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The implementation of the Goods and Services Tax (GST) in India has vastly impacted the way startups function. GST has abolished certain indirect taxes and clubbed everything under its own larger umbrella. It was introduced with a slogan of “One Nation One Tax” to ease compliance procedures for businesses and especially for startups.
Let’s take a look at how GST has impacted startups, as well as whether there are any additional GST rules for startups to follow.
Higher threshold for GST registration
Before the implementation of GST, any business with a turnover of more than Rs 5 lakh in a financial year was required to obtain VAT registration. However, any business whose turnover exceeds Rs 40 lakh in a financial year is required to register under GST. This limit is Rs 20 lakh for service providers.
This higher threshold under GST has brought compliance relief to many small businesses, including startups in India.
Also, a composition scheme has been introduced under GST for small businesses operating in India. This scheme provides for a lower amount of tax for the businesses having turnover up to Rs 1.5 crore in a year.
Enjoy tax credit on purchases
A lot of startups in India are a part of the service industry. Prior to GST, they had to collect and pay service tax to the government. Non-utilisation of the VAT paid on purchases made for business purposes was one of the primary concerns. There was no provision for claiming the credit of state VAT paid against the service tax liability.
Since GST has brought several indirect taxes under its umbrella, the problem has been resolved now. Startups can set off tax paid on the purchases (for example office supplies) with the tax paid on their sales under GST.
Let’s understand this with the help of an example:
A startup buys office supplies worth Rs 50,000 paying 5% VAT on the same. It provides a service to another company for Rs 80,000 on which service tax of 15%. Let’s see the calculation of taxes to be paid by the startup when no adjustment of VAT and service tax was allowed:
|Service tax paid on service provided (80,000*15%)||12,000|
|VAT paid while purchasing office supplies (50,000*5%)||2,500|
|Total indirect tax paid||14,500|
The startup buys office supplies worth Rs 50,000 (GST @ 12%) and has provided a service to another company for Rs 80,000 (GST @ 18%). Here’s how the startup can enjoy the credit of the taxes paid on purchases after the introduction of GST:
|GST on service provided (80,000*18%)||14,400|
|Less: GST paid while purchasing office supplies (50,000*12%)||6,000|
|Net GST to be paid||8,400|
Simple procedure for registration and filing tax returns
Gone are the days when people had to run around tax offices to submit documents to them and obtain a registration number. Now, the whole process of registration and filing returns under GST is online, making it not only simple but also extremely quick. If all the documents are handy, then obtaining a registration number is just a few clicks away.
Cash-strained startups stand to gain many financial benefits thanks to the implementation of GST. With a much higher threshold for registration, tax credits on purchases, and ease of processes, GST has definitely brought relief to startups and smaller companies in India.
Consequences when businesses evade GST laws
|Type of offence||Amount of penalty|
|Penalty for not registering under GST||
Penalty 10% of the tax due or Rs 10,000 whichever is higher
|Penalty for not issuing invoices|
|Penalty for not filing GST returns|
|Penalty for committing a fraud|
|Penalty for delay in filing GST returns||Late fee is Rs 100 per day under the CGST Act & Rs 100 under the SGST Act. So, a total penalty of Rs 200/day will apply up to a maximum of Rs 5,000.|
|Penalty for opting for composition scheme even though the business is not eligible||In case of fraud (Section 74), a penalty of 100% of the tax due or Rs 10,000 whichever is higher will apply
In case of no fraud, a penalty of 10% of the tax due or Rs 10,000 whichever is higher will apply
|Penalty for wrongfully charging a higher GST rate||Penalty 10% of the tax due or Rs 10,000, whichever is higher (if the additional GST collected is not submitted with the govt)|
|Penalty for wrongfully charging lower GST rate||
Interest @18% p.a. will be applicable on the GST shortfall
|Penalty for incorrect filing of GST returns|
|Penalty for incorrect invoicing||Penalty of Rs 25,000|
|Penalty for incorrect type of GST charged (IGST instead of CGST/SGST)||No penalty will be charged in this case. Businesses can pay the correct GST and get a refund of the wrong GST paid earlier|
How can startups make the process of invoicing much easier?
The answer to this is Razorpay Invoices, a smart product to help you generate GST-compliant invoices in a matter of minutes.
You can use this product by following three simple steps:
- Create the invoice: The easy-to-use platform allows you to create multiple invoices with total ease. You just have to enter the details of goods supplied, or services provided, along with the value and the GST applicable. Once you click on the create invoice button, the platform will generate the same, ready for use
- Notify your customer: After the GST-compliant invoice is created, you can send the invoice’s unique link to your customers via an SMS or an email
- Receive your payments: Your customers can then immediately initiate a transaction to make the payment
Additionally, your customers can also download the invoice and save it for future reference. If you want to initiate partial payments on an invoice, that can also be carried out transparently to ensure all your business processes are followed correctly.
The Razorpay dashboard not only shows you the invoices that have been sent and cleared but also shows you valuable consumer insights that can come in handy while crafting your business strategies.
Moreover, you can create templates of your invoices or certain line items to make sure that you don’t have to create the same things again. Using Razorpay Invoices can reduce the manual effort you put into this part of your business. You now have free resources and more workforce to dedicate to other aspects of your business, such as product development and marketing!