How GST impacts startups

Last Updated at: Jan 15, 2021
GST impacts on startups

The entry of new financial regime into India on 1st July 2017 has been considered as a landmark event, culminating into a new face of Indian industries. Today, India is ranked third among other nations with most startups. India has witnessed the proliferation of many industries, to name few, Flipkart, Ola and Paytm. Today India is estimated with 7200 start-ups. This advancement could be resulted only on account of the introduction of Goods and Services Tax (GST) which simplified the otherwise complex tax-mechanism existent in the country. GST introduced has had its desired impact in the start-ups.

Positive impact

    • One of the major positive impacts of the introduction of GST is that it has resulted in productive business operations and less stringent tax mechanism. Previously, a company in order to be incorporated required VAT registration with the State’s Sales Tax Department which was different as per different states. But post-GST, it requires only a single registration.
    • Due to inter-state taxes and the complicated tax mechanism prevalent then, the scope of expansion was restricted or limited. But, with the notion of one nation one tax, a company can expand in any state without any complicated tax procedure.
    •  It has eliminated double taxation in the sense that tax was levied on a good which was already taxed. Under GST, the tax is levied on the goods finally produced without any value addition at each procedure.
    • Previously, multiple taxes were required to be paid. But under the regime of GST, it has been centralized thereby consolidating multiple taxes which also culminated in reducing the time required for delivery on account of state barriers.
    • Through stock transfer, bigger companies transfer goods to other states thereby avoiding taxes on interstate movement of goods. With GST, the benefits arising out of stock transfer has been negated.
Under the Indian taxation system, all the goods and services are categorized into 6 slabs. It is significant for all business people to know under which category their goods or services fall. The GST rate finder service is used to find the GST rates of all the goods and services. This service is also referred to as the HSN finder. By using the HSN finder, we can also find the HSN codes for goods and services.


    •  Post-GST, same tax is levied on both goods and services as compared to the previous mechanism, i.e., Service Tax for services and VAT for goods thereby bringing huge relief to restaurants who are indulged in both goods and services.
    • Further, GST has also helped those start-ups having an online presence from filing interstate taxes.

Make Your Business GST Ready

Negative impact

  •  Start-ups in the manufacturing sector face difficulties as companies with a turnover of not less than Rs. 20 lakh has to pay excise under the excise laws which previously, was Rs. 1.50 crore.
  • The reduction in the excise payments from Rs. 1.50 crores to Rs. 20 crores has led to an indefinite increase in the costs of goods and services thereby affecting the demand of such goods and services.
  •  Start-ups facing technological hindrances require the services of an expert which will add on to the costs. Further, with GST, more manpower has to be demanded as the number of returns filed would increase with the further expansion of business interstate along with the existing returns.
  •         The implementation has resulted in difficulties in the trade as GST requires the suppliers to file GST returns failing which will demand the supplier next in the chain to file a VAT of 18%.
  •         For individuals who don’t have a fixed place to work will be required to register themselves under GST as a casual taxable person.
  •         Start-ups having an online presence are required to register themselves under GST even if their turnover is less than Rs. 20 lakhs.
  •         The compliance rating component under GST has a negative impact as claims of companies are refunded based on their rating.

GST, unlike demonetization, can be said to be functioning in the desired track, given the occasional hiccups. This gives us the inference that it might be difficult to understand and implement GST in certain aspects, but given some time, it will lead to indefinite compliance throughout the territory of the country.

GST is an effective step taken by the government for the growth of the economy and all these inconveniences will but, just become casual in a matter of time.