How the New GST Will Aid Upcoming Businesses

The goods and services tax which was presented in the Lok Sabha in the year of 2014, is, at last, is being passed in the coming season to be held from the month of July. The decision on goods and services tax has been pending for a long time due to the disagreement of the oppositions in Rajya Sabha.

A massive transformation like property and services tax needs a constitutional amendment. This change requires a bill to be passed by both parliament and the houses.

The meaning of GST

The largest indirect tax solution since the year of independence, GST law requires bringing an economic change in the Indian economy. GST will help to streamline and consolidate the method of indirect taxation and will make it more efficient and simpler than before. The players of the Tax will pay the consolidated tax in spite of the several taxes such as Central Excise; State Value added tax, Entry tax or several indirect taxation policies.

GST will be paid though the actual price which is payable or paid which is known as the transaction value. This includes commission, packing cost, and other several expenditures such as sales. The tax amount will be payable during the final point of all the consumption. The GST has two components such as the State GST, Central GST and thus it will empower both the central and state government to administer and legislate the individual taxes.

Other than the Tamil Nadu state government, which thinks that this passed bill will remove the right of the state government? It is seen that all the other countries are supporting this bill.

GST is bound to give several advantages to businesses in the country who are looking to get their businesses registered. It is assumed that the small start-ups can rejoice for several reasons.

  1. Ease of the start-ups

Any new startups require registration for VAT from the department o the sales tax. Operating a business in other states has to encounter several problems regarding fees and different methods in all the states. GST will make a centralized registration and uniformity in a process that can help the startups in other countries easier.

  1. Higher expectations from the new companies

As per the recent construction of the goods and service tax, any business earnings of more than five lakhs will have to pay and get a VAT registration. GST will turn the restriction higher to at least ten lakh. It is announced that a business of ten to fifty lakhs of turnover will have to pay comparatively lower tax rates. This will change the burden of the build a new business.

  1. Simple taxation

Right now a startup invests a lot of energy and time to coordinate the taxes at several points. Depending on the various regulations of different places make the method more complicated. GST will ease the processes by turning the mode of tax simpler that includes all sorts of taxes. Businesses such as restaurants will come under both service tax and sales to calculate the service and VAT tax. 

GST for Startups

GST regime is the conveyor belt that will take India to a unified tax regime with a mission to achieve ‘One nation: One tax’ principle. Tax reforms have been underway since liberalization keeping in mind the changing economic, fiscal and monetary landscape of the country.

Why GST replaced Value added tax?

VAT was introduced in 2003 to reduce the cascading effect of taxes and offset players in the supply chain for taxes paid at the input stage. Only the value added to the product at each stage was taxed. But it had a loophole as it offered an exit route for businesses to evade tax sourcing goods from one state, manufacturing it in another and selling it in yet another state. Honest entrepreneurs faced the brunt of multiple taxes and that too at diverse rates which affected their domestic and international competitiveness.

Hike in turnover limits for various businesses: Some of the interesting and praise-worthy features of the goods and services regime that will prove to be quite beneficial for start-up entrepreneurs are highlighted for the benefit of our core audience.

Ten lakhs exemption limit in terms of annual business turnover for firms engaged in production of goods and twenty lakhs for service providers. Since most start-ups in the internet era are service providers, this is obviously good news for start-ups. [ However, freelancer’s bloggers and professionals earning income outside the state or from outside the country in the form of foreign exchange will be taxed at 18% and they will have to enrol in GST, and the exemption limit does not apply to them.]

Ease of compliance as everything including registration of tax payers, submission of returns, payment of taxes and claiming of refunds can be done online. Three reports a month and one report at the end of the financial- year amounting to a total of 37 reports per state are needed to be filed online. [Special software’s have been introduced in the market and some websites have new algorithm embedded in them to help file GST returns with a few clicks. If your business runs in two cities, then a total of 74 reports need to be filed in the year.]

E-commerce firms can rejoice as faster deliveries will happen owing to removal of tariff barriers at the border of every state. More customers will explore online portals as delivery time-lines are expected to rise threefold comparable to the best in the world.

Say goodbye to unending wait for tax refunds: Yes, you can now get your returns and claims processed faster with this new online regime and ensure that valuable cash is not locked up as pending tax refunds.

Good news for service providers: Even stationery purchases and tax paid on office supplies will be allowed as deduction while calculating the final tax paid. Something which was long overdue to make service providers globally competitive.

Overall, it can be said that the long pending Goods and Services Tax will bring the much-needed transparency and ease of doing business that was absent before. Expect high ranks in business confidence index for India in the times to come!

Benefits of GST

 

GST is the one among the best fiscal reforms in India since Independence. This has impacted all small to large businesses in India.

