The Goods and Service Tax (GST) came into effect on June 30, 2017 amidst numerous controversies. While on one hand, economists said that GST would bring nothing else than inflation, others claimed that it will make the economy healthier than ever.
There are various advantages and disadvantages of GST in India. Its effect has been felt across all sectors of India, from services to manufacturing.
One of the primary benefits of GST is the aggregation of all taxes into one. Second, it has made numerous products and services cheaper.
Similarly, it has also brought several disadvantages. For example, the service tax that was `viously 15% now became 18%.
Not only goods and services but GST has also had its effects on new businesses, more specifically, startups. On one hand, startups enjoy several benefits while on the other they are also subject to various drawbacks of this tax regime.
The following includes some pros and cons of GST on startups:
- Higher Tax Exemption Limit
Startups with an annual turnover of Rs. 40 Lakh or less are exempt from tax. The previous limit was Rs. 20 Lakh.
The exemption limit is Rs. 20 Lakh for businesses in Himachal Pradesh and North East states. This threshold was Rs. 10 Lakh for startups for those regions.
Further, businesses with turnover lower than Rs. 1 Crore can opt for the GST Composition Scheme. The GST rate in India for goods manufacturers and traders is 0.5% CGST and 0.5% SGST. Also, restaurants not serving alcohol only have to pay 2.5% CGST and 2.5% SGST.
- Simplification in Tax Filing
Startups had to go through considerable hassle when filing tax. Calculation of VAT, excise duty, service tax, and other involved numerous complexities.
Another benefit of GST is the streamlining of the above process as GST has amalgamated all of these taxes into one.
- Abolition of Entry Tax
Entry tax is a tax levied on goods moving from one state to another. The rate varied from state to state. The implementation of GST has eliminated the entry tax.
Hence, startups can enjoy more freedom and lower logistics costs when exporting their products to another state.
- Only One Registration
One of the GST benefits that startups get to enjoy is the need for only one registration. Previously, businesses had to register separately for each tax like excise duty, service tax, etc. Also previously, they had to register for VAT with every state they enter.
Now, the process is simplistic. Startups only have to make one registration for GST. They also don’t have to register multiple times for expanding their business to a new state.
- Payment of Additional Taxes
Startups will still have to pay other taxes even though the GST has amalgamated the majority of them. For example, businesses have to pay customs duty when importing goods.
- Mandatory Quarterly/Monthly Filing
Firms with a turnover of up to Rs. 5 Crore are considered as small taxpayers under new reforms of the GST.
One of the disadvantages of GST in India is that small taxpayers will have to pay taxes every month and have to file the returns every quarter.
- Restrictions in Composition Scheme
The GST Composition Scheme restricts startups to avail benefits of input tax credits. Hence, the restrictions coming with this scheme almost nullifies the gst tax rate in India that it brings.
However, the implementation of GST has not affected the finance market. Startups can still avail loans from NBFCs without any hassle.
The several advantages and disadvantages of GST in India have not affected businesses but also the general public. New reforms are still being introduced to make this taxation system favourable for both.