Find out how small businesses, entrepreneurs and self-employed can GST ready
In the five years she has been running a small business of gift packaging, Samiksha Dhingra has not felt the need to apply for a sales tax number. But this will soon change because Dhingra plans to take her business online. The Goods and Services Tax (GST), which comes into effect from 1 July, requires all e-commerce businesses, including tiny outfits like Dhingra’s, to register under the new tax regime.
In Surat, textile manufacturer Devrishi Arora is vaguely aware that GST will soon come into effect but is yet to take concrete steps for migrating his business to the new tax.
Dhingra and Arora are not alone. Even though the new tax comes into effect barely two weeks from now, many businesses have not prepared themselves for GST. In a recent survey by CA Club India, a platform for finance professionals, only 38% of the 1,100-odd respondents said they were ready for the rollout on 1 July.
“The GST is not just a tax reform or even a business reform. It is a lifestyle reform that will change the way business is conducted in the country,” says Minal Agarwal, a chartered accountant who advises corporate houses on GST compliance and related issues. “Nearly 50% of Indian businesses are not aware of the changes that GST will usher in. Most of them think it is just another tax regime,” says Bharat Goenka, Managing Director of Tally Solutions.
The level of unpreparedness is even greater among small businesses. Many small entrepreneurs feel they can bypass the GST if their turnover is less than Rs 20 lakh. That is true, but this exemption comes with its own set of problems. “If you are not in GST, the businesses you supply to will have to bear the burden of your compliance. They may eventually switch to vendors who are registered under GST,” warns Minal. Her advice: even if you are a small business with a turnover of less than the GST threshold of Rs 20 lakh, get yourself registered. “The GST structure ensures that no link in the entire chain gets left out. This will not only prevent tax leakage but also make compliance more streamlined,” says Sudhir Kaushik, co-founder and CFO of Taxspanner.com.
Joining the GST is not the Himalayan task that some entrepreneurs and small businessmen presume it to be. One can register online by logging on to gst.gov. in. Some companies, such as tax filing portal ClearTax.in, charge a small fee for assisting companies and small businesses to get on board.
Taxmann, a leading name in tax and corporate law and a GST Suvidha Provider, has also introduced One Solution, an integrated software that does all the GST-related compliances. Though the rates vary depending on the size of the organisation, they start as low as 99 paise per invoice.
Other smaller outfits are also following suit. Delhi-based chartered accountant Aditya Agarwal has set up GSTsamadhan. in. His team not only helps in the registration formalities but also conducts training workshops for companies. In the past six months, Aditya has conducted training sessions for nearly 25 corporate clients, with charges varying according to the size and complexity of a company’s account books.
GST will require a very high level of compliance. Out go the hand-written ledgers, accounting books and notepads. Everything will now be online and will need to be updated regularly. A business will have to file 37 returns in a year (three returns per month and one annual return) per state. If it does business from offices in multiple states, the number of returns will go up accordingly.
The GST provides some relief for smaller outfits that may not be able to meet these stiff requirements. An enterprise with a turnover of less than Rs 50 lakh can opt for the composition scheme, which levies a presumptive tax on the turnover. However, this option is open only to manufacturers and specific service providers (restaurants).
But though the composition scheme requires lesser GST compliance, it has several drawbacks. For one, only businesses which operate within a particular state can opt for this. Plus, opting for composition breaks the chain of seamless input tax credit. “Those who buy from a composition dealer will not be able to take credit of any input tax. A composition dealer cannot levy and collect any tax from its buyers. Should the composition dealer purchase from registered persons, he will not get input credit on the tax paid by him on inputs,” says Preeti Khurana, chartered accountant and GST expert with ClearTax.in.
In future, the government will also start rating companies and businesses on the basis of how well they have complied with the GST rules. Many tax professionals are worried that compliance score will be used to assess the credibility of a business. This could wipe out small businesses that face cash-flow problems and delay payments. Since their problems will now be public knowledge, buyers will avoid this company leading to further payment delays. “This will slowly, but with certainty, drive almost every small business to eventual closure,” contends Goenka.
As the GST deadline approaches, many in the industry and in tax circles are hoping it will be deferred. “It is the general human tendency to resist change. But we must embrace this change,” says Vivek Jain of CA Club India. “Deferring the roll-out will not help. The government should stick to the deadline,” says Lakshmipriya, AVP Finance, Bankbazaar.com. “We hope the government is lenient towards compliance lapses so that businesses can get used to the new law,” she adds.
“GST will be a push for the unorganised sector to become mainstream. It’s like a club which offers its members benefits such as input tax credit and access to a large market, which can impact business positively,” says Khurana.