The Goods and Services Tax (GST) will replace all types of indirect taxes providing relief to the taxpayers. The new tax regime is expected to boost the Indian economy and simplify the tax procedure. The GST will be levied on sales, production, and consumption of goods and services at the state and central government levels.
Here are four effects of the new tax regime on startups.
1. Immunity for new ventures
Ventures with a turnover of INR 5 lakh and more are required to register for VAT and pay the same. However, GST increases this limit to INR 20 lakh (10 lakh for northeastern states) and higher. Furthermore, companies with turnover between INR 20 lakh and INR 50 lakh will be able to opt for the composite scheme. In addition, GST will make it easier for entrepreneurs to start their ventures. Under the pre-GST regime, companies required VAT registration from the sales tax department along with several processes and fee payments in every state. GST now provides a uniform procedure enabling centralized registration providing an encouraging environment for entrepreneurs. This may also see an increase in the demand for business loans as entrepreneurs take advantage of the positive post-GST environment.
2. Relief for services sectors
Some service sector businesses like restaurants are categorized as sales and service providers. As a result, they must adhere to two tax regimes which are food and service. Such businesses are required to calculate service tax and VAT separately, which makes the entire procedure cumbersome and complex. GST offers relief to ventures in the sales and services sector by combining the two categories wherein the taxes are calculated on the total amount.
3. Logistics and transportation cost reduction
Interstate movement of goods will become easier in the post-GST. Border checks will reduce and this will significantly cut down the transportation time. This will also benefit companies as it will reduce their transportation and logistics expenses. Businesses will be able to free up working capital by decreasing inventories. In addition, the need for commercial loans may witness an increase as companies gear up for new opportunities that become available after GST implementation.
4. Simple revenue systems
Entrepreneurs spend lots of time and energy in managing and complying with multiple tax requirements and regulations. They need to understand and adhere to a large number of regulatory requirements in different states, which makes the entire process of starting a new venture very complicated. GST will not only override all the various taxes but also simplify the entire regulatory procedure.
There may be certain issues that arise with the implementation of GST, such as an increase in the cost of a business loan. However, in the long-term GST will benefit startups by providing a positive environment for new ventures.