GST India: Impact on Startups

Government of India is providing enough thrust for startups to flourish in India through a host of policies and exemptions, GST is one of them. As a startup the focus of the company and promoters has to be on business growth/expansion rather than tax compliance and procedures. In line with ‘Ease of doing Business’ theme, GST would assist businesses in multiple ways starting with registration process. With all processes being moved online and the concept of deemed registration, starting a new business would now be instant. Startups having multiple branches across country would benefit from uniform tax laws across as opposed to varying procedures for filing returns, making payments etc. under the current VAT regime. With high rate of failures in startups, under GST closing of registration and winding operations also would be easy.

New age startups in areas as e-commerce, digital payments, online services (food, grocery, personal care, healthcare etc.) face regulatory hurdles primarily due to the tax laws not being updated as per emerging business practices. The complex nature of business (Goods + Services mixed at varying proportions) makes it difficult to define taxability under prevailing VAT or Service Tax laws. Issues faced by Flipkart and Amazon with VAT authorities of various state governments stands testimonial to this. Emergence of India as a common, uniform market (local and interstate supply would be tax neutral) helps startups to quickly expand their business without requiring to open branches or warehouses in each and every state.  

Cash flow is the lifeline of any business and in the current system there are multiple hurdles for smooth cash flows. CST on interstate sales is non-creditable, input services cannot be set-off against VAT liability and vice-versa, refunds of credit is cumbersome and time consuming, collecting of statutory forms (C, F, H etc.) is another huge exercise.

GST would address these issues by providing automated setoff, refunds, input credits and elimination of statutory forms. For software startups the biggest advantage would be application of single GST tax. Currently VAT, Service Tax and Excise, all the 3 or two (VAT + ST) taxes are applied on software products and services leading to confusion and litigations besides causing price inflation due to cascading of taxes.

Thus startups will be empowered under GST and enable them to focus on business expansion. 

(Views expressed are strictly personal)