Know More About The Impact Of GST On Startups And Entrepreneurs

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Are you a business owner or planning to become one? You would be surprised to know that taxation and return filing used to be one of the most dreaded topics for all entrepreneurs before the implementation of GST.

GST was intended to replace all forms of indirect taxes levied by the state and central governments with a unified taxation system. While the taxpayers in India seemed to be utterly relieved by the new tax regime, it was the startups and small business owners who were liberated from the ongoing tax anomalies and inconsistencies.

The Impact Of GST On Startups

The odds of success for startups in India is less than 1%, and experts call out several factors responsible for the same. Most startups are bootstrapped and need initial hand-holding due to scarcity of funding and direction.

It is important to establish here that although most entrepreneurs are not looking out for some breakthrough profits in their initial years, they do need the revenue to keep the business functioning.

Let’s understand some of the most prominent implications of GST on startups and entrepreneurs.

Input Tax Credit Privilege For New Entrants

Before GST was introduced to the Indian entrepreneurs, they were slogging under the burden of heavy taxes for the purchase of machinery and office equipment. Startups and new businesses who are already striving under a cash crunch and limited capital can now avail input tax credits for the taxes already paid.

In a layman’s term, while paying a tax on your output (goods or services), you can licitly subtract the tax that you have previously incurred on the inputs (purchases).

Reduction In The Cost Of Logistics

Maintenance of warehouses in every state due to the costly movement of goods is a very yesteryear thing. The tax burden on startups and budding entrepreneurs is significantly reduced due to the unification of slabs across states.

It has, therefore, proved to be a great boon for those businesses that have started with limited capital. Working from fewer but strategically placed warehouses cut down on the huge inventory management costs, which can be better utilised in growth and expansion.

Single GST Registration

New ventures are growing by leaps and bounds as they are no more confined within the complex interstate compliance issues. As an entrepreneur, you can now expand your business through multiple states and cater to a broad customer base while having a single GST registration.

GST Annual Return Waiver

The gst annual return is non-mandatory for small businesses that report an annual turnover of less than Rs 2 crore. The waiver would counter for the initial roadblocks that startups and new enterprises encounter due to lack of funds and a piece of proper knowledge about the return filing process.

A Revised And Transparent Tax Reform

You can now file your tax returns online and save the unnecessary manpower wastage that earlier went in keeping up with the compliance and paperwork.

With the inclusion of a composition scheme under the GST umbrella, if your business has an annual turnover below Rs 1.5 crore, one quarterly and one annual return should suffice. The composition scheme not only reduces the tax liability and compliance hassles but also ensures higher levels of liquidity.

Reverse Charge Mechanism 

In an ideal circumstance, the onus of paying the GST lies with the supplier. However, if the supplier is not enrolled under the GST Act (turnover is less than Rs 20 lacs), the tax liability shifts to the buyer and all the provisions of the GST Act are applicable.

This often leaves the buyers baffled and makes them question the law as to why a registered entity would endure the tax brunt of an unregistered one! This indirectly discourages the consumers from buying from unregistered companies and swoops over their customer base.


With the advent of the GST reform, some of their biggest hurdles of taxation and compliance seem to be eased off for startups. The positive impacts of the new regime outweigh the negatives. Since it is an ongoing process, the financial ecosystem will undergo several changes before it stabilises for good.

If you are wondering how the different types of gst will change the value of your products, download Khatabook to manage your accounts with ease.