Impact of GST on Startups in India? Part One
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Is The Implementation of GST a Blessing or Curse for Startups?

The happiness and pride parents feel as their baby takes his/her first steps is indescribable. The encouragement and support given will give the baby the confidence and enthusiasm to keep going. Similarly, as children age and finish up their college and get ready to take their first steps into the world, they should receive the same support and encouragement. Moreover, the courageous young adult, who decides to embark upon the journey of entrepreneurship and start their own business will need all the extra support and encouragement they can get, which is why the aid a government gives in supporting startups will help in shaping the nation, as startups create employment opportunities, where none existed. With the implementation of GST and its impact felt across all sectors, will the new “one tax” be detrimental to startups or give them the boost they need?


The impact of the facelift the tax system has currently undergone, under GST, will be felt across all industries and sectors. However, as a startup, already facing the stresses of a new business, the question of how the new GST will impact your business, must be causing you sleepless nights. To ease your worries, let’s look at both sides of the coin to determine the nature of the impact GST will have on your business.


Advantages of GST on Startups


Impact of GST on Startups




Increased Registration Limit:

Under the previous VAT scheme, a business with an annual turnover of over Rs. 5 lakh had to register under Maharashtra VAT. However, the new limit under GST is Rs. 20 lakh, which decreases the tax burden on many startups (excluding e-commerce).


Removal of Complicated Tax Laws:

As GST removes the various taxes under the “one nation, one tax” umbrella, startups do not have to worry about registering themselves under VAT or service tax, which expected registration in every state of business. Additionally, as each state had its own policies and procedures, it made compliance costly and time consuming. Under GST, registering once removes the burden on the small enterprise, allowing business owners to concentrate on developing their startup.


Decreased Cost of Logistics/Increase in Business Base:

Every time a truck crosses a state it must queue up and pay octroi and CST at every border. This increased costs for businesses and wasted precious time. GST removes this burden by covering octroi and CST under its umbrella. This removal of complex inter-state procedures, encourages business to expand their base and expand into other states, increasing their customer base, without having to worry about varying tax/compliance procedures.


Cascading Tax Eliminated:

Under the previous regime it often happened that tax was imposed on a product that had already been taxed. For example, if a manufacturer charges Rs.100 for a product created and charges 12% i.e., RS 12 excise to the shopkeeper who in turn charges 12.5% VAT on Rs 112, which the customer must bear which leads to double taxation. The new GST tax will alleviate this burden of tax on tax effect by having only one tax applicable.


Easier Invoicing:

As there will be no distinction between goods and services and tax applied uniformly on both, it will make invoicing simpler, allowing businesses to take advantage of the various tax incentives and reduce tax evasion.

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Niteesh Singh
Niteesh Singh
Niteesh is a Tax Researcher and Content Lead at H&R Block (India). He holds an MBA with a specialisation in BFSI domain. In his career spanning over six years, he has helped thousands of people understand taxes in a simple and effective manner. Outside work, Niteesh is an astronomy geek who is also involved in wildlife conservation activities.