For entrepreneurs, starting a new company endeavor may be an exhilarating experience. However, in the midst of the excitement of realizing your startup concept, it is critical to check that you are in compliance with the many laws and regulations that govern enterprises in your country. The Goods and Services Tax (GST) is one such essential facet of compliance in India. The Goods and Services Tax (GST) is a value-added tax applied to the supply of goods and services that has a substantial impact on startups and small enterprises. We will coach you through the necessary procedures to acquire GST compliance for your startup in this detailed guide.
1. Recognising GST
a. What exactly is GST?
GST, or Goods and Services Tax, is an indirect tax that replaced a variety of taxes in India, including VAT, service tax, excise duty, and others. It uses a destination-based consumption tax system, which means that it is levied at the time of consumption and is ultimately borne by the end consumer.
The country is divided into three tax groups under GST:
- The central government collects the CGST (Central Goods and Services Tax).
- The state government collects the SGST (State Goods and Services Tax).
- IGST (Integrated Goods and Services Tax): A tax levied on interstate transactions that is collected by the central government.
b. Why is GST important for new businesses?
GST is significant for startups for a variety of reasons, including:
- GST registration is required for enterprises with annual revenue over a particular threshold (as of my knowledge, the threshold was Rs. 20 lakhs for most states and Rs. 10 lakhs for special category states as of the cutoff date). Penalties may be imposed if you do not comply.
- ITC (Input Tax Credit): Registered businesses can claim ITC on GST paid on purchases. This lowers the overall tax burden while improving cash flow.
- GST enables firms to operate seamlessly across state borders, supporting a single market. This streamlines compliance for firms aiming to scale.
- Being GST-compliant increases your company’s credibility in the eyes of suppliers, consumers, and investors.
2. Registration for GST
1. GST Registration Eligibility
If you are a startup, you must register for GST if:
- Your turnover has exceeded the prescribed threshold, which varies by state.
- You sell across state lines.
- You must pay GST through the reverse charge procedure.
- You are an online retailer or aggregator.
- It is critical to review the most recent GST registration rules, as they may change over time.
2. GST Registration Documents Required
You will normally require the following documents to register for GST:
- PAN Card for Business
- Promoters’/Partners’ Aadhar Card
- Evidence of Business Registration
- Details of your bank account
- Address Verification
- Digital Signing
- Promotional/Partner Photographs
- These criteria may differ depending on your company’s structure and location.
3. GST Registration Process Online
a. GST registration can be completed online via the GST portal. Here are the fundamental steps:
Access the GST Portal via the following: Navigate to the official GST website (www.gst.gov.in).
Select “New Registration”: Click on the “New Registration” option.
Fill out the following form: Fill out the GST registration form, including all required details and documentation.
Verification: After submitting your application, you will be assigned an Application Reference Number (ARN). Your application will be checked, and you will obtain your GST registration certificate if everything is in order.
b. SAC and HSN Codes
The Harmonised System of Nomenclature (HSN) or the Service Accounting Code (SAC) is used to classify all products and services. SAC codes are used for services, while HSN numbers are used for commodities. These codes aid in the appropriate determination of taxes and are required for GST compliance.
The GST portal or a tax specialist can help you find the correct HSN or SAC codes for your organization.
4. GST Invoicing and Billing
a. Invoices Compliant with GST
GST-compliant invoices are an essential component of GST compliance. Your invoices should include the following information:
- GSTIN stands for GST Identification Number.
- Invoice Number and Date: Invoices are sequentially numbered.
- Details about the customer: name, address, and GSTIN (if registered).
- Description, quantity, HSN/SAC code, and unit price of the product/service.
Tax details: CGST, SGST, IGST, and cess (if applicable) breakdown.
Supply Location: Indicate whether the supply is intra-state or inter-state.
If relevant, mention whether or not the reverse charge mechanism is in place.
Total Amount: This includes all taxes.
Signature: As appropriate, digitally or physically signed.
b. E-Invoicing
For enterprises with a specific turnover threshold, e-invoicing is required. Invoices are created electronically in a standardized format and authenticated on the GST site under this system.
If your startup is subject to the e-invoicing regulation, make sure you are in compliance.
c. Format and Requirements for Invoices
Invoice format and requirements may change on a regular basis. To ensure compliance, it is critical to stay up to date on the latest GST rules and invoice types.
5. GST Return Filing
Filing GST returns is a continuous process that requires you to record your sales and purchases to the tax authorities. Noncompliance with filing returns might result in penalties and legal problems.
a. GST Return Varieties
Depending on your business structure and sales, you must file different types of GST returns. GSTR-1 (for outward shipments), GSTR-3B (monthly summary return), and GSTR-9 (annual return) are examples of common returns.
b. GST Return Filing Deadlines
Due dates for GST returns vary depending on the type of return and the size of your organization. Late fees and interest charges may apply if deadlines are missed.
c. GST Filing Procedures
The following steps are involved in the filing of GST returns:
Keep Accurate Records: Maintain accurate records of your sales and purchases.
