GST Exemption for Startups and 12 Other Benefits You Should Know[Complete Guide]

Impact of the GST on Startups: Benefits and Salient Features

Implementing GST is meant to ease doing business for different types of entities, including new-age companies. By simplifying the tax structure into a single regime, GST is effectively reducing compliance headaches while promoting the inclusion of new-age companies into the formal taxation structure. While these organisations stand to gain from GST exemption for startups, they also receive several operational benefits. 

1. Less Hassle of Completing Norms for Multiple Taxes

New age companies working on a tight budget and limited resources have to follow a simple and single GST registration process. This is in comparison to the earlier requirements of completing multiple requirements for excise, VAT, service tax, sales tax, etc. 

Moreover, after the 22nd GST Council meeting, new-age companies with a turnover of up to ₹1.5 crores can submit quarterly returns, further reducing the burden of completing tax requirements. As a result, small businesses can devote more time and resources towards other important aspects of growing their business. 

2. Avail Input Tax Credit 

For small manufacturers, input tax credit is a game changer and one of the important GST benefits for startups. Cash-strapped companies can claim back the GST they had paid on capital investments and office supply purchases, reducing their overall tax liability and putting money back into their pockets. 

Early-stage manufacturers can leverage the input tax credit system via reduced upfront costs by claiming input tax credits on the purchases. Regularly claiming input tax credit effectively reduces a small company’s cash flow, allowing them to have more cash in their hands for business expenses. 

3. Centralised Business Registration Replacing the Earlier Multi-Registration System

In contrast to the multiple registrations required for a new business to complete, under the GST regime, the new-age companies must only complete a single registration process. 

GST has centralised the registration process, removing the need to get a separate certificate for sales, service, VAT, and excise, among others. To register under GST is also a simple process and is completed online. 

4. Interstate Movement of Goods has Become Easier and Less Expensive

After the implementation of GST, interstate and intrastate movement is streamlined and is more affordable for businesses. GST has replaced state-border taxation at checkposts. It has introduced e-invoicing, ensuring smooth movement of goods without unnecessary billing requirements. 

Earlier, the logistics companies had to maintain multiple warehouses across states to avoid multiple taxes on inter-state movement of goods. But with GST, these restrictions are eased, thus removing the logistics sector's hassles. 

Reduction in logistics costs creates more room for small businesses to profit from the supply of goods and services while expanding their business across the country. 

5. GST Taking over Multiple Taxes

GST eliminates the cascading effect created by multiple taxes enough to cause confusion and frustration in business operations. Designed to bring multiple taxes under one umbrella, businesses are ultimately paying less taxes. 

Subsuming taxes like service charges, CVD, excise duty, octroi, etc., all types of businesses today operate under the one nation, one tax system. This elimination of multiple taxes not only has monetary benefits but also reduces compliance, paperwork, chasing of deadlines, and accounting work. 

6. Easier Compliance Under the GST Regime

A single tax system, online convenience, and the composition scheme are reducing compliance requirements and costs. The reduced quantum of paperwork and fewer filings translates into lower compliance costs, saving precious time and capital for startups often operating on backpack budgets. 

The compliance requirements under the GST regime are eased from multiple angles. In addition to the points discussed previously, new-age companies will find it easier to expand under GST. It opens up access to a unified national market, increasing the area for the supply of goods and services. 

7. Higher Threshold for Registration

Under this regime, one of the GST exemptions for startups is the lower threshold limits for registration. The registration requirement for VAT was ₹5 lakhs. Still, in the GST regime, this limit was increased to ₹20 lakhs, exempting several small businesses, traders, and solopreneurs from loads of paperwork and compliance requirements. 

On top of this, companies dealing in goods with zero-rated supplies and new-age companies under the threshold limit will benefit from reduced administrative burden, freedom from penalties, tax holidays, and more cash flow. 

8. Simpler Process for Online Registration

A faster registration process with minimal paperwork allows new-age and digital-first companies to easily navigate the taxation process. While these companies enjoy fewer processing delays, they can also quickly access the process information and updates, improving convenience and planning.

Moreover, the online registration process boasts reduced barriers to entry and near-zero red tape and windows hoping to submit the documents and gather proofs. Digital-first companies are more comfortable with online processes. Hence, the online registration process will be a big advantage for them to complete the formalities. 

