As per the recommendations of the 25^th GST Council meeting, the Government of India has reduced the GST rates applicable to local and home services startups from 18% to 5%. The reduction in tax rates comes as a major relief to these startups.

Startups such as UrbanClap, Housejoy and Quikr, presented the following argument to the government: according to them, charging their services at an 18% tax rate was not only detrimental to their operations but also gave an unfair advantage to the offline service providers in the local and home services market, who were not subjected to the tax rate owing to the unorganized state they operated in.

The founders of startups like UrbanClap and Housejoy stated to the Times of India that the latest development is likely to make a positive impact on their businesses and going ahead they expect to witness double digit growth on a monthly basis. Most of these startups have seen their growth numbers take a dive to the single digits ever since the new GST regime was implemented.

Prior to the latest changes, the startups offering housekeeping, salon and other services digitally, were required to pay GST at 18% if their turnover was Rs 20 lakh or more in a year. Startups operating in the segment had stated that the revenue they earned was in fact the commission they charged since they are a marketplace and did not receive the entire fees earned that professionals like carpenters and electricians receive for their services rendered. Thus charging a GST of 18% on every order was translating into users placing fewer orders via the online platforms as the offline players were a cheaper option.

“We are thankful to the government for taking note of our representations and devising a fair tax regime. The idea was to ensure that there is offline-online parity in the tax structure for housekeeping services. The revised rate will help us, and other startups in the sector, to scale faster,” Varun Khaitan, Co-founder of UrbanClap was quoted saying. Saran Chatterjee, founder and CEO of Housejoy stated that the move to lower the GST rate will enable startups to register double digit growth.

(Picture courtesy: digitallearning.eletsonline.com)