Impact of GST on Startups- Startups Stand to be Benefited by GST

By Tanya Gupta

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Updated on: Jun 10th, 2025

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3 min read

From just 500 recognised startups in 2016 to over 1.59 lakh certificates issued by the Department for Promotion of Industry and Internal Trade (DPIIT) as of 16 January, 2025, India’s startup ecosystem has experienced tremendous growth. While government initiatives like Ease of Doing Business and Make in India have created a favorable environment, this rapid expansion would not have been possible without the introduction of the Goods and Services Tax (GST)
Startups have long struggled with navigating a complex, multi-layered indirect tax system—GST has played a key role in simplifying this landscape.

Available GST Exemptions for Startups

GST Registration for Startups

Before GST, any business with a turnover of more than Rs 5 lakh was required to register for Value Added Tax (VAT) and pay VAT (different in different states). Under GST, the registration threshold is ₹20 lakhs for service providers and ₹40 lakhs for businesses dealing in goods, thus exempting many small businesses including startups.GST offers an optional composition scheme for small businesses with turnover between ₹20 lakhs and ₹1.5 crore, allowing them to pay tax at a lower rate.

However, startups in the manufacturing sector do face certain challenges. Under the previous excise laws, only manufacturing businesses with a turnover more than Rs 1.50 crore have to pay excise. But, with GST in place, the turnover limit has been reduced to Rs 40 lakh thus increasing the tax burden for many manufacturing startups.

GST Refunds and Input Tax Credit (ITC)

A lot of startups are into the service industry i.e., they pay service tax. Under the GST regime they can set off the tax paid on the purchases (say office supplies) with the output tax liability on their sales which they cannot under the previous regime. For example: A startup buys office supplies of 20,000 paying 5% VAT. It charges 15% service tax on services of Rs. 50,000. Currently it has to pay 50,000*15%= 7,500 without getting any deduction of Rs. 1,000 VAT already paid on stationery. Under GST (assuming GST= 18%)

GST on service @18%

9,000

Less: GST on office supplies (20,000*18%)

3,600

Net GST to pay

5,400

Thus it is a big boon to the startup industry who are mainly providing services as it results in reduction of costs thus increasing working capital to the already cash-strained startups.

Benefits of GST for Startups

Simplified Online GST Process

The entire GST process starting from registration to filing returns and payment of GST tax is online. Startups do not have to run around to tax offices to get various registrations under Excise, VAT, Service tax.

Reduced Compliance Burden for Startups

Startups often work on tight budgets and cannot devote resources to look after the various tax compliances. GST has subsumed most of the taxes thus reducing the time spent for tax compliances. Also, startups dealing with both goods and services find it much easier to file and pay one GST tax instead of both VAT and service tax.

Elimination of check posts, tolls and border inspections

Technologically innovative startups tend to have a huge presence online. GST is applicable all over India so there is no complication for inter-state movement of goods. Earlier, states had different VAT laws. For example, online websites (like Flipkart, Amazon) delivering to Uttar Pradesh, have to file a VAT declaration and the registration number of the delivery truck.

Tax authorities sometimes seize goods when there is a failure to produce documents. Again, they are treated as facilitators or mediators by states like Kerala, Rajasthan, West Bengal not requiring them to register for VAT. All these differential treatments and confusing compliances stands removed in GST. Read here for impact of GST on e-commerce.

Enhanced Logistics Efficiency and Cost Savings

Earlier, the logistics industries in India had to maintain multiple warehouses across states to avoid the Central State Tax (CST) and state entry taxes on inter-state movement. There have been cases where warehouses have to operate below their capacity thus increasing operating costs. GST unites India removing restrictions on inter-state movement of goods. This brings warehouse consolidation across the country.

As an outcome of GST, warehouse operators and e-commerce players consider setting up their warehouses at strategic locations such as Nagpur, which is the zero mile city of India and is well connected. Reduction in unnecessary logistics costs increases profits for startups involved in supply of goods through transportation. Read here to read about the impact of GST on logistics.

An edited version of this article has also been published in BW Disrupt.

Frequently Asked Questions

Can a startup with no revenue register for GST?

Yes, a startup can voluntarily register for GST even if it has no revenue.

How does GST impact startup cash flow?

GST helps startups in optimising cash flows by allowing them to set off the tax credit paid on the purchases with their output tax liability, which otherwise was not possible in previous tax regimes.

Do tech or SaaS startups need to register under GST?

Yes every business needs to obtain registration under GST when the aggregate turnover crosses the threshold limit as specified u/s 22 of the CGST Act. Tech or SaaS startups should register if their aggregate turnover exceeds the threshold limit (₹20 lakh for most states, ₹10 lakh for some special category states). Also, if they provide services across state borders or internationally, registration is required regardless of turnover.

How often do startups need to file GST returns?

Startups generally file GST returns monthly. However, taxpayers with turnover up to ₹5 crore can opt for the Quarterly Return Monthly Payment (QRMP) scheme to file returns quarterly while paying tax monthly.

Also, if they have opted for the composition scheme, they will be required to file quarterly returns with quarterly payment of taxes.

What is the composition scheme, and can startups opt for it?

The Composition Scheme allows businesses with turnover up to Rs 1.5 crore (Rs 75 lakh in some special states) to pay tax at a fixed rate on turnover instead of regular GST rates. 

The service providers including tech and SaaS startups can also opt for the composition scheme if their aggregate turnover does not exceed Rs 50 lakh.

About the Author
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Tanya Gupta

Content Writer
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A Chartered Accountant by profession and a content writer by passion, I've dedicated my career to unraveling the complexities of GST. With a firm belief that learning is a lifelong journey, I've honed my skills in simplifying intricate legal jargon into easily understandable content. The satisfaction of transforming complex tax laws into relatable narratives is what drives me. Read more

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

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