How the GST Act

affecting Indian
start-ups.

Submitted to-
Mr.Nirmal Sir

Submitted By- Inderpreet

Roll No- 53
11605106
BA.LLB(3rd year)
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PARTICULARS

S.NO TOPICS PAGE NO.

01 INTRODUCTION 02

02 02
BRIEF ABOUT GST

03 HOW WILL GST IMPACT ON INDIAN 03

ECONOMY

04 APPLICABILITY OF LAW AND 04-07

CONSTITUTIONAL ASPECTS OF GST

05 HOW THE GST ACT AFFECT INDIAN 7-10

STARTUPS

06 IMPACT OF GST ON NEW STARTUPS IN 10

INDIA WITH REFERENCE TO FMCG
SECTOR

07 POSITIVE AND NEGATIVE OUTCOMES 12-13

OF GST FOR INDIAN STARTUPS

08 CONCLUSION 14
RECOMMENDATIONS AND
SUGGESTIONS

09 BIBLIOGRAPHY 15
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How the GST Act affecting Indian start-ups.

Introduction At one stroke, on July 1, 2017, India made entry into a new financial regime
known as one nation, one tax by accepting the new Goods and Service Tax (GST) Act, 2017. It
subsumed all other existing laws relating to taxes which the companies had to comply with and
these laws varied from state to state. This act enables every state to follow and implement only
one law for taxation issues. With the implementation of this tax, there has been a shift in focus
from tax on production to tax on consumption thus enabling unity among consumers all over
India. With the rollout of GST, the startups are now able to save their time, efforts and money
which were earlier wasted in compliance with multiple state and central levies. In the new
regime, they have to comply with just a single levy i.e. GST. Efforts and money saved from
compliance can be channelized by the start-ups in innovation in their core areas which will
benefit them and nation. The success ratio for new startups is less than 1%. The reasons for such
failure could be attributed to various internal and external factors, inter-alia, shortage of funds for
routine compliances and inaccessibility to tax professionals, etc. With GST rollout, the startups
find it much easier to comply due to the compliance friendly system which includes Composition
Scheme, facility of online payment, simple forms across India etc. GST, therefore, helps startups
to focus on managing and expanding operations rather than on the tedious process of tax
compliance

What is a Start-up?

On 17 April 2015, a notification was released by The Ministry of Commerce and Industry
defining start-ups. According to the notification, an entity will be recognized as a start-up till up
to five years from its date of incorporation. Moreover, its turnover in the last five financial years
should not exceed 25 crores and the entity shall work

BRIEF ABOUT GST

Taxes on the Indian version of goods and services or GST is taxed based on the proposed
destination by the government, in which the aim of destroying various indirect taxes such as
VAT, Central Consumption Tax, Sales Tax, Service, etc. Nation However, unlike GST in other
countries, Indian GST is nothing but tax. It is actually the culmination of the three taxes - Central
Freight and Tax Service (CGST), Integrated / Interstate Freight and Tax Services (IGST) and
State Tax Goods and Services (SGST).
CGST and SGST will be hired on supply of goods and services, whereas IGST will be
applicable to interstate supply of goods and services in India. Since this is a tax based on the
destination, hence the manufacturer will be charged at all the stages till the end user so that the
taxes given in the previous steps available in the form of start-up can be attributed. In short, the
tax will be levied only at the extra cost and the final burden of tax will be borne by the final
consumer.
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Both the CGST and SGST are planning to collect the same taxable income. While CGST is
likely to replace all major indirect taxes such as consumption tax and service tax etc., it is
expected that SGST VAT, entertainment tax (other than local corporation tax), tax luxury,
purchase, termination and surcharge, lottery or Taxes on bets etc. are unnecessary However,
some items such as consumable alcohol, tobacco products, motor fuels, crude oil, natural gas and
jet fuel will continue to be charged for excise duty.
GST will eliminate the widespread impact of taxes In some cases, such as VAT collected by the
State Governments (which is collected by the Central Government), the double taxation becomes
clear, this practice of tax on goods and services tax taxes Will reduce.
The Goods and Services Tax (G.S.T.) is a landmark step taken by the Government of India to
boost the GDP and introduce a more effective tax regime.

