How this IIM alumni’s startup is using AI to simplify the GST filing process for SMBs
Following its implementation, the Goods and Services Tax (GST) particularly affected small and medium businesses (SMBs). In order to help such businesses streamline their tax process, a number of solutions came up, but most focused on large companies. With an aim to solve the pain point of filing GST returns for small businesses, IIMA alumni Siddharthan Panneerselvam (Sid Selvam) and Rajeshwaran Venugopal started ThoughtBit in 2017.
The Chennai-based startup allows businesses to file their GST returns, and provides data-driven solutions with the help of its proprietary artificial intelligence (AI) software.
The founders decided to start up when they realised the GST, which is India’s biggest tax reform till date, caused disruptions to businesses.
An RBI memo estimated that export products coming from the MSMEs were more impacted by GST than by the demonetisation.
ThoughtBit Siddharthan Panneerselvam and Rajeshwaran Venugopal developed a pilot version of the GST software in 2017.
“We have always wanted to create a sustainable business with large scale and social impact,” says Sid Selvam, Co-founder of ThoughtBit.
Both Sid and Rajesh have about four decades of experience between them, and had separate plans to create a tech startup. When Rajesh was relocating from Bengaluru to Chennai, he was introduced to Sid by a mutual friend. They immediately clicked and met up several times. Finding synergies with each other, the duo registered their ThoughtBit and developed a pilot version of the GST software in 2017. Their product, ThoughtGST, went commercial in 2018.
“Coming from different paths, we were looking in the same direction and ThoughtGST was born,” says Sid.
AI to the rescue
ThoughtBit uses an AI engine to help businesses file their returns, which it claims can parse lakhs of requests in seconds.
Businesses registered under GST will have to file two forms every month. Companies have the option of filing their returns on the government website, but the process can be cumbersome. These companies cannot claim their Input Tax Credit (ITC) until all their suppliers file their taxes. There are also a lot of inconsistencies in the way people input tax data, which can also lead to a lot of missed opportunities to save on tax, says Sid.
“That’s why we built ThoughtAI: to improve matching accuracy at high speed and affordable cost,” he says.
ThoughtGST is connected to the government system, which allows it to pull data from the official website. The startup provides reports to its clients about suppliers who are non-compliant with GST. Sid adds that the government reviewed the startup's features before giving it a thumbs up.
ThoughtBit's first customer was a components manufacturer focusing on the automotive, aerospace, and oil & gas segments. They were receiving a high volume of invoices from their suppliers and had already looked at existing GST solutions, but deemed them unfit. As a result, their accounting team was handling all their tax tasks manually.
While they agreed hesitantly to see us, they were immediately convinced after the product demo. We were taken straight to the MD and a purchase decision was made instantly. We have received many paycheques, but receiving the first customer order was bliss,” says Sid.
The startup’s AI platform also provides business insights based on sales and purchase data. Another logistics company used ThoughtGST’s insights to refocus its sales and marketing budgets, while an automobile components manufacturer discovered that their suppliers' non-compliance with GST was costing them Rs 30 lakh.
How to solve for SMEs
ThoughtGST offers a SaaS-based subscription model, and the company has acquired 50 paying clients in the last six months. The lowest the company charges is Rs 10,000 a year, going up to Rs 50,000, keeping in mind budgetary constraints of SMEs.
On creating solutions for small businesses, Sid points out the key selling point:
“It needs to be affordable and solve a key business problem in order for it to do well with SMEs."
According to the government there are more than 63 million MSMEs in the country at present, employing over 110 million people, and is responsible for over 45 percent of industrial production. As of May 2019, nearly 1.22 crore organisations have registered for GST.
ThoughtBit estimates that about 70 lakh registrants file returns regularly, and only one percent of these organisations are large businesses with a turnover of above Rs 50 crore. The startup forecasts its total addressable market among SMEs to be over 50 lakh businesses.
It has helped identify ITC gaps most times with its customers, and has been able to prevent revenue loss of one percent on an average. Compared to the amount businesses pay, the startup estimates that the RoI is often 100 times their subscription amount.
However, despite its success, one of the biggest challenges, Sid says, was building the right team in the early stages. ThoughtBit is currently on the lookout for people in technology, research, and business development.
“Finding like-minded, hard-working people with a startup mindset has been challenging,” he says.
The startup currently has six people as part of its team.
GST, but more
In this year’s interim Budget, the government had taken steps to boost the productivity of SMEs, which form the backbone of India’s economy, promising to provide benefits to small businesses and encourage the MSME sector.
ThoughtBit plans to raise seed funding within the next six months, and is looking to expand to the Gulf countries as well. By 2020, the startup aims to have 500 SMEs under its wing and develop its focus in areas such as enterprisetech, analytics, AI, and machine learning (ML).
At present, it is working with chartered accountancy firms and digital marketing experts across India.
Currently bootstrapped, with the founders investing Rs 25 lakh in the startup, ThoughtBit expects to break even by the end of the financial year. The capital has mostly been used for product development and customer research.
The company faces competition from Tally Solutions, as well as SMEs uploading their invoices on the government website or opting to send their returns to a chartered accountant. Larger players such as ClearTax and Intuit do not have too much penetration in the small and medium business segment.
ThoughtBit is also a member of the Nasscom startups programme and works out of the Nasscom Warehouse premises in Tidel Park, Chennai.
“ThoughtGST is our first product for SMEs. Our scope is fintech for SMEs, and we will launch more data-driven solutions for this untapped segment,” Sid says.