GST Advantages for Startups and Small Businesses

The Lok Sabha passed the Goods and Services, Tax-GST Bill, on 6th May 2015. The advantages of GST are the ease of doing business and tax structure. The concept of GST mooted and evolved in India for over a decade now. With the GST Bill passing the Lok Sabha, it is now slated to be presented to the Rajya Sabha. Once cleared by the Rajya Sabha, the Bill would set in motion the rollout of GST in April 2016. The passing of the bill shall transform India's indirect taxation system. In this article, let us review some of the major advantages of GST. In addition, the article also covers the implementation of GST in India for startups and small businesses.

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GST Overview

Goods and Services Tax (GST ) acts as a value-added tax. It applies to all points in the supply chain with credit allowed for any tax paid on inputs for making the supply. Therefore, the end consumer shall bear the tax as the last person/entity in the supply chain. The expectation of introducing GST in India shall result in major simplification of the indirect tax structure. The tax structure applies to both Centre as well as State levels. Furthermore, it shall also replace multiple layers of complex taxation that currently exist in India.

GST will Improve Ease of Starting a Business in India

Any individual/entity establishing a new business in India shall apply for VAT registration. The individual/entity can apply from the State's Sales Tax department for VAT registration. But each State processes VAT with different procedures and fees. Hence, businesses may find it difficult to operate in multiple States. Further many might also have difficulties in obtaining and maintaining compliance with VAT regulations.

With the implementation of GST in India, the procedure for GST registration shall become centralised and also standardised. It shall remain similar to the service tax registration. Under the GST regime, the business would no longer have to obtain multiple VAT registration. As a single GST registration applies across India. Therefore, the procedure for obtaining GST registration would also become standardised. Thereby improving the ease of starting a new business in India without any difficulties.

Integration of Multiple Taxes in GST

Currently, the State Government implements the VAT for the goods and products availed. However, the services are taxed under the service tax regimen as implemented by the Central Government. As State Government implements the VAT each of the State has different VAT rates. Further, it also differs in VAT regulations and VAT procedures leading to complications. In addition to VAT and Service Tax, the businesses must comply with other various other tax regulations. Other taxes include Central Sales Tax (CST), Additional Customs Duty, Purchase Tax, Luxury Tax and others.

Under the GST regime, many of the taxes in existence today shall become subsumed and made into one tax. The following taxes are proposed to be subsumed under GST:

Integration of taxes under GST

Central Taxes subsumed under GST

Central Excise Duty (including additional excise duties)
Service tax
Additional customs duty (CVD)
Special Additional Duty of Customs (SAD)
Central surcharges and cesses

State Government Taxes subsumed under GST

Value Added Tax
Central Sales Tax
Octroi and Entry Tax
Purchase Tax
Luxury Tax
Taxes on lottery, betting & gambling
State cesses and surcharges
Entertainment tax

GST Exemption for Startups and Small Businesses

Currently, VAT registration and VAT payment remain mandatory for all the business operating within and between states. It also applies when the annual turnover crosses Rs.5 lakh in some States and Rs.10 lakh in other States. The multiple VAT legislation enacted by each State created confusion and complexities. Hence GST focuses on reducing complexities. Thus, after GST enrollment, businesses shall not apply for GST if the turnover results in less than Rs.10 lakh p.a. These business entities shall not collect GST either.

Further, businesses with an annual sales turnover of Rs.10 lakhs to Rs.50 lakhs may have to pay GST only at a lower rate. Therefore, after GST, thousands of startups and small businesses currently having an annual sales turnover from Rs.5 lakh to Rs.10 lakh would be out of the tax net providing relief to them from collection and filing of GST returns.

GST will Improve Ease of Doing Business in India

Currently, businesses like restaurants or computer sales and service - which sell goods and provide services as a package have to comply with both VAT and Service Tax regulations. This creates complexity for the business and they have to calculate taxes for the transaction based on different rates for different items. With the introduction of GST, the distinction between Goods and Services will be gone - thereby making compliance easier. Further, invoicing will be easier for businesses as only one rate would be adopted.

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Frequently Asked Questions

Common questions about GST Advantages for Startups and Small Businesses in India.

GST (Goods and Services Tax) is a value-added tax that will subsume multiple indirect taxes like VAT, service tax, and others into a single tax. For startups and small businesses, GST will simplify the tax structure, reduce complexities in compliance, and improve the ease of doing business. Businesses with an annual turnover below Rs. 10 lakhs will be exempt from GST, providing relief to many small enterprises.

Under GST, the registration process will be centralized and standardized across India, similar to service tax registration. Businesses will no longer need to obtain multiple VAT registrations for different states, as a single GST registration will be valid nationwide. This will significantly simplify the registration process and improve the ease of starting a new business.

Several central and state taxes will be subsumed under GST, including Central Excise Duty, Service Tax, Additional Customs Duty, Value Added Tax (VAT), Central Sales Tax, Octroi, and Entry Tax, among others. This will streamline the tax structure and reduce compliance complexities for businesses.

Currently, businesses that sell goods and services as a package, like restaurants or computer sales and service, need to comply with both VAT and Service Tax regulations. Under GST, the distinction between goods and services will be eliminated, and a single tax rate will apply, making compliance and invoicing much easier.

While the exact GST rates are yet to be finalized, the article mentions that businesses with an annual sales turnover between Rs. 10 lakhs to Rs. 50 lakhs may have to pay GST at a lower rate, providing relief to small businesses.

GST will improve the ease of doing business in India by simplifying the tax structure, reducing compliance complexities, and eliminating the need for multiple registrations and tax calculations. This will make it easier for businesses to operate across different states and streamline their operations.

According to the article, once the GST Bill is passed by both the Lok Sabha and Rajya Sabha, it will set in motion the rollout of GST in April 2016.

Businesses that currently need to comply with both VAT and Service Tax regulations, like restaurants or computer sales and service, will benefit from GST as it eliminates the distinction between goods and services. They will only need to calculate and pay a single tax rate, simplifying their compliance process.

Currently, VAT registration and payment are mandatory for businesses operating within and between states when their annual turnover crosses Rs. 5 lakhs in some states and Rs. 10 lakhs in others, depending on the state's VAT regulations.

Under the current system, businesses need to obtain separate VAT registrations and comply with different VAT regulations in each state they operate in. With GST, businesses will only need a single registration valid across India, eliminating the need for multiple registrations and simplifying compliance for interstate operations.