GST Registration for Start-ups

Goods and Services Tax (GST) was introduced on 1st July 2017 in India. GST is one indirect tax for the whole country against a number of indirect taxes such as VAT, Service Tax, etc. GST has replaced multiple taxation systems thus reducing various complexities which taxpayers had to face earlier. In other words, GST follows “One Nation, One Tax” principle.

Recently, the Government of India has come up with a new definition for start-ups. According to the new definition, an entity would be identified as a start-up upto ten years from the date of its incorporation or registration. Also, during these ten years, its turnover for any financial year should not exceed Rs.100 crores and an entity should work towards innovation, development or improvement of products or processes or services.


Below are the four benefits of GST Registration for start-ups:

1. Easy compliance model
Under the GST regime, the whole process of registration can be done online. This eliminates the need to make multiple visits to the tax offices for registration and filing. The entrepreneurs can register for GST and file their GST returns at the comfort of their home. Also, the compliance model for GST has been simplified which can be done by the entrepreneurs themselves, making the start-ups cost effective as they do not require to hire professionals to look after the tax compliance. Earlier, start-ups that dealt with both goods and services like restaurants, had to adhere to service tax as well as VAT, which made to the whole process of taxation very complex. But with the introduction of GST, such start-ups can file and pay only one tax as these two taxes have been combined into one GST.

2. Availability of input tax credit
An input tax credit means while paying the tax on the output you can deduct the tax that you have already paid on input. For example, if you have paid Rs.250 while purchasing your inputs and you have to pay Rs.550 tax on your output then you need to pay only Rs. 300.0 (550-250) as you can claim an input tax credit of Rs.250. In the pre GST framework claiming an input tax credit for Central Sales Tax, Entry Tax, Luxury Tax, and other taxes was not possible. Moreover, service providers and manufacturers were unable to claim Central Excise duty. Also, cross-credit of VAT against service tax and excise was not possible. Now, with the introduction of GST, this drawback has been eliminated as all other taxes are subsumed into one GST. Seamless input tax credit system reduces the cost of end products making the start-ups more competitive against other big players.

3. Higher threshold for registration

Earlier during the VAT regime, a businessman had to obtain VAT registration if his turnover exceeds Rs.10 lakhs. Also, a service provider had to obtain registration once his turnover exceeds Rs.10 lakhs. This threshold has been increased to Rs.40 lakhs (Rs.20 lakhs in the North-Eastern States) under GST for Goods Supplier while for Service Provider is Rs 20 Lakhs(Rs.10 lakhs in the North-Eastern States. This exemption is beneficial for the start-ups as they need not worry about the compliance and can continue operations without obtaining any registration until the turnover does not exceeds Rs 20 / 40 lakhs. Start-ups having less than Rs.1.5crores (Rs.75 lakhs in North-Eastern states and Himachal Pradesh) can opt for composite scheme registration. Under this scheme, start-ups are required to furnish quarterly returns and tax rates are nominal, which reduces their tax liability and increases the profit.

4. Hassle free movement of goods and enhanced logistics
GST eliminates the entry fee that the provider used to pay while transporting goods from one state to another, allowing unrestricted movement of goods throughout the country. Due to the transporter not having to wait and pay tax at each checkpoint, the transportation time is greatly reduced, and the delivery of the goods and services is ensured more quickly. The profitability of start-ups is increased by lower logistics expenses.

Written by: Team MyEfilings

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