New GST Regulation for Startups & New ITR e-Filing Portal

 

The imposition of the Goods and Services Tax[i] (GST) has largely influenced the way start-ups in India function. In the three years since its effective implementation, the number of new start-ups has grown considerably. The introduction of a new tax framework was critical to the elimination of numerous indirect taxes for the startups. GST guidelines for start-ups were established under the motto “One Nation, One Tax” to make compliance easier for MSME, particularly start-ups.

India’s Eligibility for New Start-ups

Prime Minister Narendra Modi launched the start-up India initiative in 2016 to promote entrepreneurs and increase India’s entrepreneurship. The programme aimed to encourage start-ups by encouraging bank funding, easing formation processes, offering tax exemptions, and providing other benefits.

In India, start-ups can take advantage of numerous GST perks and exemptions if they qualify as an “Eligible Start-up”.  To be considered a qualified start-up, a firm must meet a number of requirements. According to the Start-up India Action Plan, a small business concept must meet the following requirements in order to be considered a start-up.

1. From the date of formation, a company must be formed or registered in India for about seven years (ten years for biotech firms).
2. In any of the preceding financial years, the company’s annual turnover should not have exceeded INR 25 crore.

An eligible start-up is a company that aims to improve business processes, commodities, or services via innovation, invention, deployment, and commercialization. Start-ups must be technologically advanced, with intellectual property and technology as their driving forces.

3. A start-up cannot be created by reorganising or dissolving an existing firm.
4. The Inter-Ministerial Board structure requires a start-up business to get an eligibility certificate.
5. A start-up can be formed as a private limited company, a registered partnership, or a limited liability partnership.

GST Impact on Indian Start-ups | GST Benefits

In India, the Goods and Services Tax (GST) has effectively absorbed all indirect taxes, resulting in a single tax structure. As previously stated, the “One Nation, One Tax” system has benefited growing start-ups. Several start-ups around the country have reaped the benefits that GST has provided over the years.

 

GST Registration — Increased Start-up Threshold Limit in India:-

Businesses with revenue of more than INR 5 lakh in a financial year (FY) were required to register under the former tax regime. Since the implementation of the GST, businesses having a yearly turnover of more than 40 lakh rupees (20 lakh for service providers) have been required to register under the GST system.

The GST’s higher threshold level is intended to make compliance easier for small enterprises in India, especially start-ups. In India, the GST system has also established the composition plan for small companies and entrepreneurs, which reduces the amount of tax paid by start-ups with yearly revenues of up to INR 1.5 crore.

Tax Credit on Purchases:-

Prior to the introduction of GST, service-oriented start-ups were required to collect and remit service tax to the government. Because most start-ups in India are in the service industry, one of the primary issues was the non-utilization of VAT paid on business transactions. There are no mechanisms for claiming credits on state VAT paid against service tax liability.

Since GST has consolidated many indirect taxes into a single tax structure, claiming Input Tax Credits is no longer an issue. Start-ups can now deduct taxes spent on procurement from taxes paid on sales under the Goods and Services Tax (GST) system.

 Procedures simplified for GST Registration and Return Filing:-

Over the last decade, India has largely revolutionised by shifting from manual to digital processes. To get a GST registration number, businesses no longer need to go from one government office to another and submit paper paperwork. Each procedure has been simplified and accelerated thanks to Digital India. Getting a registration number is a no-brainer job once you’ve organised all of your GST accounts and documents.

Several start-ups are affected by budget constraints; these start-ups can now take advantage of the GST system. GST has increased the threshold limit for registration and tax credits on purchases since its inception. In India, the simplicity with which returns may be filed has given relief to start-ups and small enterprises.

Calculating Taxes in a Simpler Way:-

Start-ups frequently operate on a tight budget, and they can’t afford to dedicate separate resources to different compliances such as Excise[ii], CST[iii], VAT, Service Tax, and so on. Instead, the introduction of the GST regime has streamlined tax compliance procedures, allowing start-ups to focus on other aspects of their businesses.

In India, the digital compliance system has expanded the scope of accounting software. Example – Imprezz, India’s first GST invoicing and billing software has been assisting small businesses with tax computations and return submission. Using accounting automation, you may do all of your tasks with a single click of a button.