9. Simplified Tax Calculation

The simplification of taxation under GST is determined by several factors:

• Under the composition scheme, businesses have to pay a single pre-defined tax rate on their total turnover. 
• Eight types of tax rates are applicable on predefined items, clearly demarcating which item will attract how much tax. 
• As per Tax Deducted at Source (TDS), tax collection is easier and unified across the nation. Not only does this make the administration of the tax easier, but it's also easier to track the transactions and identify defaults.
• The number of returns to be filed has reduced substantially, and the due process to follow for the same is also easier than before.  

10. Special Treatment Under GST for eCommerce Operators

As new-age companies are taking the online route to sell goods, operating in the GST regime is easier. Under VAT, states had varied policies for e-commerce businesses, but the confusing requirements and differential treatment were eliminated under the goods and services regime. The new taxation system maps out common provisions applicable to all e-commerce businesses in India. 

11. GST Composition Scheme for Startups

New-age companies with a turnover of up to ₹1 crore can opt for the GST composition scheme. These businesses are required to pay lower taxes in this regime, ultimately reducing the financial burden at a nascent stage. ‍

12. Better Transparency with Taxes

Transparency with the tax rates, processes, and guidelines impacts the internal and external operations of the registered companies. With a clear visibility into the tax liabilities, companies can improve financial planning and budgeting. Transparency in regulations means fewer errors and convenience to comply with the regulations. 

GST has significantly improved the ease of doing business while contributing to a robust and friendly ecosystem for establishing new businesses in India. The simplified tax regime, online registration process, e-invoicing, GSTN portal, and input tax credit system are improving cash flow. Overall, the GST system has removed geographic barriers for businesses to operate at a pan-India level and thrive in a competitive environment. 

Available GST Exemptions for Startups 

The government provides several GST exemptions for startups under the law to promote the establishment and growth of new age companies and small businesses. Understanding the exemptions under the law is an integral part of taxation. Given the wide scope of the law, GST exemptions for startups are clearly defined in the different provisions. 

1. Threshold GST Exemption Under Special Registration Provisions

The exemption provisions are designed for small and medium taxpayers in the MSME sector. Under this, individuals involved in the intra-state supply of goods and services are exempted from GST registration if the aggregate turnover is less than ₹40 lakhs. 

However, this GST exemption limit in certain (mostly North Eastern) states is ₹20 lakhs. The same GST exemption for individuals offering services is ₹20 lakhs, with ₹10 lakhs limit in certain states. 

2. GST Exemption Under the Composition Scheme

The Composition Levy Scheme under the GST regime with a voluntary and optional scheme. The scheme has three GST exemptions:

• Registered taxable individuals with a turnover of less than ₹1.5 crores as a goods supplier can opt for the GST exemption scheme at variable rates. 

• Registered taxable entities offering goods or services with an annual turnover of less than ₹50 lakhs can also opt for the exemption in this scheme and pay a fixed tax of 6% on the turnover. 

The composition scheme helps new age companies with multiple aspects like reduced paperwork, simplified record-keeping, and a fixed tax rate. At the same time, the risk of non-compliance is less, and so are the fines if found guilty. 

3. Sector-Wise Types of GST Exemptions for New Companies

Some sectors and the list of items are exempt from GST registration and/or taxation. These types of GST exemptions are divided among goods and services wherein goods include:

• Live animals (cows, sheep, goats, etc)
• Live trees (bulbs, roots, flowers, etc.)
• Seeds (flower seeds, oil seeds, cereal husks, etc.)
• Water (mineral water, tender coconut water, etc.)
• Organic fertilisers
• Fabrics (raw silk, silkworm, khadi, etc.)

At the same time, services enjoying GST exemption include:

• Cultivation and supplying farm labour
• Postal services
• Services offered by RBI
• Toll payment
• Transportation of goods where the cost is less than ₹1500
• Judicial services
• Medical services

These are just a few of the GST exemptions for your reference. To know specifically whether the items and services you are dealing with are exempt, ensure to consult Mysa professionals with expertise in GST registration and administration. 

4. Exempt Supply

Exempt supply are of three types:

• Supplies are taxable at a ‘Nil’ rate of tax (0% tax).
• Goods and supplies that are wholly or partially exempted from paying CGST and IGST.
• Non-taxable supplies, which are outlined under section 2(78). 

All the exempt supply items in this category are not liable to pay GST, and the registered entities cannot claim input tax credits on these items. In addition to the items already added to the list of exempt supply items, the government and GST council can add more items, provided they fulfil a set of conditions. 