Invoices: Create GST-compliant invoices for your customers.
Data Compilation: Gather and compile information for your GST returns.
Returns: Access the GST site and file your returns online.
Pay Taxes: After calculating the Input Tax Credit, pay the GST liability, if any.
Reconciliation is the process of reconciling your returns with your books of accounts.
6. ITC (Input Tax Credit)
a. What exactly is the Input Tax Credit?
The Input Tax Credit (ITC) system lets businesses receive a credit for the GST paid on their purchases. This credit can be used to offset your sales tax liability. When ITC is used correctly, it can dramatically lower your tax outlay.
b. ITC Claims Requirements
Certain conditions must be completed in order to claim ITC:
A valid GST tax invoice or debit note is required.
The supplier must have filed their GST returns and paid the government the GST.
The products or services must be employed for commercial reasons.
7. Payment of GST
a. GST Payment Procedures
GST payments are accepted online using the GST portal. You can pay using a variety of methods, including Internet banking, debit/credit cards, and NEFT/RTGS.
b. GST Payment Deadlines
GST payment deadlines vary depending on the type of return you file and your annual revenue. GST payments are often made monthly.
8. GST Compliance Audits
a. Requirements for GST Audits
GST audits are required for some firms. This entails a detailed assessment of your financial records, returns, and GST compliance.
b. The Function of GST Auditors
GST auditors are essential in verifying that your company is following GST requirements effectively. They will examine your records and report on any discrepancies or non-compliance issues.
9. GST Compliance Software for New Businesses
a. The Advantages of GST Compliance Software
For startups, using GST compliance software can streamline the entire process. Among the advantages are:
The software can automate operations such as tax filing and invoice production.
Accuracy: Lowers the possibility of errors in GST computations and filings.
Updates: Keeps you up to date on changes to GST rules and rates.
Saving time allows you to focus on your business activities.
b. Popular GST Software Alternatives
Tally, QuickBooks, and ClearTax are among the GST compliance software alternatives available. Investigate and select the one that best meets the needs of your startup.
10. GST Compliance Checklist for New Businesses
To summarise, here is a checklist to verify your startup’s GST compliance:
- If you are eligible, register for GST.
- Keep proper records and invoices.
- Determine the relevant GST rates as well as the HSN/SAC codes.
- Fill out your GST returns on time.
- Where available, claim the Input Tax Credit (ITC).
- Pay your GST obligations on time.
- If appropriate, comply with GST audit requirements.
- Consider employing GST compliance software to save time.
11. GST compliance and the registration process, invoicing, return filing, and common compliance challenges new businesses.
a. Return Submission:
GST returns must be filed on a monthly, quarterly, or annual basis, depending on the turnover and type of registration.
GSTR Forms: GSTR-1 (outward supplies), GSTR-3B (summary return), and GSTR-9 (annual return) are the most commonly used GST forms.
Submitting Procedure: When submitting returns, businesses must accurately declare their sales, purchases, and tax liability. This process can be aided by software tools.
GST payments must be made online through the GST portal.
b. Invoicing:
GST Invoice Format: Invoices produced by registered firms must include particular information such as the GSTIN (Goods and Services Tax Identification Number), invoice number, invoice date, and so on. Invoices should also categorize goods and services according to the applicable GST rate.
In some circumstances, the recipient of goods or services is required to pay GST instead of the supplier. This is referred to as the reverse charge mechanism.
c. Common GST Compliance Issues for Small Businesses
Complexity: GST legislation and compliance requirements can be difficult to understand, particularly for small enterprises.
IT Infrastructure: Adequate IT infrastructure and knowledge are necessary to efficiently manage GST compliance.
Data Mismatch: A data mismatch between the seller’s and buyer’s returns can cause reconciliation complications.
Classification Errors: Incorrect classification of goods or services can lead to tax disputes.
Failure to file taxes on time might result in penalties and interest costs.
Input Tax Credit (ITC): Businesses frequently struggle to claim ITC correctly, which can have an impact on cash flow.
E-way Bills: Meeting e-way bill criteria for the transit of commodities might be difficult.
Changes in Rates: Because GST rates and rules change frequently, businesses must keep up.
To address these issues, new firms may consider utilizing GST-compliant accounting software, engaging with tax advisors, and staying up to current on GST law amendments. Additionally, regular employee training and meticulous record-keeping can help to expedite GST compliance processes. To avoid penalties and legal concerns, it is critical to keep accurate documents and to file and pay on time.
12. GST-advantages of startups and small business
The Goods and Services Tax, or GST, was heralded as India’s first step towards a One Nation, One Tax system that would make tax assessment and collection fair, equitable, and convenient for all. From the time of registration through the filing of returns, the GST procedure has shifted from manual to online. The new tax regime has resulted in a paradigm shift in the way indirect taxes are collected and assessed in the country, with revenues increasing month by month. What impact has the rollout had on small enterprises and startups? Do they stand to benefit from this reorganization? Continue reading to learn about the GST benefits for startups and small enterprises.