GST is a win-win situation for the entire country. It brings benefits to all the stakeholders of the
industry, government and the consumer. It will lower the cost of goods and services to give a
boost to the economy and make the products and services globally competitive. By subsuming
most of the central and state taxes into a single tax and by allowing a set-off of prior-stage taxes
for the transactions across the entire value chain, it would mitigate the ill effects of cascading
and improve competitiveness and liquidity of the businesses.
GST will be applicable to all dealers whose aggregate turnover in a financial year exceeds INR
2.00 Million (INR 1.00 Million in case of eleven special category states). Separate registration
will be required in every state from where a taxable supply of goods or services is made

HOW WILL GST IMPACT ON INDIAN ECONOMY

 Reduces tax burden on producers and fosters growth through more production.
The current taxation structure, pumped with myriad tax clauses, prevents manufacturers
from producing to their optimum capacity and retards growth. GST will take care of this
problem by providing tax credit to the manufacturers.
 Different tax barriers, such as check posts and toll plazas, lead to wastage of unpreserved
items being transported. This penalty transforms into major costs due to higher needs of
buffer stock and warehousing costs. A single taxation system will eliminate this
roadblock.
 There will be more transparency in the system as the customers will know exactly how
much taxes they are being charged and on what base.
 GST will add to the government revenues by extending the tax base.
 GST will provide credit for the taxes paid by producers in the goods or services chain.
This is expected to encourage producers to buy raw material from different registered
dealers and is hoped to bring in more vendors and suppliers under the purview of
taxation.
 GST will remove the custom duties applicable on exports. The nation’s competitiveness
in foreign markets will increase on account of lower costs of transaction
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APPLICABILITY OF LAW AND CONSTITUTIONAL ASPECTS OF GST

There are several articles in the constitution of India which define the financial relations between
Union and States. Since GST bills involve a huge interest of the state governments, such a
historical tax reform cannot take place without making suitable changes into the constitution. For
this purpose, 101st amendment of the constitution was passed. This act received the assent of the
President of India on 8th September, 2016. The important changes made in constitution (new
articles / amended articles) via this law are as follows:

Article 246 (A)

This is a new article inserted in the constitution. It says that (1) Notwithstanding anything
contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every
State, have power to make laws with respect to goods and services tax imposed by the Union or
by such State. (2) Parliament has exclusive power to make laws with respect to goods and
services tax where the supply of goods, or of services, or both takes place in the course of inter-
State trade or commerce
Notable Points from Article 246A
For your examinations, you must the below points clearly from this article:
 Both Union and States in India now have “concurrent powers” to make law with respect
to goods & services
 The intra-state trade now comes under the jurisdiction of both centre and state; while inter-state
trade and commerce is “exclusively” under central government jurisdiction

Article 269A
This is a new article which reads as follows:
269A. (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall
be levied and collected by the Government of India and such tax shall be apportioned between
the Union and the States in the manner as may be provided by Parliament by law on the
recommendations of the Goods and Services Tax Council.
Explanation.—For the purposes of this clause, supply of goods, or of services, or both in the
course of import into the territory of India shall be deemed to be supply of goods, or of services,
or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated
Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for
payment of the tax levied by a State under article 246A, such amount shall not form part of the
Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246A has been used for
payment of the tax levied under clause (1), such amount shall not form part of the Consolidated
Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place of
supply, and when a supply of goods, or of services, or both takes place in the course of inter-
State trade or commerce.’
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Notable Points from Article 269A

 This article says that in case of the inter-state trade, the tax will be levied and collected by the
Government of India and shared between the Union and States as per recommendation of the
GST Council.
 The article also makes it clear that the proceeds such collected will not be credited to the
consolidated fund of India or state but respective share shall be assigned to that state or centre.
The reason for the same is that under GST, where centre collects the tax, it assigns state’s share
to state, while where state collects tax, it assigns centre’s share to centre. If that proceed is
deposited in Consolidated Fund of India or state, then, every time there will be a need to pass
an appropriation tax. Thus, under GST, the apportionment of the tax revenue will take place
outside the Consolidated Funds.

