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Impact of GST on Startups and Small Businesses in India

Impact of GST on Startups and Small Businesses in India

According to a report, the Goods and Services Tax collection saw positive growth, with 1.41 trillion rupees clocked in April 2021. This data indicates the development in India’s economic condition and positive outcomes for new and old firms.

This wasn’t possible a few years back as the tax system mandated businesses with a turnover exceeding Rs.5 lakh to register under the VAT system. It created issues for startups and MSMEs to cope up.

However, the GST regime relieved these companies by changing the turnover threshold to Rs.40 lakh in a financial year. This rule also initiated a composition scheme for small entrepreneurs that lowers the tax amount for annual revenue of up to Rs.1.5 crore.

Since the new tax regime abolished various indirect taxes and promoted the ‘One Nation One Tax’ vision, understanding its impact has become crucial. 

How does the GST influence the MSMEs and startups in India?

GST, a single tax on the supply of services and goods, helps unify the Indian market. To clear up the confusion surrounding what is the meaning of GST, one needs to study its influence on an enterprise. 

  • Tax credit on purchase made

Before the GST regime, service-oriented startups had to pay service tax. The non-usage of VAT paid on business proceedings caused significant issues for most startups. Moreover, they didn’t have the provision to claim benefits or credit on state VAT paid against service tax.

The introduction of GST changes the stringent regulations under a single tax system. Now one can easily avail input tax credit without hassle. Startups can also adjust the tax paid on purchase made with the tax paid on sales.

  • Easy online registration and return filing

Digitalisation has made tax collection in India simple and fast. Under the single-point registration, companies can save the hassle of registering at multiple points. Entrepreneurs don’t need to run around different government bodies to obtain proof of business registration. They can fill in their company data on the government site to register for GST online within minutes. The registration number would offer them legal rights to procure tax benefits and conduct daily operations without hassle.   

  • Input tax credit

New startups are now eligible for input tax credits on all purchases made after registering for the GST. An individual can receive this benefit within the state and outside. This is a smart initiative to help companies gain cross-border business. Input tax credits also reduce the cascading effect of tax that previously caused budget issues for many startups. Moreover, the availability of credit on capital goods claimed under one instalment directly affects new firms’ cash flow. 

  • Simplified tax calculations

Startups usually don’t possess a high budget to operate. This made paying additional charges like CST, VAT, Excise, service tax, etc., complicated and difficult. That is where the GST regime worked its wonder by simplifying the tax compliance process. This has saved enough time for a new business to focus on growth and worry less about monetary obligations.

  • Increased efficiency in logistics

The logistic business in India is again complicated as companies have to maintain multiple warehouses across states to avoid state entry taxes and CST. This caused serious financial crunches and discrepancies in operating costs. The GST has merged warehouses across the nation, removing the inter-state good movement restrictions. This has reduced unnecessary logistics expenses and simultaneously leveraged the profit scale involved with the supply of goods. In this regard, evaluating what is the meaning of GST and its benefits would facilitate better savings.

  • Less tax payment

As GST was introduced, business owners are bound to pay a reduced tax on multiple goods and services, unlike the previous indirect tax rule. Typically, GST payment aids one to save significantly on their revenue. 

This benefit is what encourages MSME and start-ups to expand their business ventures confidently. Moreover, by filing GST returns, one can avail credit forms like a business loan easily. NBFCs like Bajaj Finserv offer loans at competitive interest rates and comfortable repayment options.

They also provide pre-approved offers that make availing loans easy and time-saving. Such offers are available on several financial products, like business loans, personal loans, etc. Check your pre-approved offers by providing only some essential details like name and contact number.