The goods and services tax (GST) revolutionized the indirect tax system in India. It subsumed multiple indirect state and central taxes and brought uniformity and integrity to the indirect tax system in the country. It aimed to simplify compliance, reduce the cascading effect of taxes on consumers, and eliminate tax evasion. According to this law, all suppliers engaged in the supply of goods and services with an aggregate turnover above the threshold limit are compulsorily required to register under GST and follow the rules and procedures specified therein.
Threshold limit for GST registration
As per Notification 10/2019 of GST, it is mandatory for businesses that engage in the supply of goods and whose aggregate turnover is above Rs. 40 lakhs (Rs. 20 lakhs for special category states) in a financial year to register with GST.
Meaning of aggregate turnover
As per Section 2(6) of the CGST Act, aggregate turnover means the aggregate value of all taxable supplies (excluding inward supplies on which tax is payable on a reverse charge mechanism), exports, and supplies exempt from GST. Previously, the limit was Rs. 20 lakhs. But this was increased to Rs. 40 lakhs via notification no. 10/2019-Central Tax dated March 7th, 2019. It means aggregate turnover includes taxable supplies, exempted supplies, non-GST supplies, interstate supplies, zero-rated supplies, and goods sent for job work. It excludes goods received on which tax is payable under the reverse charge mechanism, goods on which GST is paid, and goods received for job work.
Eligibility for GST registration
- Any business whose aggregate turnover exceeds the threshold limit of Rs. 40 lakhs per annum specified under GST
- Interstate suppliers of goods, services, or both
- Casual taxable persons
- Non-resident taxable persons
- The suppliers’ agents
- Persons paying tax under RCM when a business is transferred or liquidated
- Electronic commerce operators or aggregators
This rule does not apply to the following category of suppliers:
- Service provid
- Manufacturers of ice cream, other edible ice, pan masala, and all goods of Chapter 24 (tobacco, tobacco substitutes)
- Persons required to obtain compulsory GST registration
- Persons who obtain voluntary registration under GST
- Persons engaged in making intra-state supplies in the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand, and the special category states as per Section 22
Mandatory GST registration
Section 24 of the CGST Act specifies certain entities for whom it is mandatory to register with GST, even if their aggregate turnover is less than the limit specified under GST law. They are as follows:
- Inter-state suppliers
- Taxpayers under the reverse charge mechanism
- Casual taxable person.
- Non-resident taxable persons
- E-commerce operators
- Persons who are required to deduct tax under Section 51 of the CGST Act 2017
- Input service distributors
- Persons engaged in the supply of taxable goods on behalf of other taxable persons, either as agents or otherwise
- Persons supplying online information and database access or retrieval services from a place outside India to unregistered persons in India
- Other persons or entities as notified by the government
Voluntary GST registration
Any person or business entity that wishes to supply goods or services, or both, can voluntarily register under GST. Many companies have done so to enjoy the benefits of GST registration.
Types of GST Registration
- Normal Taxpayer: Persons who conduct the business of supplying goods or services or both in India or persons who engage in economic activity, including trade and commerce, are considered taxable persons and are required to register with GST.
- Composition Taxpayers: To lower the burden of compliance on small businesses, the government introduced the composition scheme, in which the tax rates are lower and compliance simpler. It is a voluntary scheme, in which businesses with an aggregate turnover below Rs. 1.5 crores (Rs. 75 lakhs for Uttarakhand and north-eastern states) can opt for this scheme.
- Casual Taxpayers: Persons or entities that establish businesses that are seasonal in nature should register under casual taxpayer registration in GST. They have to pay a deposit equal to the tax liability. The registration is active for a period of three months or the period applied, whichever is less.
- Non-resident Taxable: Persons who supply goods to residents in India can do so only after registering in GST under non-resident taxable persons registration. They have to pay an advance deposit equal to the estimated tax liability. The registration is valid for three months or until the completion of the supply.
Documents required for GST registration
- Proof of the constitution of a business, like a certificate of incorporation
- Passport-size photo of the authorized signatory, like the promoter, partner, proprietor, etc.
- Proof of the principal place of business, like an electricity bill, a municipal khata certificate, a property tax receipt, etc.
- Proof of the details of the bank account, like a statement of account, a cancelled check, etc.
GST registration process
GST registration can be done through the GST portal online. It can be done free of cost. After registration, a GST registration certificate and a 15-digit GST identification number (GSTIN) are obtained by the taxpayer. GST registration helps in the collection, payment of taxes, and filing of returns on the portal as part of the compliance process. It is also needed to avail input tax credit on the inward supplies.
Benefits of GST registration
- Authenticity and credibility to the business: Registering in GST provides authenticity and credibility to the business. It shows the customers that the company is genuine and compliant.
- Ability to collect and claim input tax credit: A company can charge and collect tax from its clients after registering with GST. It can also claim input tax credit for the taxes paid on the inputs used for business by the supplier. This provision of input tax credit helps the company increase its cash flow and decrease its output tax liability.
- Increased competitiveness: Registering with GST helps the company be more competitive in the market. It enables the business to compete with other registered businesses in the field. Registration in GST gives the impression that the company is well established and professional to the clients and brings in more business, resulting in more sales and profits for the company.
- Access to a larger customer base: Registering with GST provides access to a wider customer base, as most clients prefer doing business with companies that are tax-compliant and legally valid.
- Eligibility for government schemes and benefits: Some government procurement plans require vendors to be registered with GST. It also makes firms eligible for tax rebates and incentives offered to small businesses, thereby lowering their expenses and improving their business.
- Simplified compliance: By registering with GST, a company can pay taxes and file returns online on the portal in time and avoid penalties and other consequences. It can avail of the input tax credit online and reduce its output tax liability. It can monitor its tax liability, and by using the tools and resources provided on the portal, it can ensure compliance.
Tips to ensure a compliant GST registration status
- Maintain accurate records: All commercial transactions, like sales, purchases, taxes, etc., must be properly and accurately recorded so that reconciliation is easier and the accurate input tax credit can be claimed. This helps in the control of cash flow and also helps them make better business decisions.
- Regular Reconciliation: It is important for businesses to reconcile their financial statements with the GST returns so that the discrepancies can be identified and rectified. This ensures accuracy in tax computation and filing returns.
- Updated with GST rules and regulations: GST authorities regularly pass notifications and advisories with regard to the changes in the rules and procedures. The taxpayers should be properly informed about the changes so as to avoid penalties for non-compliance.
- Internal Audits: Businesses should arrange for regular internal audits for early detection of discrepancies and prompt remedial actions to stay compliant. This saves time and maximizes the benefits of registration for businesses.
- Identify and claim the correct ITC. Businesses should be aware of the costs that are eligible for claiming ITC because not all costs are covered. Errors in claiming ITC can cause problems later, so taxpayers need to be aware of the criteria for claiming ITC correctly.
Registration under GST has various benefits for businesses. So though the threshold limit of aggregate turnover is Rs. 40 lakhs for suppliers of goods, many companies voluntarily opt to register with GST. Before registering, businesses must be aware of the eligibility criteria, the documents to be submitted, and the rules and regulations of compliance under GST, so as to avoid notices, penalties, and other consequences.
Frequently asked questions
- What is the main advantage of registering under GST?
Answer: The main advantage of registering under GST for businesses is the provision to claim input tax credit on the tax paid on inputs and adjust it to reduce their output tax liability.
- What are the types of taxes in GST?
Answer: The four main types of taxes in GST are integrated Goods and Service tax (IGST), Central Goods and Service tax (CGST), State Goods and Service tax (SGST), Union Territory Goods and Service tax (UTGST).