Article 279-A:
This article provides for constitution of a GST council by president within sixty days from this
act coming into force. The GST council will constitute the following members:
 Union Finance Minister as chairman of the council
 Union Minister of State in charge of Revenue or Finance
 One nominated member from each state who is in charge of finance or taxation
The GST council will be empowered to take decisions on the following:
 The taxes, cesses and surcharges levied by the Union, the States and the local bodies which
may be subsumed in the goods and services tax;
 The goods and services that may be subjected to, or exempted from, the goods and services tax;
 Model Goods and Services Tax Laws, principles of levy, apportionment of Integrated Goods
and Services Tax and the principles that govern the place of supply;
 The threshold limit of turnover below which goods and services may be exempted from goods
and services tax;
 The rates including floor rates with bands of goods and services tax;
 Any special rate or rates for a specified period, to raise additional resources during any natural
calamity or disaster;
 Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and
Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and
Uttarakhand; and
 Any other matter relating to the goods and services tax, as the Council may decide.
All decisions taken at the GST council will be taken based on voting. Process of voting is clearly
articulated in detail in the constitutional amendment bill.
Changes in the 7th Schedule
This amendment has made following changes in 7th schedule of the constitution:
Union List:
 The entry 84 of Union List earlier comprised the duties on tobacco, alcoholic liquors, opium,
Indian hemp, narcotic drugs and narcotics, medical and toilet preparations. After this
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amendment, it will comprise of Petroleum crude, high speed diesel, motor spirit (petrol),
natural gas, and aviation turbine fuel, tobacco and tobacco products. Thus, these are now out of
ambit of GST and subject to Union jurisdiction.
 Entry 92 (newspapers and on advertisements published therein) has been deleted thus, they are
now under GST.
 Entry 92-C (Service Tax) has been now deleted from union list.
State List
 Under State list, entry 52 (entry tax for sale in state) has been deleted.
 In Entry 54, Taxes on the sale or purchase of goods other than newspapers, subject to the
provisions of Entry 92-A of List I.; has been now replaced by Taxes on the sale of petroleum
crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine
fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-
State trade or commerce or sale in the course of international trade or commerce of such
goods.”
 Entry 55 (advertisement taxes) have been deleted.
 Entry 62 (Taxes on luxuries, including taxes on entertainments, amusements, betting and
gambling) has been replaced by these taxes only to be levied by local governments
(panchayats, municipality, regional council or district council.

Other Important amendments in existing articles

 The residuary power of legislation of Parliament under article 248 is now subject to article
246A.
 Article 249 has been changed so that if 2/3rd majority resolution is passed by Rajya Sabha, the
Parliament will have powers to make necessary laws with respect to GST in national interest.
 Article 250 has been amended so that parliament will have powers to make laws related to GST
during emergency period.
 Article 268 has been amended so that excise duty on medicinal and toilet preparation will be
omitted from the state list and will be subsumed in GST.
 Article 268A has been repealed so now service tax is subsumed in GST.
 Article 269 would empower the parliament to make GST related laws for inter-state trade /
commerce.
Further, the amendment also provided that Parliament shall, by law, on the recommendation of
the Goods and Services Tax Council, provide for compensation to the States for loss of revenue
arising on account of implementation of the goods and services tax for a period of five years.
This resulted into the Compensation Cases Bill.
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How the GST Act affecting Indian start-ups.

The GST will fuel the economy in a big way in the long run, by bringing a stupendous increase in the revenue
collected through it and India will rapidly move towards, being seen as a “developed” nation. India, as the
biggies define it, is still a developing nation, but at a supreme pace and a lot depends on the survival and
progression of the start-ups and the SMB sector. Our honorable prime-minister, Mr. Modi is all sold to the
empowerment of the SMB sector and the start-ups find a central place and consideration in his speeches.
While the GST is rolled with a harry audacious goal of simplifying the taxation and strengthening the Indian
economy, the initial impact [first 12 months] of GST on different sectors will vary, depending on the change in
the tax slabs and various other indirect factors. However, the start-ups will get enough oxygen and should be
able to thrive and flourish as the GST enfolds. The GST will overall act a catalyst for the start-ups and will
majorly boon the small and medium enterprises. Having said that, there would also be some barriers and
bottlenecks which the industry will face. The article aims to apprise you of all such pros and cons of GST on
the start-ups to enable you to take you an informed decision.