These are the limited GST exemption meant for startups and new-age companies. The applicability of these exempt supply items may undergo changes, which is why it's essential to partner with an expert like Mysa to stay updated. 

Tax-Related Exemptions and Holidays for Startups

While the GST exemption for new and small businesses are limited, new-age companies enjoy few taxation and non GST exemptions. 

1. Tax Holiday for 3 Years

New companies registered between 1st April 2016 to 31st March 2022 can claim exemption from paying tax for three years. The non-GST exemption is on the profit earned in a year and is based on the condition that the company should not be generating more than ₹25 crore in revenue in the financial year. 

2. Exemptions on Long-Term Capital Gains

Under section 54EE, startups can avail exemption from long term capital gain tax. However, the organisations are not required to pay the tax if they reinvest the gains in a fund specified by the government within 6 months and for a minimum period of 3 years. If withdrawn before three years, the exemption provided is revoked. 

3. Exemptions on Investments Made Above Fair Market Value

Tax on investments into a new company above its fair market value is also scrapped. However, these are investments made by angel investors, investments by incubators, and by individuals who are not registered as venture capitalists (VCs). 

4. Non GST Exemption Under Section 54GB on IT Act

Individuals or HUF selling residential property to invest in a new company or buying more than 50% shares in another company are exempted from paying long-term capital gains tax. But there’s a caveat: the individuals buying shares will not sell them for at least 5 years. On the other hand, when the funds are invested in a startup company, they must be used to purchase assets only. 

5. Exemptions Under Section 56(2)(viib) - Angel Tax

Initially, as per the IT Act, investments received by unlisted companies over the fair market value (FMV) as income, which triggered angel tax. This tax became a frustration for startups, to which the government introduced an exemption. 

Startups can issue shares at a premium above the fair market value but under specific conditions:

• DPIIT must recognise the organisation.
• The paid-up capital and share premium after the issue is less than ₹10 crore. 
• The investors should not be related to the promoters or hold more than 25% stake. 

These tax and GST exemptions are meant to ease the financial and administrative burden on new-age companies. Given the complexity of GST exemptions, it's easier to second-guess every decision or recheck the policies to avoid the risk of non-compliance. 

Mysa alleviates the administrative burden on startups, giving them time and resources to focus on core business activities and ensure growth. 

GST Registration Process for New-Age Companies

Registration is the first step to avail GST benefits for startups along with the exemptions. Here are the steps to follow:

1. Generate TRN: Begin by registering as a new user on the GST portal by clicking on New Registration under the Services tab.

Fill in the required details to generate a Temporary Reference Number (TRN). 

2. Fill The Required Details: Use the TRN to log in again on the portal and complete the GST registration process. 

Find the dashboard to access ‘My Saved Application’. Click on the Pencil icon under Action and fill in the business details;

• Trade Name
• Constitution of Business
• District
• Reason to Obtain Registration
• Business Commencement Date

Fill in the other applicable details and save the progress. 

3. Share Promoter Details and Principle Place of Business: In this step for GST registration, share details about where the business will operate and the nature of the business activity. Along with this, provide details of authorised signatories nominated by promoters to file GST returns. Followed by this, share the details of goods and services (top five) provided along with their HSN code for goods and SAC code for services. 

4. Generate Application Reference Number: After furnishing all the details, generate the ARN, which is required to track the application status. 

Documents Required for GST Registration

1. Aadhaar card of all company directors
2. PAN card of all company directors
3. Mobile number (for OTP verification)
4. Valid email address
5. Business address proof (rent deed or NOC from the landlord)
6. Proof of constitution of business
7. Details of authorised signatory with a valid PAN number
8. Bank account details
9. Business incorporation certificate
10. Company PAN number
11. The GST registration process has been simplified time and again after observing the difficulties business owners had to face with the process. Proper registration is important to ascertain the positive GST impact on startups and harness the benefits along with exemptions. 

How Can Mysa Help with GST Processes?

1. Mysa has in-house GST experts to guide digital-first and new-age companies to complete the paperwork, fill forms, register on the GST portal, understand the tax rates, GST return filings, and guidance on availing of GST exemptions for startups. 
2. Partnering with Mysa ensures effective implementation of all the GST-related compliances ensuring zero hindrance in availing the benefits and exemptions. With our partnership, new-age companies are able to focus on the core business activities while we automate the GST processes to improve financial management and achieve operational efficiencies. 
3. Get in touch to know more about how Mysa can help you with GST registration and avail exemptions.