GST Rules for Start-ups in India

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GST Rules for Start-ups in India

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The Goods and Services Tax (GST) implementation
has primarily impacted the way start-ups operated
in India. It has significantly increased the
number of new start-ups in the past three years
of successful implementation. The advent of a new
tax regime was crucial to abolish various
indirect taxes. GST rules for startups were
introduced with the slogan One Nation One Tax
to ease the compliance procedure for MSME,
especially for start-ups. In this article, we
have coupled all the necessary information every
start-up in India must know. The eligibility
criteria for start-ups, the impact of GST
benefits for startups, Tax exemptions,
consequences of tax evasion, and more!
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Eligibility for New Start-ups in India
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• A business has to be incorporated or registered
  in India for about seven years (ten years for
  biotech companies) from the date of
  incorporation.
• Annual turnover of business should not exceed INR
  25 crore in any of the previous financial years.
• An eligible start-up is a business aiming to work
  towards innovation, invention, deployment and
  commercialization of business processes, goods or
  services. Start-ups must be technologically
  advanced driven by intellectual property and
  technology.
• A start-up cannot be formed by reconstruction or
  break-off of a business that already exists.
• A start-up venture is mandated to obtain an
  eligibility certificate from the
  Inter-Ministerial Board setup.
• A start-up can be registered either as a private
  limited company, registered partnership or
  limited liability partnership.
• Budget 2021 Latest Update Tax exemption for
  start-ups has been extended till 31st March 2022,
  one more year of the tax holiday.

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Impact of GST on Start-ups in India GST Benefits
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The Goods and Services Tax (GST) in India has
successfully subsumed all the indirect taxes,
curating a unified tax system. As mentioned
above, the One Nation One Tax regime has
created a positive impact on emerging start-ups.
Several start-ups across the nation have been
enjoying the benefits GST has been offering over
the years.
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GST Registration Higher Threshold Limit for
Start-ups in India

• As per the previous tax system, businesses with a
  turnover exceeding INR 5 lakh in a financial year
  (FY) were mandated to register under the VAT
  system. Since the GST implementation, companies
  with a turnover exceeding 40 lakh (20 lakh for
  service providers) in a financial year are
  mandated to register under the GST regime.
• The higher threshold limit under GST aims to
  provide compliance relief for small businesses,
  including startups in India. GST regime has also
  introduced the composition scheme for small
  businesses and entrepreneurs in India, lowering
  the amount of tax for start-ups having an annual
  turnover up to INR 1.5 crore.

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Tax Credit on Purchases

• Before GST, service-oriented start-ups were
  supposed to collect and pay service tax to the
  government. Since most start-ups in India fall
  under the service industry, non-utilization of
  VAT paid on business transactions was one of the
  major concerns. No provisions allowed to claim
  credits on state VAT amount paid against the
  service tax liability.
• Since GST has bought several indirect taxes under
  a single tax system, availing Input Tax
  credits is no longer a matter of concern.
  Start-ups can now set off taxes paid on their
  purchases with the taxes pid on their sales
  under the Goods and Services Tax (GST) regime.

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Hassle-Free GST Registration Return Filing
Procedures

• Over the past decade, India has transformed
  primarily by moving from manual operations to
  digitalization. Businesses no longer have to run
  around from one government office to another and
  submit paper files to obtain a GST registration
  number. Digital India has made each process a lot
  simpler and extremely quick. Once all
  the accounts and records under GST are arranged,
  getting a registration number is a no brainer
  task.
• Several start-ups undergo the burden to
  budget-strain these start-ups can now benefit
  from the GST regime. Since its implementation,
  GST has increased the threshold limit for
  registration and tax credits on purchases. The
  ease in the return filing processes has brought
  relief to start-ups and small businesses in
  India.

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Simplified Tax Calculations

• Start-ups often work with a constrained budget
  they cannot afford to allocate different
  resources to take care of various compliances
  under Excise, CST, VAT, Service Tax etc. The GST
  regimes advent has instead simplified tax
  compliance procedures, thus saving time for
  start-ups to better focus on other business
  operations.
• The digital compliance system in India has
  increased the scope of accounting software.
  Imprezz, the GST invoicing and billing software
  pioneer in India, has been successfully helping
  small business tax calculations and return
  filing. Leverage accounting automation, do it all
  with a click of a button.
• It is much easier for start-ups dealing with both
  goods and services to file single tax returns and
  pay GST instead of multiple compliances and tax
  payment. As per the 22nd GST council meeting held
  on 6th October 2017, Start-ups with annual
  turnover up to INR 1.5 crore can submit quarterly
  returns taxes are paid quarterly. The compliance
  relief aims to ease the tax burden for small
  businesses and start-ups in India.

