Impact of GST on Startups in India | H&R Block Blog Part 2
Is The Implementation of GST a Blessing or Curse for Startups?
December 24, 2017
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December 25, 2017

The Implementation of GST a Blessing or Curse for Startups? Part Two

(Click here to read the first part of the blog)


Just as the bright side of the moon has a dark side, the impact of GST on startups also has negatives, which could increase costs for cash flow stricken startups.


Disadvantages of GST on Startups



Strict Input Tax Credit Process:

ITC credit will only be available if the supplier has filed and paid his taxes on time. This will affect startups more adversely than established businesses as one break in the supply chain could increase costs severely.


Harsh on Manufacturers:

Previously, the exemption limit for paying excise was Rs. 1.5 crores in annual turnover. In the present GST system, the limit has been lowered to Rs. 20 lakh (RS. 10 lakh special states), which will increase the cost of the goods, which will be passed to the consumer leading to a possible reduction in the demand for said goods.


Technology Challenge:

Everything in the GST regime is online, from registration, filing returns and paying taxes. Initially, the constant modifications will prove to be a headache for many startups, who will need to seek external help for dealing with registration and filing, increasing costs.


Tax Collected at Source (TCS):

This will impact e-commerce startups as they will bear the cost initially. Additionally, it complicates returns/exchanges, which are a big part of online businesses. The e-commerce owner will have to pay the TCS and will only get their refund from the government after filing.


Compliance Costs:

The importance of checking compliance ratings of vendors under GST can affect your bottom line. If a supplier/trader in the supply chain has not registered, then the credit, which you were banking on, will not be available. Moreover, if the supplier has not filed and paid his taxes, then the person next in the supply chain will have to bear the burden of paying 18% tax, which can be a huge amount for startups, whose profits are already limited. To prevent this from occurring, it becomes imperative that every vendor rating is checked. If a vendor has a high compliance rating, then that person will be preferable to doing business with since it is likely they will file their returns and pay their taxes and you will get your tax credits.


The pros and cons of implementing GST exist for every sector. However, the consensus is that most people welcome GST and the only real headaches are the initial hiccups, which are unavoidable. The period of transition will be bumpy and startups might face more difficulty than prominent and established businesses, due to cash flow restrictions. But with the help of external experts to help with registration and filing, the burden will be less on the startup business owner, allowing him/her to focus on expanding their business and customer base.

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Annalakshmi Ekambaram
Annalakshmi Ekambaram
Annalakshmi is a content writer at H&R Block India. She enjoys writing about Income Taxes in a simplified manner so that everybody can easily understand it.


  1. Naina Singh says:

    HI Annalakshmi,

    Very interesting writeup and an impressive overview on how GST is impacting the previous businesses, startup and current startups.
    I certainly feel GST has brought a lot of change in the economic system of the country.

    Thanks for sharing this info!!

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