Finally the motto of ‘one country, one tax’ has become reality. The Friday midnight (June 30, 2017) was the revolutionary night for the Indian economy as Goods and Services Tax (GST) came into force at midnight, amid a historic midnight session in the Central Hall of Parliament. President Pranab Mukherjee, Prime Minister Narendra Modi, and Finance Minister Arun Jaitley addressed the gathering, before the President and the Prime Minister pressed a button to mark the launch of GST.
GST, on one hand, has created an ease of business for companies by bringing all state and central level levies and taxes under one roof on the other it has increased the compliance.
“GST will be a relief for Indian businesses given that we will be done with multiplicity of taxes, tax cascading, ambiguity in applicability of certain tax provisions pertaining to the industry along with introduction of robust technology framework to support automated time bound processes for tax collection, ITC utilisation, refund mechanism and dispute resolution. GST rules on exports may cause hardship for exporters, such as receipt of payment in convertible foreign exchange for classification under export, taxability of transactions between Indian head office and foreign branch office, and taxability of SEZ units with refund mechanism. Hopefully, over time, GST Council along with other concerned bodies will resolve the concerns of different stakeholders and offer a tax-friendly environment needed for continuous development of Indian economy,” says Nishank Goyal, CEO, Masters India.
Looking at the current structure and reporting requirements under GST, it would require e-commerce aggregators to hand hold their sellers and educate them on the compliance requirements.
“We are expecting a reduction of rates due to the implication of Anti-Profiteering law on the rates of products which is speculated to go upwards. Also, the tax on discounting will bring all the e-com players on the same ground where the companies will not be able to influence the customer by undue discounting of products. GST has definitely increased the compliance burden on the seller as well the e-com operator as the number of transactions are huge and tracking the minute details of each and every transaction within 10 days of month end will be a challenging task for the smaller player like us. Overall GST is definitely creating huge opportunity and is a boon to the industry but with unknown quantum collateral damage,” says Harsh Shah, Co-founder, Fynd.
We at IndianWeb2 have jotted down few benefits and drawbacks of GST for startups.
So, here are the must know benefits for startups of GST:
Before GST come in force, one has to calculate different taxes which would make the process complex and burdensome. But with effect of GST, where all indirect taxes are subsumed into one single tax making tax calculations simple with less paperwork. And this will largely benefit the startups catering the software industry. Previously, VAT, service tax and excise, all the 3 or at least first two are applied on software products or service which will now reduce to single tax.
Earlier startups have to register again and again for different taxes or different states. But now with GST coming into effect, startups have to register only once on GST network and they can do business in any part of India without any hassle, making India a common market for startups and leading a way for expansion of their businesses.
The growing businesses which are at nascent stage that is with an annual turnover of less than Rs 20 lakh are out of the tax net under the GST regime. Previously, threshold limit of service tax was 10 lakhs while the threshold limit of VAT varies from 5 lakhs to 20 lakhs in different states. But now, with increase in the threshold limit under the GST regime has bring a relif to budding startups. Startups are now eligible for higher threshold limit of 20 lakhs (10 lakhs in case of North East states). Not only this, startups whose annual turnover is less than 50 lakhs can opt for composition levy at a lower rate.
GST will prove to be a much needed boon to e-commerce websites. As per the CRISIL report, GST will reduce logistics cost by 20% helping in reducing the cost of e-commerce startups. Reduction in logistics cost will also lead to more business for logistics companies.
Hassle free movement of goods in a common market will help startups in delivering goods early to customers since state border checks used to delay the movement of goods from one state to
another. This will also bring down the inventory and storage cost of startups.
With GST coming into effect, the overall compliance cost will be reduced as now there is only one tax and provisions related to act to comply with. GST network will also ensure transparency in calculation of taxes and input tax credit.
These are the few benefits startups will have due to GST coming into effect. But with every new policy coming into effect, there are few challenges and drawbacks associated with it.
So here are 5 must know drawbacks of GST for startups:
India has opted for dual model of GST due to which we have C-GST and S-GST for intrastate transactions and I-GST for interstate transactions. Many critics argue that these three are nothing but the new names for Central excise/service tax, VAT and CST.
In proposed GST, the input credit of C-GST cannot be set off against S-GST and vice versa. While in present system set off of excise duty and service tax is allowed.
The main drawback of GST is for servicing startups. That is startups who provides services only have to pay service tax at the rate of 18%, an increase of 3% in tax rate for such startups. This is one major disadvantage of GST for the startups since majority of Indian startups are engaged in services sector. With introduction of GST, they have to increase prices to compensate such increase in tax since they can’t afford to absorb more losses.
GST will not be the only indirect tax that a startup has to pay. Apart from GST, Startups will have to pay custom duty on imports since custom duty is kept out of preview of GST. Further electricity, real estate etc. have been excluded from GST which may lead to a mangled Indian version of GST.
According to GST guidelines e-commerce startups have to file quarterly has well as monthly returns on GST network. Further they will also have to collect taxes from sales made on their portal .This will lead to increase in documentation cost for such startups.
