GST (1): All that you need to know for your startup!

As an entrepreneur, it is extremely important for us to understand how GST operates and the requirements that we have to adhere to be in tandem with the regulation formulated. 

Register at the earliest for GST

As parliament passed the GST bills in April 2017, GST rollout date (July 1, 2017) is looking more realistic. It is becoming important now to understand who needs to register for GST, how to register your business for GST, and what do you need for business registration under GST regime.

How to register existing taxpayers for GST?

A business with service tax or any VAT registration can register themselves on GST Portal

Registration requirements

  • Provisional id received from authority
  • PAN of the taxpayer/business
  • Mobile number
  • Email id
  • Bank account details
  • Majority of the VAT businesses have been migrated to GST, while only 43% of service tax businesses and have been migrated to GST as on April 2017

How to register for GST if you are new taxpayer

  • Eligibility criteria

Your business must have a turnover of Rs. 20 lakhs or more. However, if the business is located in any of the seven North-eastern States, then your business turnover limit is Rs. 10 lakhs

Who has to register for GST?

  • A person who is doing business in trading of goods or services has to register for GST if his annual turnover exceeds Rs. 20 lakhs or more, or Rs. 10 lakhs for businesses in any state of North-East India.
  • A person who is liable to be registered shall apply for registration in every such State, or Union Territory in which he is so liable, within 30 days from the date on which he becomes liable to registered.
  • A person having multiple business verticals in a State may obtain a separate registration for each business vertical.
  • A person may get himself registered voluntarily, and all provisions of this GST Act, as are applicable to a registered taxable person, shall apply to such person.
  • A person shall have a Permanent Account Number (PAN) or a Tax Deduction and Collection Account Number (TAN) in order to be eligible for grant of registration. The exception is for a non-resident taxable person.

To conclude, all existing taxpayers registered under Service tax, VAT and Excise will be automatically migrated and registered under GST by uploading their current business details with GST portal. For businesses set up after 1st July, 2017 you will have to register your business for GST, based on the annual turnover limit. As a startup, if you are already operating then it is important that you too register for GST. But if you are a wannabe entrepreneur then it depends on the company’s performance at a later stage.

Understanding the GST Bill from a startup perspective:

The passage of the Goods & Services Tax creates a single Indian market entity instead of several sub categories which are then revised for each state. The 122nd Constitutional Amendment Bill 2014 which was passed in both Houses of Parliament with a two-thirds majority paved the way for the GST Bill on August 3, 2016.

The GST bill will help reduce a compounded 25-30% computed tax slab over all goods payable by your small business and the end consumer to a uniform tax regime of 18%. Here are four reasons to celebrate the GST and what it means to you:

Lower tax burden:

We could look at a minimum of a 7% reduction in the tax rate with a GST that may be fixed at 18%. This will help reduce the total taxes paid by the producer, trader and end consumer drastically. Taxes are now paid by the trader on purchases against sales the amount of sales made. For your small business, the tax on procuring materials and sale of produce will be reduced gradually. For the consumer, this would mean that the costs of all products and services like FMCG or perishables would be significantly cheaper. Earlier, taxes would be set off on sales against taxes on trade purchases. With the GST, taxes are now based on purchases based on the cost of sales.

Reduction in Corruption:

There are several points where vehicles carrying goods are stopped by officials at checkpoints. Most traders have to cough up heavy bribes in order to continue their journey past these check posts. The amount that has to be paid between check posts will now be standardized as a part of the GST.

Pay 1 GST tax not 8:

GST has paved the way for the modification of the Value Added Tax (VAT) by the Central and State Governments as CENVAT and VAT. Small businesses, consumers, and traders have to pay tax on previously levied tax for several goods and services that were produced. These were then turned into numerous taxes and cesses that were levied by the previous government. The Union and Federation of States will have one GST tax instead of seven. These taxes comprise of the Excise Tax, Service Tax, VAT, Central Tax, State Tax, OCTROI Tax and Luxury tax. Additionally, tax is charged on the Swacch Bharat Cess and the Customs Duty at the border.

Easier flow of goods:

Prices of electronics are likely to go up by up to 4%. E-commerce will see an increase in prices but there will be a free movement of goods through a unified market. Cost of purchasing automobiles could see a drop of 8% in the final price. Demand for commercial vehicles may be hit in the medium term but logistic hurdles may be eased. Flights to become more expensive with a GST of 15-18%. Goods excluded from GST are petroleum products, entertainment and amusement tax, tax on alcohol, Stamp duty, and Customs Duty and Tax on consumption and sale of electricity.

GST brings with it an 18-20% tax rate based on fee-based transactions. Initially your small business may see a rise in inflation and on processing fees for electronic transactions. As the cost of financial services decrease, the prices of commodities will reduce significantly. This will help your small business save on the difference between the GST and the multiple taxes that your small business pays today.

Will GST replace any taxes?

Business will be more competitive with the reduction in the number of hidden taxes and duties. All indirect taxes including Service tax, VAT, Krishi Kalyan Cess, Excise, Octroi, and Luxury Tax will be replaced by a single GST across India.  Under GST there will be CGST (Central Goods and Service tax) and SGST (State Goods and Service tax) for intra-state sales and IGST (Integrated Goods and Service tax) for interstate sales. Let us see how the taxes will work under the new GST regime with an example:

Let us say an advertising company in Bangalore provides services to a customer in Bangalore for Rs. 1,00,000. Assuming the rate is 18% he will charge 9% CGST and 9% SGST in the invoice.

Here’s a breakup

Charges             – 1,00,000

SGST @ 9%      –     9000

CGST @ 9%      –     9000

Total               –  1,18,000

Now, if the same advertising company in Bangalore provides services to a customer in different state, say for instance from Mumbai, then he will charge IGST @18%

Cost                    –  1,00,000

IGST @ 18%      –   18,000

Total                 –  1,18,000

As you can see from the example, depending on the location of your customer, the taxes will fall under the SGST and CGST or IGST. 

Bring the difference by choosing GST over VAT!

By eliminating the tax on tax, your small business can reduce operational costs and increase your business’s profit margin. A reduction of tax by converting from VAT to GST would enable your small business to increase in savings for further business expansion.

How will startups grow domestically and in the world markets?

With a growth trajectory of 7% for FY 16-17 and FY17-18, there would be a larger number of jobs created across all sectors. The largest gainers and job providers would from the manufacturing sector as it currently accounts for 16% of the GDP which would grow to over 20% post GST implementation. Your small business’s transportation time would reduce by 50% at State border check-posts with reduction in sales and entry taxes.

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