New Delhi:First implemented on July 1, 2017, the Goods and Services Tax (GST) is seven years old today. GST is a single, integrated tax system combining several levies imposed by the central and state governments. Customers are required to pay the GST tax, which is levied on the final product pricing. The seller sends the government the collected tax, split into CGST and SGST.
GST for small businesses and startups
The goal of implementing GST is to make doing business easier for various entities, including modern businesses. GST effectively reduces compliance burdens while encouraging the incorporation of modern enterprises into the formal taxation structure by unifying the tax structure into a single regime.
GST exemption for small businesses and startups
Startups whose annual sales fall below the threshold of Rs. 40 lakhs for goods and Rs. 20 lakhs for services, or if the startup is involved in the supply of exempt items or services, are not subject to GST.
From time to time, the government comes up with several GST exemption rules which greatly benefit the startups. Let’s examine the five different kinds of startup GST exemptions.
1. Tax Holiday for Three Years
Newly registered companies can claim exemption from paying tax for three years on fulfilling certain conditions. Small startups that have registered between April 1, 2016, to March 31, 2022, will get a tax holiday if their turnover is up to Rs 25 crore.
2. Long-Term Capital Gains Exemptions
Startups are free from long-term capital gain tax under section 54EE. If the businesses reinvest the profits in a government-designated fund within six months and for a minimum of three years, they are exempt from paying the tax. The exemption is nullified if it is withdrawn before the three years.
3. Investments Made Above Fair Market Value Are Exempt
For startups, there is no tax on investments over fair market value. These contributions come from individuals and funds that aren’t officially recognized as venture capital (VC) funds, as well as from angel investors and incubators.
4. Non-GST Exemption under Section 54GB on IT Act
People who buy more than 50% of shares in another company or sell residential property to invest in a new business are not required to pay long-term capital gains tax. However, the shares purchased could not be sold for at least five years. Additionally, money invested in a startup company can only be used to buy assets.
5. Angel Tax Exemption
The government has announced some relaxation to the angel tax. If any startup is registered with the DPIIT, it would not be liable for this tax.