GST Rules That Startups Must Comply To In India
GST the new taxation system in India was implemented in the year 2017. This system has changed the way startups are run in many ways. GST has bought many of the taxation systems under a larger umbrella thus cancelling out many of the indirect taxes that businesses have had to pay over the years before its implementation. Now with this law coming into place, there have been some basic rules and regulations that startups have had to adhere to failing which large penalties would be brought down on them. Let’s take a look at some of these rules.
GST regulation and its higher threshold
According to the guidelines brought about by this taxation system, a company must register under the GST guidelines if their annual turnover exceeds ten lacks. This amount may vary depending on the state the business is in. Special category states must have a turnover of ten lacks and 40 lacks in other states. This higher threshold that exists is important because it has brought about some form of relief to smaller business owners as well as startups.
Under the GST rule, a smaller composition scheme has been set up for companies with an annual turnover of 1.5 crores per annum. This means that they have to pay a lower amount of tax.
Start-ups must understand which category they fall under. They must conduct adequate research to know if they are required to register under GST.
Registering for GST
Once startups gain clarity on whether or not they should register for GST they must ideally start the registration process. Business advisors always urge their clients to do this as soon as possible because angel investors and other interested parties look for these registration certificates. The registration is based upon the taxation laws of the country.
Registering is easy, all you must do is visit the website and fill in the details asked. The most important part is validating your phone number and email. It’s imperative to note that if you are considering conducting your business in various states in the country that you must obtain a GST certificate for each state.
Tax credit on purchases
GST has been hugely beneficial for startups and smaller businesses. Before, startups had to pay and collect service tax to the government through the VAT (value-added tax) taxation method. This means that the non-utilisation of the VAT paid on various purchases made for numerous business purposes was of primary concern. However, since GST has been implemented it has resolved this problem.
Identifying and classifying your transactions
Startups must identify and classify all their transactions as either ‘goods’ or ‘services’ using HSN/SAC code mapping technique. It’s also important to classify your taxation into intrastate transactions and interstate transactions. A detailed view of the classification is given on the GST website.
Filing your GST returns
The complete process of filing your returns is done online which has made it relatively easy for businesses. This is a quick and painless method. Returns are supposed to be filed on a monthly/quarterly/yearly basis. Completing this action on time will ensure a good GST rating. Make sure you have all the necessary documents and fill up the forms correctly.
To sum up
Making sure that your startup is compliant with the GST laws is imperative. It ensures the longevity of the business. Non-compliance leads to massive fines that the business will have to pay. To make sure you don’t forget to file your tax returns etc. be sure to include all this in your business plan.
Further for any newly formed start-up, the best way to incorporate this whole aspect of taxation is by having a complete business plan. Your business plan should also include a One-Page Business Plan. I have developed a one-page business plan for all start-up founders and entrepreneurs. This business plan helps you ideate what you would like to achieve the following year as well as the activities you are willing to give up. It helps you to understand the shortcomings of the previous year as well.
About Devansh Lakhani
Director of Lakhani Financial Services, and a Chartered Accountant, he helps start-ups raise funds from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. He has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.