invoice amount
- Forget to file GST returns
- Input Tax Credit was incorrectly calculated.
- Wrong Understanding of LUT
- Interstate supply has been converted into intrastate supply.
GST registration is a game-changing initiative taken by the Central Government that would affect not just startups but also large companies. The introduction of GST registration online means that startups have a simpler experience with tax enforcement than they did under the previous system, as well as additional advantages such as faster movement of trade head to the economic growth of the country. Each of these cited advantages opens up limited budgets for maintenance and service delivery.
Online GST along with other government initiatives, would bring in a fresh generation of domestic startups, further positioning them for growth. Overall, GST registration, despite its unique obstacles, is a hugely exciting leap for India’s startup scene.