Pros
 Simplify starting of businesses
 Expanded markets
 Higher exemptions and reduced tax liabilities
 Enhanced logistics and faster service deliveries
 Consolidation of multiple taxation
 Financial Inclusions
Cons
 Confusion in registration
 Theory of ‘casual taxable person’
 Restrictive composition levy
 The ruthless reverse charge mechanism
 Technological restrictions
 Blocked working capital
 Compliance parameters

Impact of GST – Pros:

Simplify starting of businesses:
The new consolidated GST and its unique centralized nature has eliminated all the earlier hurdles
and hassles of enrolling with a plethora of different indirect taxes [of both central and state], only
easing the process of beginning a new venture by a single registration applicable PAN India.
Since startups lack the resources to hire tax experts or a dedicated team for handling varied forms
of tax compliance, GST’s objective is to simplify the tax regime by reducing the multiplicity of
taxes. This will not only bring compliance costs down but also make taxation transparent with
digital tax processing. This truly is encouraging, as the previous regime was horrifying in nature
for the entrepreneurs and the complicated taxation intricacies of starting a business gave them
goose bumps.
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Startups can enjoy tax credit on their purchases

A lot of startups are into service industry i.e., they pay service tax. Under GST regime they can
set off the VAT paid on the purchases (say office supplies) with the service tax on their sales
which they cannot under current regime.
For example-
A startup buys office supplies of 20,000 paying 5%. It charges 15% service tax on services
of Rs. 50,000. Currently it has to pay 50,000*15%= 7,500 without getting any deduction of
Rs. 1,000 VAT already paid on stationery.
Under GST (assuming GST= 18%)

GST on service @18% 9,000

Less: GST on office supplies (20,000*18%) 3,600

Net GST to pay 5,400

Thus it will be a big boon to the startup industry that are mainly providing services. It will
result in reduction of costs thus increasing working capital to the already cash-strained
startups.

Expanded markets:
The one nation – one tax has opened up the entire India like never before and created a
level playing field for everyone. Earlier SMBs used to limit their reach within the state fearing
the burden of tax and other complexities on interstate sales. The GST has eliminated this fear and
transfer of tax credit [irrespective of the location of the buyer and the seller] in the new regime
will encourage the entrepreneurs to look beyond the narrow intra-state business,

Higher exemptions and reduced tax liabilities:

The Composition scheme is formulated with the sole objective of supporting the start-ups and
empowering the small businesses with an annual turnover between 20 lakhs and 75 lakhs to pay
lower taxes. Earlier, as per the Value Added Tax (VAT) structure, any business with a turnover
of more than 5 lakhs was to compulsorily get a VAT registration. Under GST this threshold for
registration has been increased to 20 lakhs, thus providing a breather for founders of many
startups and small businesses.

Enhanced logistics and faster service deliveries:

GST does not have any provision for ‘entry tax’ for the goods manufactured or sold in any part
of India leading to expedited delivery of goods at inter-state points and toll checks. A CRISIL
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report suggests that the manufacturing costs of bulk goods will be reduced enormously, resulting
in a boost of e-commerce endeavors.

Consolidation of multiple taxation:

The cost of compliance, complexities of multiple taxes and tough inter-state movements have all
come to a full stop. The singular centralized taxation consolidates majority of the previous taxes
and cuts down the ultimate load on the tax payer.

Financial Inclusions:
The digital book keeping and the GST Compliance Rating will enable the newbies to fulfill
eligibility criteria to avail credit facilities and will attract more investors in the light of
transparent, sound and authentic e-data. In the long run, FinTech organizations and the venture
capitalists will have an easy access to the young and fast-growing ventures digitally and
confidently partner with them, in the light of visible authentic history.

Impact of GST – Cons:

Confusing registration:
The GST laws state that any business with an annual turnover of 20 lakhs [exempting north east
states, where this threshold is 10 lakhs] or more is required to register for GST and gives an
impression that anyone below the mentioned limit is exempted from registering.

