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When should a Startup Register for GST in India ?

When should a Startup Register for GST?

Entrepreneur is a person who sets up his own business. He is ready to take the financial risk and has a solution to give. The solution may be innovative, creative or a simple idea. But everything depends on the problem and solution. So going ahead of the problem and solution the next question would be what is a startup? Its literal meaning will be to put something in motion. In this context it would be a business which is just emerging. The word startup has now been so widely used that while typing this article the writer was bound to use the word ‘startup’ instead of emerging.

Let’s cut to chase:

GST becomes applicable only and only after the turnover of your business has crossed 20 lakhs annually and if you belong to the northeastern state the same level is up-to 10 lakhs. So let’s see how to calculate this turnover?

There is one scenario in which we can consider a tours and travels business. Now-a-days there are many startups who are venturing into this arena. So let us consider a ticket to New York which costs around 1lakh rupees. The commission is around 2k. So after 20 or 30 tickets the turnover exceeds 20 lakhs. So now the question will be is GST applicable here? The answer is NO! As the GST is applicable on the commission earned and if this commission earnings exceeds 20 lakhs then only GST is applicable.

So the next question is if your startup’s turnover is below 20 lakhs what should we do about it?

First Reason to register for GST even if turnover is less than 20 Lakhs is “Claim Input Tax Credit/GST Refund”, Let me explain this by way of an example.

Consider there is a tours and travels operator. He purchases a ticket for let’s say 100 bucks on which 5% of GST is applicable. The price of the ticket increases to 105 bucks. He sells this for 110 to the end customer. Now let’s introduce GST in the scenario. If the tour operator has his GST Number he can apply for the GST refund of Rs.5 which he has already paid to Airlines. But if tour operator does not have a GST number he cannot claim that Rs. 5 back, which indirectly adds up to the cost and reduces Profit Margin. So it becomes necessary to register your startup for GST.

The second reason is “It increases the credibility of your business”. Consider you have a startup and you are registering a company. You can do it by registering the company as a Proprietorship firm, Private Ltd Company, Limited Liability Partnership and Partnership firm. So there is one more way to go about registering for GST. Talking about sole proprietorship having a Gumasta license and a GST number can provide the necessary legal structure for your company. You can claim Input Tax Credit if you are a registered GST payer. So having a GST number also adds credibility to your business as it is something which stays registered with the appropriate authorities. Also, corporate companies prefer to work with those companies who have their GST number.

Yet another topic to be discussed is called the composition scheme. Composition scheme is a scheme under GST for small businesses from the unorganized sector. These are the businesses which include local restaurants, tea stalls, etc. The limit for the composite tax is rupees 1.5 crores and 75 lakhs for North Eastern states.

These are the conditions and so the whole thing is that a startup can apply for GST after incorporating a company. GST stands to unify our country wherein the authorities are calling this whole regime as ‘One Nation. One Tax’. GST stands to unify the country into one single marketplace.

[This post is contributed by Afleo.com –  a business services platform which helps the startups & small business owners to start and develop their business in India, at a reasonable cost. Also, Afleo provides business services like incorporating of a company, intellectual property rights, trademark registration to secretarial compliances, accounting, GST registration filling and returns.]

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