GST, on one hand, has created an ease of business for companies by bringing all state and central level levies and taxes under one roof on the other it has increased the compliance.
“GST will be a relief for Indian businesses given that we will be done with multiplicity of taxes, tax cascading, ambiguity in applicability of certain tax provisions pertaining to the industry along with introduction of robust technology framework to support automated time bound processes for tax collection, ITC utilisation, refund mechanism and dispute resolution. GST rules on exports may cause hardship for exporters, such as receipt of payment in convertible foreign exchange for classification under export, taxability of transactions between Indian head office and foreign branch office, and taxability of SEZ units with refund mechanism. Hopefully, over time, GST Council along with other concerned bodies will resolve the concerns of different stakeholders and offer a tax-friendly environment needed for continuous development of Indian economy,” says Nishank Goyal, CEO, Masters India.
Looking at the current structure and reporting requirements under GST, it would require e-commerce aggregators to hand hold their sellers and educate them on the compliance requirements.
“We are expecting a reduction of rates due to the implication of Anti-Profiteering law on the rates of products which is speculated to go upwards. Also, the tax on discounting will bring all the e-com players on the same ground where the companies will not be able to influence the customer by undue discounting of products. GST has definitely increased the compliance burden on the seller as well the e-com operator as the number of transactions are huge and tracking the minute details of each and every transaction within 10 days of month end will be a challenging task for the smaller player like us. Overall GST is definitely creating huge opportunity and is a boon to the industry but with unknown quantum collateral damage,” says Harsh Shah, Co-founder, Fynd.
We at IndianWeb2 have jotted down few benefits and drawbacks of GST for startups.
So, here are the must know benefits for startups of GST:
1. One Country, One Tax
Before GST come in force, one has to calculate different taxes which would make the process complex and burdensome. But with effect of GST, where all indirect taxes are subsumed into one single tax making tax calculations simple with less paperwork. And this will largely benefit the startups catering the software industry. Previously, VAT, service tax and excise, all the 3 or at least first two are applied on software products or service which will now reduce to single tax.
2.Ease In Doing Business With Single Registration
Earlier startups have to register again and again for different taxes or different states. But now with GST coming into effect, startups have to register only once on GST network and they can do business in any part of India without any hassle, making India a common market for startups and leading a way for expansion of their businesses.
3. Startups Eligible For Higher Threshold Limit
The growing businesses which are at nascent stage that is with an annual turnover of less than Rs 20 lakh are out of the tax net under the GST regime. Previously, threshold limit of service tax was 10 lakhs while the threshold limit of VAT varies from 5 lakhs to 20 lakhs in different states. But now, with increase in the threshold limit under the GST regime has bring a relif to budding startups. Startups are now eligible for higher threshold limit of 20 lakhs (10 lakhs in case of North East states). Not only this, startups whose annual turnover is less than 50 lakhs can opt for composition levy at a lower rate.
4. Lower Logistic Cost
GST will prove to be a much needed boon to e-commerce websites. As per the CRISIL report, GST will reduce logistics cost by 20% helping in reducing the cost of e-commerce startups. Reduction in logistics cost will also lead to more business for logistics companies.
Hassle free movement of goods in a common market will help startups in delivering goods early to customers since state border checks used to delay the movement of goods from one state to
another. This will also bring down the inventory and storage cost of startups.
5. Reduced compliance cost
With GST coming into effect, the overall compliance cost will be reduced as now there is only one tax and provisions related to act to comply with. GST network will also ensure transparency in calculation of taxes and input tax credit.
These are the few benefits startups will have due to GST coming into effect. But with every new policy coming into effect, there are few challenges and drawbacks associated with it.
So here are 5 must know drawbacks of GST for startups:
1.Not a Single Rate Of Taxation
India has opted for dual model of GST due to which we have C-GST and S-GST for intrastate transactions and I-GST for interstate transactions. Many critics argue that these three are nothing but the new names for Central excise/service tax, VAT and CST.
2. Cross set off of levy is not allowed
In proposed GST, the input credit of C-GST cannot be set off against S-GST and vice versa. While in present system set off of excise duty and service tax is allowed.
3. Increase Tax Rate
The main drawback of GST is for servicing startups. That is startups who provides services only have to pay service tax at the rate of 18%, an increase of 3% in tax rate for such startups. This is one major disadvantage of GST for the startups since majority of Indian startups are engaged in services sector. With introduction of GST, they have to increase prices to compensate such increase in tax since they can’t afford to absorb more losses.
4. Exclusion of Other Taxes
GST will not be the only indirect tax that a startup has to pay. Apart from GST, Startups will have to pay custom duty on imports since custom duty is kept out of preview of GST. Further electricity, real estate etc. have been excluded from GST which may lead to a mangled Indian version of GST.
5. Filing Return On Regular Interval
According to GST guidelines e-commerce startups have to file quarterly has well as monthly returns on GST network. Further they will also have to collect taxes from sales made on their portal .This will lead to increase in documentation cost for such startups.
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