How GST will help Startups

We have been surrounded with a buzz on GST and its impact on various industries. Most of the discussions are happening around how GST will turn around the way India does business, how various industries are going to benefit from the shift in tax regime and how this will optimize the GDP of India.

Analysts are of the opinion that if GST is implemented correctly, India will gain a higher position in the ease of doing business index maintained by the World Bank and will boost foreign investments in India and into the startup ecosystem.

Large enterprises are preparing to accommodate their systems with GST. The government is also moving forward swiftly to meet its April 2017 deadline. And this is high time for startups and small businesses to prepare for the road ahead. Here are some of the business benefits of GST for startups. These are indeed reasons to cheer among the startups community:

  • Increase in turnover limits for registration: Under the current tax laws, any business dealing in goods with turnover exceeding Rs 10 lakh is required to get registered with state tax authorities and obtain a tax identification number. Similarly, a service provider is required to obtain a registration as soon as his turnover exceeds Rs. 9 lakh. However, under the GST regime, this limit has been increased to Rs. 20 lakh. Thus startups that are at a nascent stage with turnover below Rs 20 lakh need not worry of compliance and can continue operations without registration.
  • “Do it yourself” compliance model: One of the major benefit of the GST regime is the transparent taxation system. Most of the compliance procedures will be done through online mode only. These include taxpayer registration, return submission, tax payment and refund claims. Many of the startups lack resources to hire experts or deploy a dedicated resource to look after all of this compliance. However, under the GST law, all these compliance have been streamlined and made simple for the benefit of taxpayers. Thus, an entrepreneur can adhere to these compliance by himself under a “Do it Yourself’ model.
  • Free flow of goods & services across the country: Another benefit area for startups will be the free flow of goods across the country without any check-post or entry tax. According to research done by TCIL, a truck in India typically covers between 250-400 kms a day, compared to 700-800 kms in US and Europe. This is mainly due to the check posts and entry tax collection points on state borders. However, once GST sees the light of the day, India will become one single market, free from state entry levies wherein goods and services can flow freely. GST is expected to improve the efficiency of logistics in India and will directly contribute to the profitability of e-commerce and other nascent startups involved in supply of goods through transportation. Quick and timely delivery of goods ordered through online portals will further attract more consumers to explore the online marketplaces.
  • High liquidity: Liquidity is one of the major challenges that startups face today. Most of these startups are bootstrapped and do not receive funding during the initial phase. In such a scenario, many times under the current tax regime, their working capital gets stuck with tax authorities as a refund claim. However, under the GST law, all of these refunds will be processed online and thus timely refund can be expected. Hence, it’ll boost the liquidity of small and medium businesses and startups.

Although we are at a very initial stage and various rules and procedures are yet to be finalized, we can safely believe that GST will also be supporting other initiatives of the government that include Digital India and Startup India. Thus, startups will have more opportunities to exploit and they can also accommodate the change in business model required under GST, being more flexible in carrying out their operations.

This article was published in INC42 on 8 November 2016.

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