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E-Commerce Online Start-ups in India

• Modern start-ups are primarily driven by
  technology most innovative start-ups today
  leverage online presence rather than giving it
  all into the conventional setups. They transact
  online, that is, selling products and services
  through the internet. E-commerce and other online
  start-ups face no complications regarding the
  inter-state movement of goods as GST is
  applicable throughout the country.
• Previously, different VAT tax was applicable in
  different states. For instance, an online website
  delivering goods to Karnataka must have the
  registered delivery truck and VAT declaration
  file for that state. The states tax authorities
  might seize the goods under circumstances where
  there is a failure to produce necessary
  documents.
• However, states like Rajasthan, Kerala, and West
  Bengal treat these suppliers as facilitators or
  mediators and do not require registering for VAT.
  All these differences in treating supplies
  usually created confusion in compliances. GST has
  subsumed all these under a single tax regime to
  remove the hassle of tax compliance.

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Increased Efficiency in Logistics

• In India, logistics businesses maintained
  multiple warehouses across states to rid of the
  CST and state entry taxes on inter-state movement
  of goods. Most warehouses operated below their
  capacity increasing their operating costs.
  Currently, GST has removed the restrictions on
  inter-state movement of goods, bringing warehouse
  consolidation across the nation.
• As a result of this, warehouse operators and
  e-commerce businesses in India show interest in
  setting up warehouses in strategic locations. It
  reduces unnecessary logistics costs, increasing
  the profits early for start-ups involved in the
  supply of goods through transportation.

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Tax Burden on Manufacturing Start-ups in India

• Start-ups in the manufacturing industry bear the
  brunt. Manufacturing businesses with an annual
  turnover above INR 1.50 crore were liable to pay
  excise tax as per the excise laws in India.
  However, GST has reduced this turnover threshold
  to INR 40 Lakh increasing the tax burden for
  several manufacturers.

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Tax Exemptions under the Start-up India Program

• The flawed tax system in India is a story from
  the past. GST has eradicated all the tax
  compliance confusion and eased the processes for
  businesses across the nation. Here are some of
  the necessary tax exemptions allowed for eligible
  start-ups in the country.

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1.   Tax Holiday for About 3-Years in a Block of
7-Years

• Start-ups incorporated between 1st April 2016 and
  31st March 2021 are eligible for this scheme.
  However, as mentioned above, budget 2021 has
  extended the tax holiday for businesses
  incorporated till 31st March 2022.
• These start-ups are eligible to claim a 100 tax
  rebate on their profits for three years in a
  block of seven years, provided their annual
  turnover threshold doesnt exceed INR 25 crores
  in any financial year. The scheme aims to help
  start-ups meet their working capital requirements
  during the initial years of incorporation.

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2.   Tax Exemption on Long-Term Capital Gains

• Businesses that invest for long-term capital gain
  in a fund notified by the Central Government
  within six months from the date of transfer of
  business assets are exempted from paying taxes on
  such long-term capital gain under section 54 EE.
  The maximum amount a business can invest in
  specified long-term assets is INR 50 lakh. For
  three years, such amount remains invested in
  specified funds. In case companies withdraw
  before the span of 3 years, the exemption will be
  revoked respectively.

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3.   Tax Exemptions on Investments Above the Fair
Market Value

• Eligible start-ups above the fair market value
  are exempted from levying taxes on investments.
  These investments include resident angel
  investors, funds that are not registered under
  capital venture funds, and family. Any
  investments made by the incubators above the fair
  market value is also exempt.

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5.   Set-Off Carry Forward Losses Capital Gains

• Businesses can carry forward their losses if all
  the shareholders in an eligible start-up carrying
  the voting power on the day in which losses were
  incurred. GST has provided relaxations on the
  previous restriction of holding 51 of the voting
  rights remaining unchanged under Section 79 for
  eligible start-ups.

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Consequences of Tax Evasion under GST Laws
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• The GST Council of India has now mandated
  e-invoicing and digital return filing processes
  to curb tax evasion. A practical implementation
  of GST law requires strict penalties against
  offenders. It is crucial to understand the
  know-how of the GST laws. Otherwise, start-ups
  and new businesses might have a hard time dealing
  with penalties. Here are some of the common
  offences under GST for small business in India
  and their penalties.

