For years from now, the states and center were working cumulatively to roll out the biggest indirect tax reform that India would ever witness. Finally, on the 1st July 2017, the GST (Goods and Services) Tax was rolled out with a lot of hopes and aspirations. Though the new tax system is going to affect everyone’s life in some or the other way, entrepreneurs with small scale business and start-up owners are particularly skeptical about it the impact of GST on their business.
Here, we have tried to analyze how things will change for a start-up and a small scale business with GST coming into action.
Tax Benefits for Small Businesses and Start-Ups
As per the new rule of GST, any business that has an aggregate turnover of over Rs.19 lakh is eligible to register on the GST portal. As soon their business reaches the 20 lakh figure they become liable to pay GST. However, the aggregate turnover limit for small businesses and start-ups in North India has been kept under 9 lakh for registration as of now.
This means small scale businesses and start-ups that are operating with a small financial base will be exempted to pay any tax. The previous tax regime has very high tax figures for small businesses and start-ups; thus they stand benefitted from the introduction of GST.
Input Tax Credit Benefit
Even though the small businesses and start-ups with the small capital base are exempted from registering for GST, they still get the option to avail the other benefits of GST, one of the major one being the input tax credit. Under the previous taxation system, the small capital businesses were under the burden of taxes, which they were subsequently passing on to the consumers to cover their cost. Earlier the producers were passing on the tax paid on procuring the raw material and manufacturing to the consumer in the form of output VAT, which was being merged with multiple indirect taxes, thus making the entire regime a bit cumbersome to understand.
Now the problem has been addressed by the GST under their Input Tax Credit provision that will allow the hassle free transfer of credit made by the manufacturers throughout the supply chain, starting right from the stage of entry till consumption. This means, now the small scale businesses can claim their input tax credit against all the taxes they might have paid for things like office supplies, raw materials, etc.
Less Expensive and Easy Digitalized Procedure
The new GST procedure is a fully functional online set-up which makes return filling smooth and easy. Those start-ups and small business looking forward to building strong financial ground for them by easing how they are doing their business can simply file their returns through GST online portal. They will also get relaxation with their invoice measure owing to the uncertain nature of their business. This IT supported network is sure to reduce the operational cost for small capital businesses in many ways.
Reduced Operating Cost
The previous taxation system had a lot of problems associated with inflated operational costs that include extra time spent in transporting goods and the expenses incurred at octroi and toll plazas. This operational cost was specifically high when a business is dealing in perishable goods, thus affecting their interstate business opportunities. With this cost being exempted, the business can now plan to branch out for new growth opportunities.
Subsuming the inflated buffer stock and inventory costs with faster connectivity is sure to result in increased trade that will have significantly low operational costs for start-ups and small businesses.