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GST: Start-Up Ease & Economic Freedom

 23rd Aug 2017    19:35    Harshit 


GST, a form of indirect tax that came into being in India on July 1, 2017, that promises to unify all the forms of indirect taxes under one banner. What is its principle of ‘ONE NATION-ONE TAX’?

The Goods and Services Tax was launched at midnight on 30 June 2017 by the Prime Minister of India, Narendra Modi. The launch was marked by a historic midnight (30 June – 1 July) session of both the houses of parliament convened at the Central Hall of the Parliament. It is one of the few midnight sessions that have been held by the parliament - the others being the declaration of India’s independence on  August 15, 1947, and the silver and golden jubilees of that occasion. The launch of GST has been portrayed as Economic Freedom to the country.



Before GST, various types of indirect taxes were levied such as Service Tax, central excise duty, Sale Tax, VAT etc. , but now all of them have been unified and only GST is applicable. Under GST, goods and service tax are levied under following rates-0%,5%,12%,18%,28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 15% or other rates on top of 28% GST applies to few items like aerated drinks, luxury cars and tobacco products. It is dramatically set to reshape country’s  2 trillion dollar economy. GST follows a dual model, SGST and CGST, shared between the state government and the central government respectively. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced.

GST is proving to be a boon for the growing trend of startups. As per the earlier VAT laws, any business with a turnover of Rs. 5 lakhs or more had to get itself registered under VAT and had to pay VAT. Now, under the current GST structure, businesses below a turnover of Rs. 20 lakhs need not register itself to pay the goods and services tax, thus exempting startups(which naturally in the beginning have a minimal turnover) from paying any kind of taxes and helping them bloom. Also, for the startups pertaining to service industry, due to the introduction of GST, the costs have been now reduced, thus, increasing working capital to the already cash-strained startups. GST has altogether led to simpler taxation. Some other advantages that GST offers are:

  1.  Removing cascading tax effects.
  2.  Higher threshold for registration.
  3.  Composition scheme for small business.
  4.  An online simpler procedure under GST.
  5.  Lesser compliance.
  6.  Defined treatment for e-commerce.
  7.  Increased efficiency in logistics.
  8.  Regulating the unorganized sector.

GST will improve the collection of taxes as well as boost the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate. The benefitting difference between GST and VAT is, that VAT was levied at each level such that tax was applied on tax, but now due to GST, tax is applied only to the monetary value added to the good, thus the buyer can show the tax he earlier paid at the time of purchase as a liability, thus subtracting it from the further tax he needs to pay for value addition and therefore decreasing the total taxes he pays and also the final cost, thus making the goods cheaper for the consumer as well reduced tax payment for the seller.


(Source: GSTnet)

Though, the government has taken care of the lower classes and the middle classes by introducing slabs in the tax rate. For eg. Rate applicable on movie tickets below Rs. 100 is 18% and above Rs. 100 is 28%. Similarly on footwear, 5% GST on footwear below Rs. 500 and 18% on above it. Still, it has faced opposition on issues such as keeping sanitary napkins under 12% GST rate and 0% for sindoor. Altogether a mixed reaction has been observed pertaining to GST, across the country.