What is GST?
The Goods and Services Tax, (GST) known as the biggest indirect tax reform in the country since Independence was passed in the Parliament on August 3, 2016. The bill aims to consolidate a plethora of taxes that covers State Value Added Tax (VAT), Service Tax, Additional Customs Duty, Central Excise Duty and a few others at the Central as well as State level. GST will cover almost all goods and services traded with a few exemptions. It is divided internally into State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST) and Interstate Goods and Services Tax (IGST). The tax rates will be decided by a certain GST Council that will be headed by the current Finance Minister.
GST will help Startups and Micro Small and Medium Enterprises in the following ways:
1. Easy to start: A new business requires to have a VAT Registration from the authorized Sales Tax Department. This registration is a mammoth task as there are different procedures in each state. GST will bring about a relief for these startups as now there will be uniformity in the whole process with centralized GST registration. This system will breakdown the cumbersome process which will give a boost to small enterprises.
2. Higher exemptions: If any business has an annual turnover of more than Rs. 5 lakhs, after getting itself registered under VAT, it has to pay VAT too. For a new business, it is difficult to earn profit, clear the loans and maintain the flow of its business and the added tax burden suppresses them. With the introduction of GST, the limit will be raised to turnover between Rs 10-50 lakhs. It will prove to be a huge respite to newly established businesses.
3. Simple taxation: The current scenario requires a startup to spend a lot of time behind managing the taxes at various levels. When they plan to expand to different states, it is a huge task to adhere to the respective state regulations separately. The complexity will be gone once the GST comes into action. GST will integrate all the taxes that these businesses have to pay and make the whole process much simpler.
4. Respite for businesses in both sales and services tax: For small scale restaurants which fall under the category of both sales and service taxation have to calculate both separately according to the respective tax rates. It unnecessarily increases the workload on the managers. With GST in action, there will be no difference in sales and service and thus the calculations will be done in totality. However, the businesses might need to file three GST return, which seem to be a small negative.
5. Reduction in logistics cost and time across States: Delay in delivery across states takes place due to small border tax and checkpost issues. GST will subsume these small taxes and interstate transportation will now be much easier. This will also result in the overall reduction in transportation costs. Logistically, the cost of businesses producing non-bulk goods ( this includes everything except primary bulk commodities comprising of coal, iron, food grains, fertilizers, cement, iron ore transported by railways) will be cut down by as much as 20 percent.
Clearly, the GST will help startups and micro small and medium enterprises to a great extent. After going through the article, no wonder why the startups are welcoming the GST will open arms!
The Goods and Services Tax, (GST) known as the biggest indirect tax reform in the country since Independence was passed in the Parliament on August 3, 2016. The bill aims to consolidate a plethora of taxes that covers State Value Added Tax (VAT), Service Tax, Additional Customs Duty, Central Excise Duty and a few others at the Central as well as State level. GST will cover almost all goods and services traded with a few exemptions. It is divided internally into State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST) and Interstate Goods and Services Tax (IGST). The tax rates will be decided by a certain GST Council that will be headed by the current Finance Minister.
GST will help Startups and Micro Small and Medium Enterprises in the following ways:
1. Easy to start: A new business requires to have a VAT Registration from the authorized Sales Tax Department. This registration is a mammoth task as there are different procedures in each state. GST will bring about a relief for these startups as now there will be uniformity in the whole process with centralized GST registration. This system will breakdown the cumbersome process which will give a boost to small enterprises.
2. Higher exemptions: If any business has an annual turnover of more than Rs. 5 lakhs, after getting itself registered under VAT, it has to pay VAT too. For a new business, it is difficult to earn profit, clear the loans and maintain the flow of its business and the added tax burden suppresses them. With the introduction of GST, the limit will be raised to turnover between Rs 10-50 lakhs. It will prove to be a huge respite to newly established businesses.
3. Simple taxation: The current scenario requires a startup to spend a lot of time behind managing the taxes at various levels. When they plan to expand to different states, it is a huge task to adhere to the respective state regulations separately. The complexity will be gone once the GST comes into action. GST will integrate all the taxes that these businesses have to pay and make the whole process much simpler.
4. Respite for businesses in both sales and services tax: For small scale restaurants which fall under the category of both sales and service taxation have to calculate both separately according to the respective tax rates. It unnecessarily increases the workload on the managers. With GST in action, there will be no difference in sales and service and thus the calculations will be done in totality. However, the businesses might need to file three GST return, which seem to be a small negative.
5. Reduction in logistics cost and time across States: Delay in delivery across states takes place due to small border tax and checkpost issues. GST will subsume these small taxes and interstate transportation will now be much easier. This will also result in the overall reduction in transportation costs. Logistically, the cost of businesses producing non-bulk goods ( this includes everything except primary bulk commodities comprising of coal, iron, food grains, fertilizers, cement, iron ore transported by railways) will be cut down by as much as 20 percent.
Clearly, the GST will help startups and micro small and medium enterprises to a great extent. After going through the article, no wonder why the startups are welcoming the GST will open arms!
This article has been contributed by Himanshu Jain, CEO, LegalRaasta, an online portal for GST Software , GST Return Filing , GST Registration , Section 8 Company Registration , Nidhi Company Registration , IEC Registration , FSSAI License, Income Tax Return Filing.
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