One of its benefits is the removal of cascading tax effect, in another word a tax on tax. At present output, VAT cannot be set off on service tax paid on behalf of input services. Whereas with GST enabled, the input tax can be easily applied to all the goods and services efficiently and can reduce the tax burden on the consumer removing paying tax for tax. Consumer will be relieved from paying double taxes for their purchases of goods and services, interestingly this will stop state governments from increasing the taxes indiscriminately.

GST will be levied on both goods and services and will subsume and replace the current indirect taxes such as excise, VAT, and service tax.

Previously with VAT structure, any business with a turnover of more than Rs.5 lakh is liable to pay VAT, same with service tax has to be paid with turnover more Rs.10 lakh has to pay. Surprisingly under GST, this threshold has been increased to more than 20 exempting many small traders and service providers.

GST system will enrich India in building paying transparent taxes and corruption free tax administration. Brings removing economic disadvantages, distortions and bring about a common national market. There will be no hidden taxes and cost on developing business will be lower. It reduces the number of Indirect taxes. Complete online setup right from registering for GST to filing return and payment of GST tax saves a lot of time, for new startups going round and round of tax offices for various registrations.

An interesting benefit of GST is composition scheme which lowers the tax burden on small business with business turnover between Rs.20 to 50 lakhs was increased to Rs.75 lakhs to result in greater relief from the tax burden. Now GST will encourage suppliers to pay taxes on Input tax credit, both the Central and state government will have dual oversight, moreover, the number of tax-exempt goods will decline.

The cost of Logistics and inventory costs will come down from the sky. How so? Because of taxes in India, checks at state borders there is slow movement of trucks in India of 200Km per day compared to 800km per day in the United States average truck driver.

GST has a tremendous impact on manufacturing goods as they become cheaper than ever before, a great competition will rise because of GST, Logistic costs will also bring change in lowering of costs. The consumer will be more benefitted with GST.
Many e-commerce sellers won’t ships their products to certain states because of certain restrictions, but now GST has brought an end result with greater flexibility. GST will raise the bar high for less developed states giving them a lift creating a nationwide common market and creating endless opportunities to all. GST will also increase the GDP by 1-2%.
Because of reduction of tax and bring the product with lower prices, so more demand for products will increase, which eventually create a great need for increased employment.

Difference between current taxation and GST in India

Goods and services tax, GST is a new introduction made by the government in India. The same shall be launched on 1st July 2017 abandoning the current taxation system on goods and services.it is a comprehensive of all the current taxes, a multi-stage and a destination based tax that shall be applied on every value added to the goods and services.

Why GST

The introduction of GST involves an improvement in our taxation system. While in the olden times, only service tax was charged on goods and services, there was the problem of double taxation that lead to the introduction of VAT, excise duty, etc. Now, the input credit of VAT is available against the output of VAT. Similarly, the input credit of excise duty is available only against its output. However, calculation of VAT also includes the value of excise. Thus, the problem of double taxation still persists in the society. In order to evade double charges and complications in our taxation system, the government has decided to introduce GST. Let us find the differences in the current taxation and GST in India that might bring affect to your business:

No tax on tax

In the current regime, excise is first charged on the actual value after which VAT or CST is imposed on the value + excise. However, under GST, both central and state GST will be charged only on the actual amount. Thus, the double taxation issues will be resolved.

Input on central purchases

In the current taxation system, CST is charged on central purchases, but there is no input available for the same. On the other hand, GST ensures availability of input on central purchases which is also termed as IGST Credit.

Uniform tax rates

The tax rates in the current system aren’t uniform. They differ from state to state. In some states, they also levy a surcharge on the VAT. Thus, GST shall bring in uniform rates in the entire country.

Input on capital goods

In the current regime, 50% CENVAT is available on capital goods in the current year and the rest to the subsequent year. Further, the input for VAT differs from state to state. Under GST, the input shall be available in the initial year.

CGST and SGST on both goods and services

Presently, the VAT is charged only on the sale of goods by the state government. The service tax was applied to the services offered by the Central government. Under GST, both CGST and SGST will be applicable on goods and services. This further requires one to file both the taxes and returns.

Electronic duty credit registrar

There is tremendous confusion in the current regime. The excise and service tax applicable on one selling party does no match with the other purchasing party. This is because the sales are never mentioned as per the parties. However, these absent details will be mandatory to file under GST.

Abolishment of Form C & F

Unlike the present regime, now that input of CST purchases shall be accessible, these forms will be completely abolished.

Final words

GST in India launching from 1 July 2017 shall bring a huge impact on the economy. Like every component in the everyday life holds its own advantages and disadvantages, GST too shall be favourable for some and not for all. However, considering the overall development, it is probable to bring a positive effect on the economy.