But, any venture, if making any inter-state transaction is required to register for GST and file
returns, irrespective of his annual turnover being below 20 lakhs. The distance of the inter-state
is immaterial and could be as close between Noida and Delhi.

Restrictive composition levy

Though Composition Scheme is aimed to empower the smaller businesses [20 LPA to 75 LPA],
it prohibits availing the benefits of input tax credit or collect any tax from the recipients.
Although, the GST rate [2% for manufacturer and 5% for a supplier(food or any other article for
human consumption or any drink{other than alcoholic liquor for human consumption}, 1% for
other Supplies] for composition scheme is considerably lower than a normal tax payer, however,
the restrictions imposed, kind of, bring them back to square. The composite tax payers would be
deprived of the inter-state business and cannot sell through e-commerce, since GST needs e-
commerce to collect TDS.

Blocked working capital:

The new generation taxation mechanism would need to uphold funds in the electronic form with
the tax department leading to a blockage of the capital. Additionally, the input tax credit
mechanism will also lead to choked capital. All in all, the businesses would have to part from a
portion of their funds [without interest] under GST.
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Compliance parameters
A numerical figure [GST Compliance Rating] will guide your prospective buyer to decide upon
your credibility with the government much like the personal credit score these days. Businesses
will do everything to get and keep a ‘good’ score, which is not that easy, seeing the stringent
online micro guidelines not only about entering the data bit also about payments. The ‘good’
credit score would come at a cost of specifically deployed bandwidth and funds.

Technological restrictions:
GST being a 100% online module will need skills and precision for that critical accuracy which
would much be needed for getting a high GST Compliance Rating and will have to depend upon
the intermediaries [GSPs and ASPs]. Such recurring services would certainly hit the bottom line
profitability of the startups and the SMBs.

The ruthless reverse charge mechanism:

If a small businessman, who is exempted from GST supplies to a GST registered entity, the
buyer is liable to pay GST on such a purchase by self-invoicing and this invoice is to be
uploaded at GSTN while filing returns. Such a cost is basically bad debts for the purchaser.

Theory of ‘casual taxable person’

Anyone who intermittently transacts in the course or continuance of business, whether as a

principal, agent, or in any other capacity, in a state or union territory where he has no fixed place
of business, also needs to register for GST. Other than the GST, such an entity would also have
to pay taxes on an estimated basis, while applying for registration. Since the business owner does
not have a place of business in that state, there would be no output tax in that state and so the
SGST cannot be adjusted as an input tax credit.

From an eagle’s eye view, the GST aims to simplify and enhance transparency with digital tax
processes. For the start-ups, a DIY [Do It Yourself] model is also deployed [although with
restricted functionalities], which will enable the newbies to register, submit returns, pay taxes
and claim returns online. This will be advantageous for all sorts of start-ups irrespective of any
sectors.

Opinions of various startup owners heads on GST

Opinions of various startup owners and how do they look towards this new regime.
Vijay Shekhar Sharma, Founder and CEO Paytm, sees this as the most influential and tsunami-
ed move in the tax domain since independence – all for good only! He clearly foresees, the new
simplified tax structure would address, interstate supply chain issues and instigate new markets.

Ambareesh Murthy, Founder, Pepperfry.com is optimistic about it, for the transparency and
simplicity it embeds.
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CRISIL analysis report states that GST is going to play an intricate role in boosting country’s
GDP and reducing fiscal deficit. It creates a win-win situation both for the government and the
tax payers. Notwithstanding speculations and the initial teething problems, GST appears to be a
promising radical reform that ensures reduced costs and a better streamlined economy; elements
that are essential to guarantee success, to lift the spirits and to empower Indian entrepreneurs.
Should you be a start-up or a SMB or perhaps a conglomerate, you would certainly like to bring
on board a technical and technologically qualified team of professionals, who would hijack all
your taxation worries and inject the best GST automation solution in India.

