In the past decade, there’s been a remarkable surge in the country’s startup scene. Despite the setbacks caused by the COVID-19 outbreak and the 2020 lockdown, 2021 marked a revival in growth.
Presently, India’s startup landscape initially centred around software, has diversified across industries and locations.
This transformation is credited to government initiatives, a skilled workforce, capital accessibility, and a favourable business environment. As a result, the country has steadily climbed the ranks in terms of ‘ease of doing business’.
Within the array of government measures supporting startups in India, GST stands out significantly in the realm of indirect taxes.
Despite considerable simplification in compliance compared to previous systems, the government, primarily through the GST Council, has recently intensified efforts in administration and vigilance. This involves extensive technological utilization to prevent revenue leaks and combat tax fraud.
In this setting, here are five crucial considerations for startups, especially in their initial phases of operation:
Complete Comprehension of the Implications of GST
The GST levy applies to transactions, even one-off non-standard ones, such as specific supplies without any exchange of consideration, like related party transactions. It’s crucial to conduct a comprehensive analysis to understand the GST implications, including the relevant HSN Code / SAC, and ensure proper tax payment. This helps mitigate the risk of disputes and potential interest and penalties.
Being Aware of the Legal Requirements
Likewise, it’s essential to meet the relevant statutory obligations within set deadlines. These include GSTR-1 (outward supplies details), GSTR-3B (summary return), GSTR-9 (annual return), GSTR-9C (reconciliation statement), e-invoicing (IRN & QR Code on invoices), e-way bills (for goods transportation), Letter of Undertaking (LUT) for GST-free exports, displaying GST registration details prominently in the office, and other associated compliances. Leveraging suitable technology and tools can significantly reduce errors and ensure compliance adherence.
Assessment of Vendors and Appropriate ITC Claim
Over the last six years, the government has tightened conditions for claiming input tax credit (ITC). This means that credits are now accessible only for transactions revealed by suppliers in their GSTR-1, subsequently reflected in the purchaser’s GSTR-2B. Recent court rulings have upheld the disallowance of ITC if the supplier fails to pay the corresponding tax.
Hence, it’s crucial to assess vendors’ KYC and compliance records (GST returns, e-invoicing) before onboarding, and establish necessary safeguards in case of potential disputes with GST authorities. Similarly, (ITC) Input tax credit claims must align with prescribed conditions and procedures, with regular reconciliations to prevent mismatch notices or intimations from tax authorities.
Strong Accounting System
A strong accounting system forms the backbone of every business. Implementing a suitable ERP system and hiring skilled personnel to maintain synchronization between the books and GST returns (in comparison to other tax laws) is crucial to prevent any compliance issues.
Periodic review/health check: As business operations expand and volumes rise, it’s wise to regularly review positions taken and compliance measures to avoid unintentional non-compliance.
In the startup ecosystem, especially in the early stages, tax often isn’t a primary focus for management. However, it’s crucial to have
- (i) Standard Operating Procedures (SOPs) with crucial checks in place
- (ii) basic knowledge of the law and appropriate partners to support in various tax matters
- (iii) competent in-house manpower coupled with pertinent technology, shall help the possibility of tax irregularities and inconsistencies for any start-ups.
Conclusion
In India, with the introduction of the Goods and Services Tax (GST), many startups sprang up to provide services to individuals and companies. However, these startups encountered several problems while working with new technology and navigating the complex tax filing and billing system.
To tackle these challenges head-on, SAG Infotech’s Online Gen GST Software has developed a user-friendly solution that simplifies the process of GST filing returns for new startup companies. By streamlining the filing process, SAG Infotech is helping these startups save time and money, enabling them to focus on new strategies for their businesses.
