The government of India has been taking necessary steps to make it easier for foreign investors/NRIs to do business in India. Implementation of GST on startups has reduced trade cost, tax problems, transaction time, regulatory compliance expenses, and increased effectiveness of exports, control of leakage and efficiency in revenue generation. This has increased the confidence of investors. Improvement in the nation’s taxation structure has brought it on the same level as some of the best economies in the world. India’s position in the ease to do business is increasing. As a result, it is becoming more attractive as a good investment destination.
Zero-rated exports are expected to increase the sale of Indian goods to the international market. A significant reduction in trade cost is expected. This is because costs related to payment of multiple levels of taxes and documentation will not be incurred any longer. Delays in clearances for various projects will be reduced due to stricter tax compliances and reduction in the documentation. We can expect the country’s manufacturing sector to become attractive to the global consumers.
This article is specially targeted at Non-Resident Indians who wish to start a business in India. Here we have to consider three factors – the impact of GST on startups, GST on exports and GST on the supply of goods and services by Non-Resident Indians.
Impact of GST on Startups
Higher threshold for registration
For trade within a State, the threshold for registration of GST is Rs 20 lakhs turnover (Rs 10 lakhs for the North Eastern States). There is also an optional composition scheme of lower taxes for small businesses, which is an alternative method of levy of tax designed for turnover up to Rs 75 lakhs (Rs 50 lakhs in case of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh). This scheme is simple and reduces compliance cost. The eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at the normal rate.
Tax credit on purchases
GST paid on purchases by the company can be set off tax on their sales. This will be shown as a credit in their account and can be used to pay GST. This will result in the reduction of costs, thus increasing working capital. In the case of non-residents, input tax credit is available only on goods imported, not for those received.
Simpler online procedure
The entire GST process, starting from registration to filing Returns and payment of GST tax, is online. There is no need to visit tax offices to get various registrations.
Simpler taxation – integration of multiple taxes in GST
Since GST subsumes all the different taxes, time spent for tax compliances will be reduced. Also, businesses dealing with both goods and services will find it much easier to file and pay one tax – GST.
In the case of providing goods and services through the internet, since GST is applicable all over India, there is no complication for inter-state movement of goods.
With GST, restrictions on inter-state movement of goods have been removed. Warehouse operators and e-commerce businesses can set up warehouses at convenient locations instead of having several warehouses in various States. This will reduce unnecessary logistics costs, which will increase profits for businesses involved in the supply of goods through transportation.
Increased tax burden on manufacturing business
The turnover limit has been reduced to Rs 20 lakh instead of Rs 1.50 crore earlier for manufacturers.
GST on Exports
Under the GST law, export of goods or services has been treated as:
Inter-State supply and covered under the IGST Act.
Zero-rated supply’ i.e. the goods or services exported are exempt from GST. This will make Indian exports competitive in the international market.
Export procedures have been simplified to eliminate paperwork at various stages of export. Important features are as follows:
- Goods and services can be exported either on payment of IGST which can be claimed as the refund after export or under Bond or Letter of Undertaking (LUT) without payment of IGST.
- In the case of goods and services exported under Bond or LUT, the exporter can claim the refund of Input Tax Credit as a result of export.
- The shipping bill is the only document required to be filed with Customs for exporting goods.
- Export supplies are to be made under self-sealing and self-certification without the intervention of officers of the concerned department.
- Shipping bill filed with Customs is treated as IGST refund application. It is considered to have been filed after submission of export general manifest and furnishing of a valid Form GSTR-3 by the applicant.
GST tax Refund
In the case of GST tax refund on inputs used in exports
- Refund of 90% will be granted provisionally within seven days of acknowledgment of refund application.
- Remaining 10% will be paid within a maximum period of 60 days from the date of receipt of application.
- Interest @ 6% is payable if the full refund is not granted within 60 days.
In the case of refund of IGST paid on exports, Customs will process the claim for refund on receiving Form GSTR-3 and credit the amount to the exporter’s bank account.
Supply of goods or services by NRI
GST is applicable to the supply of goods or services or both (as principal or agent or in any other capacity) by a person who has no fixed place of business or residence in India. Such a person is called “non-resident taxable person” and has to register for GST.
- The application has to be submitted at least five days prior to commencing business in India.
- Documents to be submitted are
- In the case of NRI, valid passport (PAN not required).
- In the case of a business entity incorporated or established outside India, tax identification number or unique number on the basis of which the entity is identified by the Government of that country or PAN, if available.
- The application has to be signed by an authorized signatory who shall be a person resident in India having a valid PAN.
- The applicant will be given a temporary reference number for making an advance deposit equal to the estimated tax liability for the period for which the registration is required.
- Taxable supplies can be made only after a certificate of registration is issued. The certificate will be valid for the period specified in the application for registration or ninety days from the effective date of registration, whichever is earlier.
- Request for extension of validity, if required, has to be submitted before the end of the validity of GST registration. Additional tax, equal to the estimated tax liability for the period for which the extension is requested, has to be deposited. The extension can be given for a period not exceeding ninety days.
Input Tax Credit
Input tax credit is available only on goods imported by a non-resident taxable person, not for those received.
Taxes paid by a non-resident taxable person will be available as credit to the concerned recipients.
Filing of Returns
GST returns have to be filed within twenty days after the end of a calendar month or within seven days after the last day of the validity period of registration, whichever is earlier.
Returns have to include details of outward supplies and inward supplies.
Tax, interest, penalty, and fees, as applicable, have to be paid.
A refund request can be submitted for remaining amount of the deposited advance tax after submission of all Returns required to be submitted during the registration period.
Please note that GST is mandatory for
- Self-employment resulting in exchange of foreign currency
- Payment for outsourcing work assigned to Indian residents/entities by foreign residents
- Tie up between nonresidents and Indian e-commerce
- Supply of online information and database access or retrieval services from a place outside India
- Tax payment on reverse charge basis
- Inter-state trade
- Import of goods
- Casual taxable persons
- Persons who are required to deduct tax
- Persons who are required to collect tax
- Input service distributor (whether or not separately registered under the Act)
- Electronic commerce operator