Upstart Co-Working Space recently hosted an exclusive members-only startups networking event to discuss Goods and Services Tax (GST) and its implications on start-ups. GST is termed as the biggest modification to the tax structure since India became independent.

The Guest of Honor was Chartered Accountant (CA) Mr Rajesh S. Prasad who comes from a family of three generations of CAs. His firm, R. Sriramprasad & Co., has accumulated experience of over 35 years. Other esteemed guests at the cocktail event included Howard James Scott, Managing Director (MD) of LogBiz Group along with his business partner Mr. Gurpinder Singh Sidhu, and Mr Kishore Tarachhand from Granada Software (Innovative ERP).

Before discussing the implications of GST, let us look at what it means. GST will replace all other indirect taxes collected by state and central governments. Some of these include central excise duty, service tax, central sales tax (CST), value added tax (VAT), entertainment tax, luxury tax, and others.

Due to the amalgamation of these various state and central taxes into a single tax, the cascading effect will be eliminated. This is a major move towards paving the way for a common national market.

Here are five common questions on GST and its effects on start-ups.

Is tax credit available on purchases?

Several start-ups are in the service industry and pay service tax. Under the new GST regime, these ventures are allowed to set-off GST paid on their purchases with the tax levied on their services. The present tax structure of VAT does not allow for this tax credit.

Will the GST compliances make the procedure complex?

The complete procedure from registration to paying and filing returns for GST is online. As GST eliminates all types of indirect taxes and simplifies the whole tax structure, entrepreneurs will be able to easily comply with GST.

How will GST impact e-commerce and online start-ups?

Several ventures offer products and services through the Internet. GST will be levied across the country eliminating the complexities of inter-state transfers of goods and services. Until GST, states had different VAT laws making it complex for online ventures to meet these requirements. The different laws and compliances will be eliminated in the GST regime enabling efficient business operations.

What is the threshold for registration?

The current VAT structure requires a business with a turnover exceeding INR 5 lakh to register and pay the tax. GST increases this threshold to INR 20 lakh, which exempts several start-ups from registration. The composition scheme offers respite to new ventures through lowered taxes for companies with turnover between INR 20 lakh and INR 50 lakh.

What is input tax credit?

The input tax credit is available for taxes paid on the supply of goods and services. However, these must be used or intended to be used during business operations or its furtherance. Furthermore, the input tax credit is available only if the invoice details match between the recipients and suppliers.

The successful implementation of GST will make India a single marketplace where free movement of goods will be a reality. In addition, start-ups will have to adhere to lesser compliances. Although companies may face some challenges during the transition period, GST will be beneficial in the long-term.

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