IMPACT OF GST ON NEW STARTUPS IN INDIA WITH REFERENCE TO OTHERS

SECTOR

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011
to US$ 74 billion in 2018.Food products is the leading segment, accounting for 43 per cent of the
overall market. Personal care (22 per cent) and fabric care (12 per cent) come next in terms of
market share. Growing awareness, easier access, and changing lifestyles have been the key
growth drivers for the consumer market. The Government of India's policies and regulatory
frameworks such as relaxation of license rules and approval of 51 per cent foreign direct
investment (FDI) in multi-brand and 100 per cent in single-brand retail are some of the major
growth drivers for the consumer market. In India GST tax will replace almost all the indirect
taxes and bring a common market for easy tax structure and simple tax payment. The cost of tax
on all the commodities will lower as the result of GST implementation. The excise is removed as
the tax on tax is one of the major reasons that the rate of tax goes up once it is traded. But with
GST this becomes several times less and easier. Effects of GST on others sectors
AUTOMOBILES it will result in 10-17 percent of fall in prices assuming 18 percent GST rate.
Lesser benefits might be accrued by the tractors as these are against the taxes paid on input.
Though looking on the bright side the automobile sector will emerge as the tax that this field is
paying a much higher tax than the tax that will be acquired from it after the GST implementation.
It will lead to the easy and direct transfer of vehicles to the dealer. The stock will be transferred
to your own warehouse and further will be transferred from warehouse to dealer.
TEXTILES The tax for textile industry is divided into 9 categories at the moment that varies
from 4 to 12 percent. The textile sector is also bound to pay taxes to the unorganized players who
extract tax based on the size of the business. It depends on the fiber if it is natural or manmade as
the synthetic requires high service and the natural requires almost no duty. The mills are taxed at
higher rate more than the power looms which discourages the integration of production. The
GST implementation will boost exports as it will have no complicated schemes.
ENGINEERING, CAPITAL GOODS AND POWER EQUIPMENT GST will have a
positive impact on these and it will improve the prospects of engineering, capital goods and
power equipment (ECPE) sector by reducing all the complications. These industries are involved
with both manufacturing and servicing of the goods which makes the tax rate of this business
high because of double tax and also creates a puzzle ground of structure. This will be broken
down into much simpler structure with help of GST due to common tax.
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HOTELS Let us estimate that the GST rate will be 18% in this case the impact will remain
neutral as currently the hotels pay 8.7 percent and luxury tax at around 8-12%. Restaurants pay
service tax at around 5.6% and VAT at around 12%- 14.5%. LOGISTICS GST will lead to
elimination of central sales tax and inter-state value-added tax arbitrage possibilities. This will
lead to consolidation of warehouses and increased efficiencies in the logistics chain.
PHARMACEUTICALS It could bring a negative impact on this sector. The indirect paid by
this sector could increase by 60 percent which is a thing to worry about and MRP could increase
by 4 percent.
TELECOM All the service related sectors are expected to suffer from this implementation as
the service tax might shoot up. Even the moderate rise in tax could blow a hit on demand and
profits.

Positive Outcomes of GST for Indian startups

 Lower Exemption Limit For Manufacturing Units: Presently, manufacturing
units having a turnover of less than 1.5 crore do not have to pay any duty. Under
GST this threshold is expected to be drastically reduced; according to some
estimates as low as 25 lakhs. Doing this will bring many SMEs and start-ups
under the tax net, thereby impacting their bottom -line.
 The Composition Scheme: Available for businesses with a turnover of less than
75 lakh, it provides some relief for small businesses with fixed tax rates.
However, those who opt for this scheme cannot collect tax from customers. They
will also have to pay for GST themselves and will a lso not be allowed to claim
any input tax credit.
Some states had demanded that the annual turnover be raised to 1 crore, but as
of now the GST council decided to go with 75 lakhs. This cap was decided to
avoid significant revenue loss. Having said that, this ceiling will be under
review for the next 2-3 years and depending on how it performs, may also be
revised.
 Mandatory Registration For e-commerce: Any business that is into e-
commerce needs to be registered with GST, even if their turnover is less than 20
lakhs. This is an inconvenience to small businesses that are venturing into the
online sales medium with a small budget and limited means.
 GST Compliance Rating: This is one of the biggest concerns for small and
medium enterprises. According to GST law, the refund claims will be paid on
merit basis/or the compliance rating of the registered taxpayer. For instance, if
the compliance rating of a business is 100%, then the refund will be done
immediately.
This will affect the bottom -line of the SMEs as they’ll have to allocate a
committed resource to ensure timely compliance, else, their working capital will
be stuck with the authorities as a pending input tax credi t.
Furthermore, any sale that the supplier declares in the online system will have to
be validated by the buyer. If the supplier fails to furnish proper details, the
buyer will not get tax credit for such goods. In this scenario compliance rating
becomes even more pertinent as buyers more focused on getting input tax credits
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will prefer transacting with suppliers having a high compliance rating. This
again will impact small business as they probably are the ones who’ll have a low
compliance rating.
 More Manpower Required: With GST, everything will be online and must be
updated in real time. This would call for regular updating and on an annual basis
37 returns will have to be filed (three a month and one annually). The number of
returns will go up if the business is present in more than one state. For example,
if the company is present in four states, the number of returns it will have to file
annually will skyrocket to 148.

