What are the Advantages and Disadvantages of GST for Startups?

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Here are the most important advantages and disadvantages of GST that every startups should know.

The Government held numerous GST Council Meetings since the implementation of the new tax regime to increase the advantages and decrease the disadvantages of GST in India. As of now, more than 30 such meetings have made several changes to the initial rules of the Goods and Services Tax (GST).

The new taxation system had a widespread impact on businesses which called for tweaks. Startups that did not come within the exemption limit of GST also received both benefits and drawbacks.

Some of the advantages of GST for startups include:

  1. 1- They stopped facing double taxation

Businesses were a victim of the cascading effect of tax during the previous taxation system. For example, an individual paying excise duty on a product might also have to pay VAT when supplying goods to another state.

With GST, all the 17 indirect taxes were merged into one. Thus, startups don’t have to pay tax on tax anymore.

  1. 2- Businesses can opt for the composition scheme

One of the benefits of GST for startups was the composition scheme. Businesses with an annual turnover of up to Rs. 1.5 Crore can opt for the voluntary composition scheme.

This scheme enables them to pay tax at a flat GST rate in India. While service providers pay 6% GST, manufacturers and traders pay 1%, and restaurants that don’t serve alcohol pay 5% tax (all rate include CGST and SGST).

The majority of startups opt for the composition scheme to make it easier to repay a business loan. The scheme can lower their financial burden considerably.

  1. 3- E-commerce operators don’t have to comply with VAT

A majority of startups operate online and thus ship goods to other states. Previously, some states require businesses to pay VAT while some did not during cross-border transfer of goods. Thus, it increased not only the confusion of compliance but also products costs.

One of the GST benefits was the removal of such inconveniences by the Government for e-commerce businesses by declaring provisions that apply throughout India.

  1. 4- They incur lower costs for logistics

Previously, businesses have to pay an entry tax for the interstate movement of goods. However, GST has eliminated this tax thereby lowering the logistics costs of startups that conduct business across more than state.

Some of the disadvantages of GST in India for startups include:

  • 1- Services startups have to pay higher tax

Startups offering services now have to pay a higher GST. Previously, such businesses had to pay a 15% services tax; now, the GST is 18%.

  • 2- They have to file taxes more often

Businesses that have a turnover of more than Rs. 1.5 Crore have to file taxes monthly. On the other hand, those earning up to Rs. 1.5 Crore have to file GST quarterly. Hence, small companies now have to pay more to hire tax associates so that they can be consulted on how to file GST in wise manner.

  • 3- Businesses have to pay customs duty separately

One of the disadvantages of GST in India is its exclusion of customs duty. Hence, companies have to pay it separately when importing goods from outside the country.

  • 4- The reverse charge mechanism might not be beneficial

Small businesses have to pay tax when they purchase goods from suppliers who are exempt from GST under the reverse charge mechanism. This may increase their expenses considerably.

The above are some of the top advantages and disadvantages of GST in India that have a huge impact on startups.

Personal Financial Consultant
Self Employed Entrepreneur,