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• Penalty for not registering under GST
• 10 or INR 10,000 penalty for tax due, whichever
  is higher.
• Penalty for not issuing GST invoices
• 10 or INR 10,000 penalty for tax due, whichever
  is higher.
• Penalty for not filing GST returns
• 10 or INR 10,000 penalty for tax due, whichever
  is higher.
• Penalty for committing fraud under GST
• 10 or INR 10,000 penalty for tax due, whichever
  is higher.
• Penalty for not filing GST returns in time
• The late fee is INR 200/day (INR 100/day under
  the CGST Act INR 100/day under the SGST Act)
  will be applicable up to a maximum fine of INR
  5,000.

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• Penalty for utilizing the composition scheme even
  though the start-up is not eligible
• In case of fraud as per Section 74, a penalty
  of INR 10,000 or 100 of the tax due (whichever
  is higher) will apply.
• In case of no fraud a penalty of INR 10,000 or
  10 of the tax due (whichever is higher) will
  apply.
• Penalty for unlawfully charging higher GST rates
• 10 or INR 10,000 penalty for tax due, whichever
  is higher (in case additionally charged GST
  amount is not submitted to the government).
• Penalty for unlawfully charging lower GST rates
• 10 or INR 10,000 penalty for tax due, whichever
  is higher (in case additionally charged GST
  amount is not submitted to the government).

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• Penalty for filing incorrect GST returns
• A penalty of INR 25,000
• Penalty for issuing incorrect invoices
• A penalty of INR 25,000
• Penalty for unlawfully charging the wrong GST
  type (IGST/CGST/SGST)
• There is no penalty charged for this type of tax
  evasion. Businesses can pay the right GST amount
  and claim for a refund on the wrong GST payment
  made earlier.

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How to Make the E-invoicing Process Easier for
Start-ups?
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• The advent of the GST system in India has
  impacted mainly small businesses and start-ups.
  Most small businesses in India are still
  struggling to adapt to digital accounting
  processes. How can businesses issue correct
  e-invoices without hiring an accountant? Can
  companies successfully handle their financial
  operations without a dedicated accounting team?
• The answer to these questions is Imprezz, the
  pioneer of invoicing and billing software in
  India. It is one of the leading business
  intelligence software that helps start-ups and
  small businesses generate GST-compliant invoices
  in just a few clicks. The software is a
  cost-effective replacement that allows new
  businesses to manage accounting without an
  accountant. Businesses can issue e-invoices in
  only three simple steps by using Imprezz
  accounting software.

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• Create the Invoice
• The platform allows you to create multiple
  invoices in no time. You have to enter all the
  necessary details of goods or services supplied
  to the customer. The automated accounting system
  calculates the total value and helps you add the
  relevant GST rates applicable. The customizable
  templates enable you to edit the invoice template
  as per your business requirements. Once you have
  created the invoice, you can save and generate
  the invoice, ready for use.
• Send Invoice to the Customer
• After creating a GST compliant e-invoice, you can
  directly send it to your customer through email
  or SMS.

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• Receive Payment on Time
• The invoice templates on Imprezz lets you link
  your bank account details. Your customer can
  immediately initiate the transaction and clear
  the invoice payment.
• In addition to this, your customer can download
  and save the invoices for future reference. The
  software allows you to create and send invoices
  and helps manage various accounting tasks
  like tally, purchase order management, create and
  send quotations, import customer data, and more!
  The software also provides timely reports and
  business insights that fasten the decision-making
  process and develop business strategies.

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• Conclusion
• Execution plays a vital role in bringing ideas to
  life. Similarly, GST plays the same position in
  implementing an effective tax system that intents
  to create a positive impact for businesses in
  India. Moreover, the new tax calculation
  system is better than the old, inefficient tax
  system as it is facilitative and efficient. It is
  fair to conclude that GST is playing a
  significant role in boosting start-ups in India
  to achieve its full potential.
• If you are a new start-up struggling with
  accounting tasks, GST returns filing and adapting
  to the digital processes, let us run the errands
  for you. Imprezz accounting software enables you
  to issues bills and invoices in just a few
  clicks. Alongside, the software also helps file
  GST returns directly on the portal. Stay GST
  compliant, implement Imprezz GST billing
  software.
• We offer a 14 days free trial software program
  for small businesses in India. Login to get
  started!

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