Instead of several compliances and tax payments, it is considerably easier for start-ups that deal with both products and services to submit a single tax return and pay GST. According to the 22nd GST council meeting, which took place on October 6, 2017, start-ups with annual sales of up to INR 1.5 crore can file quarterly reports and pay quarterly taxes. Small companies and start-ups in India would benefit from the compliance relief.

India’s E-Commerce and Online Start-ups:-

Most innovative start-ups today utilise online presence rather than giving it all to traditional setups; most innovative start-ups today leverage online presence rather than giving it all to traditional setups. They trade online, which means they sell goods and services via the internet. The interstate movement of products is not a problem for e-commerce and other internet start-ups because GST is applied uniformly across the country.

Various VAT taxes were formerly applied in different states. For example, an online store delivering products to Karnataka must have a registered delivery vehicle and a file with the state’s VAT declaration. In the event the appropriate documentation is not produced, the products may be seized by the state’s tax officials.

States like as Rajasthan, Kerala, and West Bengal, on the other hand, regard these providers as facilitators or mediators and do not need them to register for VAT. All of these variations over how supplies were treated typically resulted in compliance issues. To make tax compliance easier, GST has combined all of these into a single tax structure.

Increased logistical efficiency:-

To avoid the CST and state entrance tariffs on inter-state goods transportation, logistics companies in India maintained numerous warehouses across states. The majority of warehouses were underutilised, resulting in higher operational expenses. Currently, the GST has lifted limitations on commodities transit across states, allowing warehouse consolidation across the country.

As a result, warehouse operators and e-commerce companies in India are showing an interest in establishing warehouses in key areas. It lowers needless logistical expenses, allowing start-ups involved in the delivery of products to make early profits.

India’s Tax Burden on Manufacturing Start-ups:-

Manufacturing start-ups face the brunt of the damage. According to Indian excise rules, manufacturing firms with an annual turnover of more than INR 1.50 crore were required to pay excise duty. However, after the implementation of GST, this threshold has been decreased to INR 40 lakh, raising the tax burden on numerous firms.

Consequences of Tax Evasion under GST Laws

To tackle tax evasion, India’s GST Council has required e-invoicing and digital return filing methods. The effective execution of the GST law necessitates the imposition of severe penalties on violators. It is critical to have a thorough understanding of the GST legislation. Otherwise, fines may be difficult to cope with for start-ups and new enterprises. Here are some of the most prevalent GST offences and penalties for small businesses in India.

• Penalty for failing to register for GST.

For unpaid taxes, the penalty is 10% of the amount owed, or INR 10,000, whichever is     greater.

• Non-issuing of GST invoices carries a penalty.

10% or INR 10,000 penalty for tax due, whichever is higher.

• Penalty for not filing GST returns.

For unpaid taxes, the penalty is 10% of the amount owed, or INR 10,000, whichever is higher.

• Under the GST, there is a penalty for committing fraud.

10% or INR 10,000 penalty for tax due, whichever is higher.

• Penalties for failing to file GST returns on time.

The late charge will be INR 200 per day (INR 100 per day under the CGST Act and INR 100 per day under the SGST Act), with a maximum fine of INR 5,000.

• Penalty for using the composition scheme when the Start-up is not qualified.

In the event of fraud, a penalty of INR 10,000 or 100% of the tax payable (whichever is larger) would be imposed under Section 74.

In the absence of fraud, a penalty of INR 10,000 or 10% of the tax owed (whichever is greater) will be imposed.

• Unlawfully charging higher GST rates will result in a penalty.

Penalties for unpaid taxes are either 10% or INR 10,000, whichever is greater (in case additionally charged GST amount is not submitted to the government).

• Unlawfully charging lower GST rates will result in a penalty.

Penalties for unpaid taxes are either 10% or INR 10,000, whichever is greater (in case additionally charged GST amount is not submitted to the government).

• Penalties can be imposed if GST returns are filed incorrectly.

A penalty of INR 25,000

• Invoices that are incorrectly issued are subject to a penalty.

A penalty of INR 25,000

• Penalty for charging the wrong GST type (IGST, CGST, or SGST) without authority.

For this form of tax avoidance, there is no penalty. Businesses can pay the correct GST amount and get a refund for an earlier GST payment that was incorrect.

