After more than a decade since it was first suggested, the Goods and Services Tax (GST) has finally become a reality from July 1, 2017, ushering in one of the biggest tax reforms in India since Independence.

The GST replaces several Central and State government taxes being levied currently, like VAT (Value Added Tax), Service Tax, Excise, Octroi, Sales Tax and so on. This will reduce compliance and transaction costs, and is expected to facilitate the ease of doing business in India.

GST is to be calculated using the input tax credit method, so taxes paid on availing of goods and services in a different state can be claimed, allowing GST-registered businesses to lower their overall costs.

The GST Council has done a fair job by exempting education and healthcare and trying to strike a balance on rates for mass-consumption goods affecting the middle class. However, the GST rate on IT, telecom and financial services has been increased, which will pinch consumers to an extent.

Financial Services

ATM withdrawals, loan processing charges and costs of other banking and financial services have gone up as banks, brokers, distributors, mutual fund houses, insurers will now levy GST at 18% instead of the existing Service Tax at 15 percent.

As per the GST code, the head office and branches of banks and asset management companies are taken as separate entities. This means they would have to register in each state they have a presence in, increasing the burden of compliance and reporting, though clarity is still awaited on this issue.

The need for both large and small companies to be GST-compliant has given a huge boost to the fintech sector. Several companies have registered as GST Suvidha Providers and are offering consultancy services and software solutions for businesses to manage processes related to registration, creating of invoices, filing returns and input tax reconciliation.

Start-ups and new businesses

For startups and new businesses, there is some relief as currently, a business with turnover above Rs 5 lakh had to register for and pay Value Added Tax (VAT), which would differ across states.

Under the GST regime, this threshold has has been increased to Rs. 20 lakh (Rs 10 lakh in some states) and there is a lower rate of tax for turnover upto Rs. 50 lakh as per the composition scheme (excluding e-commerce businesses).

Currently, businesses cannot set off VAT paid on purchases against service tax levied by them – under GST, this will be possible. A single tax applicable countrywide will reduce a lot of paperwork and hassle when conducting transactions across different states in the country.

November 2016 saw a watershed moment with the introduction of demonetisation, and Walnut was able to come to the rescue of millions of Indians by helping them find an ATM with cash. Since then, there has been a greater push to go online, with the thrust on digital payments, launch of UPI, and now, the roll out of GST.

These are very interesting times for businesses in India as traditional methods get reinvented, bringing in greater transparency and efficiency and we’re really excited to be a part of this digital and fintech movement.

(Articulated by Patanjali Somayaji, Co-Founder and COO, Walnut App)

Source: MoneyControl