GST for startups can get intimidating… Well if you don’t have all the information with you.
Have you recently started exploring a business idea and are wondering what does the procedure for GST for startups entail? We’ve got you covered!
Why do you need GST for startups?
Migrating from one system to another is never easy, especially when it concerns something as vital as your taxes- which is why there was a massive uproar when the government of India decided to implement the tax reform of a lifetime, which we now know to be the Goods and Services Tax (GST)- a reform that aimed to achieve the motto ‘One Nation-One tax’.
Simply put, the much-discussed GST is an indirect tax that a consumer pays to the Government of India any time said individual consumes something, in terms of both goods as well services. A destination-based tax since unlike other indirect taxes, GST is collected from the point of consumption and not origin.
While GST was introduced with the end goal of simplifying our taxation system and make way for the digitalization of our market, GST for startups and other SMEs has been at the center of discussion ever since it was introduced.
The GST has been welcomed by small and medium enterprises for reasons more than one. But a major reason has definitely been the decision by the GST council to set a limit of annual turn over of 40 lakhs for GST registration, further reduced to Rs.10 lakhs for NE states.
However, it needs to be remembered that not only this threshold limit is only applicable to manufacturing, and not services- but additionally, GST registration is also mandatory for the inter-state supply of goods, the value of turnover irrelevant to such scenarios. There is also no sales registration threshold.
Besides a simplified taxation system, the implementation of GST for startups has also been a boon when it comes to cutting costs. Earlier, with the launching of a new business, owners had to get a VAT registration from respective States’ Sales Tax departments. With every state demanding compliance toa different set of VAT regulations, the registration and the consequent compliance constantly kept business owners on their toes.
With a standardized registration procedure for GST, the efforts have effectively been halved. However, businesses operating in multiple states still require a separate GST number for each of the states they are present in, although the PAN number remains the same.
GST for startups: All you need to know before you register
The entire GST registration process takes place online, saving you the hassle of running from one government office to another.
Here’s a checklist of all documents required for GST registration for companies:
• Company Pan card
• The Ministry of Corporate Affairs incorporation certificate
• Memorandum/Articles of association
• Signatory’s appointment proof
• Signatory’s PAN card
• Signatory’s Adhaar card
• PAN card & address proofs of all directors
• Address proof for place of business (copies of rental agreement/ latest electricity bill/property tax receipt)
• Proof of bank account (scanned copy of the first page of bank passbook/bank statement/canceled cheque)
Pre-requisites before you initiate the registration:
• Valid Indian phone number and email address
• List of goods and services
• Authorized signatory’s photo (digital copy)
• Digital signature (class 2) of whoever is authorized to sign the GST application
• Other regulatory registration details if applicable (i.e. State excise license)
GST for startups: Part I of the registration process
The first step is obtaining the temporary Registration Number (TRN).
• Go to the official GST portal https://www.gst.gov.in/ and choose Services>Registration>New Registration.
• Enter requested details and click proceed
• You will receive the TRN after verifying your phone number and email ID via OTP
• Next, click proceed or Services/Registration/New Registration and enter the generated TRN in the relevant field
• Verify OTP again
This will take you to your “Saved application” page which is the second part of the process and contains 10 sections. Filling in the form within 15 days is mandatory or your data will be wiped from the database. Check the list of documents and keep them handy before you start.
Part II: GST Application form
• Fill in all the tabs. Ensure you click ‘Save & Continue’.
• Ensure you have provided proof of the constitution of business.
• Consult your CA/Tax consultant in case of any doubt whatsoever.
Part III: Registering a Digital Signature Certificate (DSC)
You are required to digitally sign the form to ensure verification of your GST application. A Digital Signature Certificate (DSC) is mandatory for all companies.
• Only the digital signature of the Authorized Signatory specified in the form is allowed.
• Ensure you have DSC software installed on your system along with the DSC dongle.
• Install Emsigner to sign the digital form.
Part IV: Verification & submission
• Verify and submit your application. An Application Reference Number (ARN) will be generated which you will receive on your registered mobile and email address to help you track your application status.
• Once your application is approved, you will receive a temporary user name (which is also your GSTIN number) and password that you can use to log into the GST portal using the ‘first-time login’ tab and then change your username and password.
• Your registration certificate will be available for download within 3 to 5 days on the official GST website.
Advantages of GST for startups:
• The centralized procedure has made launching a new business easier than ever. Most start-ups can not afford to invest resources in hiring a team of tax consultants to track tax compliance and all the other hurdles that come with the legal side of a business. By simplifying and centralizing the tax system, not only GST saves resources for small and medium enterprises including start-ups, but also brings transparency thanks to digital tax processing.
• GST has helped small businesses look beyond the immediate intra-state business, thanks to its strategy of One Nation-One Tax. The complexities of different tax compliance regulation on interstate sales is now a thing of the past, not to mention that it has effectively brought down logistics cost.
• Besides the 40 lakh annual turnover threshold, the Composition scheme is also designed to uplift small businesses and start-ups in India, where small taxpayers with a turn over less than 1 crore can pay GST at a fixed rate. However, there are certain exemptions to it.
• The digitalization has brought in transparency with supplementary long term benefits such as the reduced scope of error and fraud, making the start-up ecosystem conducive to investment and growth.
However, like any other reform, GST too has its own set of shortcomings. The disadvantages of GST for startups are as follow:
• With the highest slab being 28%, India actually has the second-highest tax rate among 115 countries-according to the World Bank’s 2018 report.
• The registration is said to be notoriously confusing, not to mention tedious.
• Businesses opting for the Composition scheme can not collect taxes, as well as being compelled to opt-out of inter-state and e-commerce business.
• The updated digital taxation system needs to uphold finds digitally, leading to a blockage of capital.
• Small-businesses may not have the mandatory technological skills to ensure better utilization of all the exemptions offered.
• If a small business owner who himself is exempted from GST sells supplies to a non-exempted GST registered entity, the buyer will end up paying GST by self-invoicing.
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Conclusion:
It may be true that for a market as vast as India’s, a complete overhaul of the taxation system may not be a massive success in its very first stage. However, the system was introduced keeping in mind long term goals like exposure for small businesses, transparency and building an ecosystem that is conducive to accommodating as well as maintaining growth, at par with the international market.
The initiatives already taken by the government reflect the same commitment towards small enterprises, including the recent update of the annual threshold from 20 lakhs to 40 lakhs. It is not too early to say that the implementation of GST is not only going to encourage transparency in our existing system but also benefit start-ups by way of helping them invest their limited resources where it is most needed.
