GST compliance for all e-commerce, ed-tech start-ups: Is it hampering growth?

 









Goods and Services Tax (GST) regime has undoubtedly simplified tax compliance for businesses by saving time and energy in paying various central and state taxes at different stages of production and sale. Though businesses with an annual turnover of less than Rs. 20 lakhs are usually exempted from the GST regime, GST compliance is mandated for all e-commerce and ed-tech businesses.

The GST Act clearly mandates compliance for every e-commerce operator and "every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person."

While the provision is intended to check tax evasion and keep a tab on possible immoral or illegal activities, the disparity between MSMEs and tech start-ups may hinder the latter's ability to overcome teething problems by spending time and money for GST compliance, which isn't needed for physical businesses of similar scale.

Ashish Fafadia, partner at a Venture Capitalist (VC) firm Blume Ventures is of the view that though GST compliance won't hit growth plans of e-commerce and ed-tech start-ups, but it is definitely not the "best usage of their time and bandwidth". He feels no reason why tech start-ups shouldn't be treated at par with other entrepreneurs below the GST threshold, who are already exempted from mandatory compliance.

Dhiraj Khandelwal, Chairman of MSME (Micro, Small and Medium Enterprises) and start-up committee of the ICAI (The Institute of Chartered Accountants of India), opines that the GST turnover limit exemption should be at par for both the MSME sector as well as start-ups. Also a Central Council member of the ICAI, Khandelwal feels tech start-ups should approach the GST Council for relief, by either seeking a 2-year tax break or be treated at par with MSMEs, considering their initial cost of burden.

Home to the third-largest start-up ecosystem in the world, 2-3 tech start-ups are founded every day in India as per government data. While legal compliances need to be ensured in the digital domain, parity for tax purposes will only help the ecosystem and the economy in the long run.



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