The long wait is finally over and the Goods and Services Tax (GST) bill has been implemented after around 17 years. Needless to say, GST is one of the biggest tax reforms in India after independence. With uniformity in taxation, not only the complexities of the taxation system have been tackled, but there is also increased transparency in the industry.
GST has replaced multiple indirect taxes and put an end to the cascading effect. Start-ups and SMEs significantly contribute to India’s GDP and exports. If sources are to be believed, currently we have nearly 30 million SMEs in the country, contributing around 45% of the industrial output and 40% of India’s export. With GST being implemented, start-ups and SMEs can capitalize on many opportunities that come their way and expand, while helping the nation grow.
The Positive Impact Of GST On Start-Ups And Smes
Starting A Business Just Got Easier:
Earlier there were multiple turnover slabs for the VAT registration and any multi-state business had to comply with various inter-state rules and pay their respective taxes. Under the new taxation scheme, new entrepreneurs won’t have to seek multiple registrations, a single registration will give them the authority to carry out business in any state of the country. Since the rules and tax rate is uniform across the country, businesses can register under GST and carry out multi-state businesses with ease.
The entire GST process from registration to filing returns is digitized and simplified, making it easier for start-ups and SMEs to file their tax returns. And since there are no separate taxes such as VAT, Excise Duty, Service Tax, etc., start-ups won’t have to deploy specialists and experts for filing and paying taxes, making GST cost-effective.
Reduced Tax Burden:
The set threshold for registration has also been spiked from 5 lakhs to 20 lakhs (North East: 10 lakhs), this will encourage more start-ups, which will lead to more job opportunities. GST has also introduced a new scheme of lower taxes for small businesses that have a turnover of 20 to 50 lakhs, under the composition scheme. With this, the tax burden on emerging start-ups and SMEs has been relaxed.
No Distinction Between Goods And Services:
Under GST, all goods and services are treated as the same, which means, that start-ups and SMEs dealing in sales and services model of business will no longer have to distinguish and pay taxes separately. The computation of the tax liability will be made on the total amount. Moreover, GST will also reduce the cost of logistics by 20% for the companies who produce non-bulk goods, as per estimates by CRISIL.
The businesses which are registered under GST will now be allowed to avail credit on input expenses. Although the rules for input credit have become stringent, it is still beneficial for all the businesses. This would further reduce the prices of the products and services.
The Negative Impact Of GST On Start-Ups And SMEs:
Increased Tax Burden:
Previously, manufacturers with a turnover below Rs. 1.5Cr were exempted from paying taxes.However, under the new regime, this exemption threshold has been reduced to Rs. 20 lakhs. This means most of these manufacturers will now come under the scope of GST. As a result, this will lead to surcharge of prices for certain goods.
Businesses will now have to comply with rigid rules that are laid by the GST Council. Some of these rules include a minimum of 37 returns to be filed by every taxpayer annually, requirement of some funds in the form of electronic credit, and GST compliance rating.
All the purchase invoices will have to be reconciled with the supplier and by the 10th of every month, these invoices must be uploaded. Non-compliance could lead to adverse consequences.
GST Compliance Rating:
GST input credit and refund will be given to businesses basis their GST compliance rating. This will ensure that all taxpayers are duly complying with the GST laws. Taxpayers will be allowed input credit only if their suppliers have a credible GST compliance rating. Moreover, the timeline to claim input tax credit is short- before the due date of filing returns for September of the next FY (financial year) or the due date of filing annual returns, whichever is earlier.