Negative Impacts of GST on Service Sector

Other than the goods, there are also down sides to this system of taxation. These negatives
include:
 Lack of a centralized registration: With the previous taxation system, many service
providers rejoiced over being able to register all their businesses in different areas from a
central place. However, this privilege has been taken away. Now, they have to register
their businesses in the respective state and pay the CGST tax.

 Taxation for free services: If a business is going to supply services for free, they will
still get taxed for it. Every supply that is made without consideration is taxed. This means
you have to prepare yourself before you offer any free services.

 Increased cost of service to end consumer: Because the rate of taxation will go higher
in the GST system, the end consumer will also feel a pinch of extra expenditure. The
taxation is between 18% and 20%. Because this rate is high, the cost of service will be
higher.
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CONCLUSION

In every sector, there are pros and cons of GST. In initial stages, there will be problems faced by
the businessmen and owners for implementing GST due to lack of technology and skill required
to implement the same. This period of transition will have its own ups and down where startups
will face more problems than the businesses which are already established and are burgeoning
the reason behind the problem is the restrictions this new regime will pose on the cash flows.
However, start-up owners have external experts as their savior who can help them in filing and
registrations thereby allowing owners to focus on the expansion of their business. On a
conclusive note, we can conclude that the GST has far-reaching impacts on the startups and the
benefits certainly outweigh the negative impacts it has caused to the startups. Further, it is
recommended that the Government should take more steps with the introduction of various
special measure or exemptions for the innovative startups and the young entrepreneurs doing
their business on an e-commerce platform. A relaxation in GST rate can also be provided for
start-ups like area-based exemptions existed in Excise to boost innovation in the country. The
government can also make simpler rules for audit, accounts, tax deposition and return filing of
the startups to boost the startup ecosystem and reduce the failure rate of the startups.

Recommendations and Suggestions

An entrepreneur must have a note on these points before starting their start-up.
 An entity will be recognized as a start-up till up to five years from its date of
incorporation and should work towards development, innovation and deployment of
commercial products or services having its turnover not exceeding INR 25 crores.
 Companies dealing in non-taxable products or exporting their products to foreign
countries are required to have mandatory GST registration.
 Registration to file returns and payment of GST tax has been made online.
 After implementation of GST, Start-up owners can aim for ease of doing business.
 GST implementation has its challenges too in terms of readiness of taxpayers with its
technology platform.
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BIBLIOGRAPHY

1. GST - Law & Practice Paperback 2017 by CA. Keshav R Garg

2. Handbook of GST in India: Concept and Procedures by Rakesh Garg
3. Basics of GST (August 2016) by Nitya Tax Associates
4. India GST for Beginners (2nd Edition, June 2017) by Jayaram Hiregange
5. https://scroll.in › Business and Economy › Revisiting Gst
6. https://www.businesstoday.in/union...19/.../economic-survey...gst.../269004.html
7. https://economictimes.indiatimes.com › News › Economy › Finance
8. FMCG: The Power of Fast-Moving Consumer Goods Kindle Edition
9. Marketing and Distribution Strategy for Fmcg (English, Paperback, Girish
Jadhav)