How Did GST Impact Startups?

The GST regime has kicked in, since 1st July 2017. It has already been more than 2 years. This unified and non-complicated tax system has indeed united the nation. GST also known as Goods and Services Tax has given a rebirth to the Indian taxation system. If you want to know about the new tax structure in detail, read on. 

How Did GST Impact Startups?

GSTIN – What is it?

You all must be knowing about the TIN or Tax Identification Number. It is a part of the old taxation system. GSTIN is very much the same, but in a new look. It is a 15-digit number. Businesses registering under GST are provided with the number. You will get the number, once you register for GST. There are basically two ways, by which you can register for GST:

  • GST Online Portal
  • GST Seva Kendra 

Now, let us find out the format of the number. 

  • The first two digits of the number is the state code. 
  • The next ten digits is the PAN of the proprietor or business. 
  • The 13th digit is calculated, based on the number of registrations done by the business inside the state.
  • The 14th digit is ‘Z’ by default. 
  • The last digit is the check code. This can be a number or an alphabet. 

The number can also be verified on the GST portal. 

Now, you must be having this query. Are both of the above similar? No, it is not. GSTIN is a tax registration number. GST is the name of the new tax regime. So you got the difference, right? Now, the government has made the enrolment process easier. 

The Process

  • Initially, the commercial tax department issues a provisional ID and a password. 
  • You have to visit the link www.gst.gov.in/ and create a unique username and password, with the help of the provisional ID. 
  • The next step takes you a form, where you need to fill out all the details. 
  • Once you have completed the form you need to digitally sign the enrolment form. You have to submit certain necessary documents to facilitate the process. 
  • Your application goes through a verification process and upon successful verification, you will get an ARN and the ID status reads “migrated”.

The above process is very simple and can be done without much hassle. 

How Did GST Impact Startups?

The Startup Culture

The term is quite heavily used nowadays. It is one of the most searched words on the internet. Let us find out more about this new term or culture, whatever you choose to call it. A startup is nothing, but a small company founded by a few founders and has a low capital investment. These small business ventures bring forth a product or service which is new or unorganized. In the initial years, it may or may not generate a profit. 

Impact of GST on Startups 

  • These small businesses have a lot to celebrate. The threshold level comes as a welcome measure from the government to nurture these startups. 
  • There are various schemes of a lower rate of tax for such businesses. 
  • Startups enjoy tax credit on their purchases. Startups that are into service get this facility. 
  • The filing and returns process is also quite simple for startups. Since everything is online, it is a hassle-free experience. No paperwork means less manpower requirement. 
  • The composition scheme has been introduced lately. It minimizes the need for monthly filing and returns. Businesses registered under the composition scheme have to file returns quarterly. 
  • It is a really important point to note here. Those startups providing online services need to register for GST without fail. 
  • GST has brought about increased efficiency in the logistics sector. It has brought about warehouse consolidation across the entire country. Earlier, companies had to open multiple warehouses across the country to avoid CST and state entry taxes. However, with the onset of the new tax regime, businesses are seeing an increase in profits owing to the elimination of excess logistics costs. 

Manufacturing Startups

The startups in the manufacturing sector stand to lose under the new regime. The tax burden has substantially increased for many manufacturing startups, owing to the turnover limit. 

Another disadvantage of the new tax regime is the reverse charge mechanism. Here, the receiver is liable to pay the tax. If the said vendor does not have a GST registration, then the reverse charge mechanism sets in. The receiver pays GST to the government. 

Thus, we can conclude by saying that there has been a mixed impact. In most sectors in the startup arena, it is a boon. The startups tend to have an easier experience with taxes under the GST regime. Thus, it enables these startups to work on tight budgets and enhance services and products. It is helping them position themselves in the business startup scene in India. It is a great way to foster the birth of businesses in today’s cut-throat competitive world. 

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