Goods and Services Tax (GST) finally came into effect on 1st July 2017 although the first proposal was made back in 1999. This new taxation regime brought several disadvantages and advantages of GST in India. Hence, taxpayers expressed both disapproval and approval.
GST (Goods and Services Tax) also had both positive and negative impacts on startups. One of the advantages of GST was that businesses with an annual turnover of up to Rs. 40 Lakh don’t have to pay tax at all. They also don’t have to register multiple times for each tax as GST amalgamated all 17 taxes.
GST also eliminated the cascading effect of the tax. For example, businesses had to pay VAT even after paying excise duty. Startups also don’t have to comply with VAT rules in particular states.
However, startups offering services have to pay a higher GST of 18% compared to an earlier service tax of 15%.
Businesses with an annual turnover of more than Rs. 1.5 Crore have to file taxes monthly. Thus, they incur more operating costs in hiring CAs and tax consultants.
Registered startups also have to pay taxes when purchasing from a supplier who is exempt from tax under the reverse charge mechanism. Also, they can also claim an input tax credit provided the supplier has GST within a particular period.
Lastly, startups earn a GST Compliance Score based on how well they adhere to the GST rules. A low score can hamper the future of their business.