GST Impact on IT startups and companies

GST impacts many fields of business. How does the IT sector get out of it?

The Goods and Services Tax system promises to ease the lives of many business in India, helping them better comply with the law and hopefully streamlining the whole taxation process.

The IT sector has been an important driving force in the Indian economy in the past decades, both for local necessities and export. GST will surely have a great impact on the multitude of section within IT.

This mean businesses in IT might have to undergo some important changes to adapt.



GST for Services

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GST for Manufacturing

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GST for Startups

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Some key changes for IT startups and companies:

Now

now

Currently both VAT and service tax is applied to the sale of packaged software.

now

IT service providers can’t claim credit on assessment or setting IT infrastructure

now

Most IT companies registered only with the Central Service Tax authorities

now

Even though businesses can claim input tax credit on exports, there are practic difficulties

GST

gst

Only GST will be applied, which will most likely reduce the amount of tax paid.

gst

Both IT service providers and their clients will be eligible to claim full credit of GST

gst

Required to obtain registration in every state they are operating (wherever they have customers)

gst

The refund application will be automatically processed online, making it easier to claim input credit


Potential problems for startups & businesses:


  • Service Providers ChangesCompliance: Ensuring all invoices are kept and tax returns are filed on time, avoiding any penalties.
  • Service Providers ChangesAdopting GST: small businesses in IT might not have the budget and staff to properly implement GST. Planning ahead for adopting GST is crucial.
  • Service Providers ChangesComplex billing and invoicing: Business transactions have to be recorded keeping in mind the requirements to be able to claim input tax credit.
  • Service Providers ChangesPositive cash flow: As the registration limit has been lowered to turnover above Rs 20 lakh,startups in the IT services sector will need to stay more organised with their inventory, costs and income.


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