Because it is a destination-based tax that adds value at each stage, the end customer bears the GST after collecting credits for previous stage input taxes. As a result, the many Central and State levies that have been bundled into a single GST have been overhauled.
Eases the burden of conducting business in India – Because of the adoption of the Goods and Services Tax Act, establishing and running a new business in India has become quite simple. There is a centralized online system for GST registration, and a single registration allows businesses to trade between states without additional formalities.
This has boosted India’s ranking on the Ease of Doing Business index from 142 in 2014 to 63 in 2022.
The Benefits of a Single Tax – The GST Act ensured that several central and state taxes were merged into a single tax.
a. GST APPLIES TO CENTRAL TAXES
- Excise Duty at the Central Level
- Tax on services
- Compensatory Duty
- Extraordinary Extra Duty
- Centre levies additional tariffs and cesses
b. STATE TAXES INCLUDED IN GST
- VAT stands for Value Added Tax.
- Sales Tax at the State Level
- Octroi
- Entry Fee
- Tax on Purchases
- The Luxury Tax
- Lottery, wagering, and betting taxes
- Additional taxes and state cesses
- Taxes on Entertainment
Exemption for Small Businesses and Startups – For those with a revenue of less than INR 40,00,000 (INR 20,00,000 in special category states), GST registration is not required. This protects small businesses from the difficulties of GST compliance and the accompanying formalities.
Simplified Procedures – Previously, firms that supplied both goods and services, such as the hospitality industry and computer dealers, had to follow both Value Added Tax and Service Tax requirements. There were several tariffs associated with various states and products. Invoicing and compliance have become considerably easier with GST.
Elimination of the Logistics Nightmare – Because items can be sold anywhere in the country, there is no need to keep warehouses at different sites in order to reduce taxes. The supply chain function has been streamlined as a result of this. Businesses can save a significant amount of money on storage and shipping costs as a result of GST, which is one of the primary benefits of having a single tax system.
Excellent assistance with E-commerce setups – The advent of GST has aided the growth of online firms that supply across the country by making it easier for them to comply with tax requirements. This would be a complex affair in the absence of GST because it would require inter-state movements subject to multiple tax legislation.
The implementation of GST has resulted in a more effective and centralized method of tax collection, with both the organized and unorganized sectors now included. The online registration of firms for GST and the digital filing of returns has greatly simplified the process.
13. The Advantages of GST Compliance for Startups
a. Accountability and transparency
One of the major benefits of GST is the increased openness it gives to the tax system. Each transaction is digitally recorded, making it more difficult for corporations to avoid paying taxes. This means a level playing field and increased accountability for startups.
b. Taxation Structure Simplified
GST substitutes a plethora of indirect taxes with a single tax, making taxing regulations easier for entrepreneurs to comprehend and comply with. The compliance load is reduced because there are fewer tax forms to deal with.
c. Market Access on a National Scale
GST has made India a unified market by removing state-specific tax obstacles. Startups can now grow their consumer base across the country without having to worry about differing tax rates and entry restrictions in each state.
d. Integration of Digital Technologies
The usage of digital systems for tax filing, invoicing, and record-keeping is required for GST compliance. This digital connection streamlines the process for startups and allows for more seamless transactions with customers and suppliers.
14. The Downsides of GST Compliance for Startups
a. Initial Implementation Difficulties
Startups may find it difficult to implement GST compliance processes and adjust to the new tax environment. Significant modifications in accounting practice, software systems, and personnel training may be required.
b. Costs of Compliance
GST compliance costs include software, personnel training, and professional services such as hiring accountants or consultants. These expenses can be prohibitively expensive for cash-strapped companies.
c. Frequently Made Modifications
GST laws and rules are frequently changed and amended. Keeping up with these developments and ensuring compliance can be difficult for startups.
d. Classification Difficulty
GST categorizes products and services into different tax brackets based on their nature and usage. Determining the correct categorization can be difficult and may result in disagreements with tax authorities.
15. Conclusion
GST compliance is a critical part of starting a business in India. Noncompliance can result in fines, legal problems, and a negative influence on your company’s reputation. Startups may ensure smooth GST compliance while focusing on their growth and success in the competitive business landscape by knowing the numerous facets of GST, maintaining up to speed with new rules, and using the correct tools.
Remember that GST compliance is a continuous process that demands continual attention and dedication. Consulting with a tax professional or GST specialist can also be advantageous, particularly as your startup grows and encounters more complicated compliance difficulties. Explore gstman.com for more information.
Reference links :
1. GST- THE BENEFITS OF STARTUPS AND SMALL BUSINESSES
https://www.startup-movers.com/gst-advantages-of-startups-and-small-business/
2. GST Rules in India for Small Businesses and Startups
GST Rules for Small business and Start-ups in India