New ITR e-filing portal: Check benefits, features and other details

On June 7, 2021, the Income Tax Department has introduced its new e-filing system. The new e-filing platform is designed to provide taxpayers with ease as well as a contemporary, seamless experience. For a brief period of 6 days, from June 1 to June 6, 2021, the Department’s present portal was unavailable to taxpayers and other external stakeholders in preparation for this launch and migration efforts. The Department will not set any compliance deadlines at this time to avoid causing taxpayers any difficulty.

Furthermore, from the 10th of June 2021 onwards, orders have been issued to schedule hearings of cases or compliances only from the 10th of June 2021 onwards, to give taxpayers time to adjust to the new system. If a hearing or compliance that needs online submissions is planned during this time, it will be postponed or adjourned, and the work items will be rescheduled after this time.

External entities that use PAN verification services, such as banks, MCA, GSTN, DPIIT, CBIC, GeM, and DGFT, have also been informed of the non-availability of the services, and have been asked to make arrangements to ensure that their customers/stakeholders are informed, so that any relevant activity can be completed prior to or after the blackout period.

To avoid any difficulties during the blackout period, taxpayers were advised to finish any urgent activities involving any submission, upload, or download by June 1, 2021.

Benefits & Features of new ITR e-filing portal:-

·         To offer rapid refunds to taxpayers, the new taxpayer-friendly site is connected with instant processing of Income Tax Returns[i] (ITRs).

·         All interaction, uploads, and pending actions will be shown on a single dashboard for the taxpayer to review and act on.

Free ITR preparation software is accessible online and offline, including interactive questions to assist taxpayers in filling out ITRs even if they have no prior tax experience, as well as prefilling to reduce data entry effort.

·         New call centre for taxpayer support including FAQs, Tutorials, Videos, and a chatbot/live agent to provide immediate solutions to taxpayer questions.

·         All major desktop portal features will be available on the Mobile App, which will then be activated for full anytime access on the mobile network.

·         For simple payment of taxes, a new online tax payment system on a new portal will be introduced later with various new payment methods like as netbanking, UPI, credit card, and RTGS/NEFT from any taxpayer’s account in any bank.

The Department has asked taxpayers and other stakeholders for their patience throughout the transition to the new e-filing portal and the ensuing initial time while they become comfortable with the new system. This is another attempt by the CBDT to make compliance easier for its taxpayers and other stakeholders.

Conclusion:-

When it comes to bringing ideas to life, execution is crucial. Similarly, GST serves a similar role in the implementation of an effective tax system that aims to benefit Indian businesses. Furthermore, the new tax computation method is more user-friendly and efficient than the old, inefficient approach. It is reasonable to assume that GST is playing an important role in helping India’s start-ups reach their full potential.

---

[i] Act No. 12 of 2017.

[ii] Central Excise Act, Act No. 1 of 1944.

[iii] Central State Tax Act, Act No. 74 of 1956.

[iv] Income Tax Act, Act No. 43 of 1961.

 

References

 

(1) Amitmundra, GST Rules for Start-ups in India, (Feb. 22, 2021), https://www.imprezz.in/gst-rules-for-start-ups-in-india/.

(2) NovoJurisLaw, Start ups and MSMEs: Registration and Advantages features of Atma Nirbhar package, (Aug. 11, 2020), https://www.novojuris.com/thought-leadership/start-ups-and-msmes-registration-and-advantages-features-of-atma-nirbhar-package.html.

(3) Ayush Verma, Procedure for registration of GST, (May 22, 2021),

https://blog.ipleaders.in/procedure-registration-gst/#What_is_the_benefit_of_Registration_of_GST.

(4) The Gazzet Of India, The Central Goods And Service Act,2017, (Apr. 12, 2017), http://gstcouncil.gov.in/sites/default/files/CGST.pdf.

(5) Harshita Tyagi, Income Tax Dept to launch new ITR e-filing portal: Check benefits, features and other details, (May. 25, 2021), https://www.timesnownews.com/business-economy/personal-finance/income-tax/article/income-tax-dept-to-launch-new-itr-e-filing-portal-check-benefits-features-and-other-details/761308.

(6)The Central Board of Indirect Tax and Custom, The Central Goods and Services Tax Act, (Jun. 18, 2021), https://cbic-gst.gov.in/CGST-bill-e.html.