GST laws in India have made it mandatory for registration under GST except for businesses with aggregate turnover of less than 20 lakhs. However, businesses choose to register to avail benefits such as receiving input tax credit. Understanding the burdens small businesses may face, India has also tried to introduce certain exemptions for small entities.
With the introduction of goods and service tax in India in 2017, it became mandatory for various businesses to be registered for GST both centrally and state-wise to continue to enjoy benefits under the system. Particularly, receiving input tax credit on taxes paid for input purchases is only possible for suppliers that are registered under GST. Considering this, several small businesses still choose to register to avail such benefits.
Technically businesses with aggregate turnovers of less than 40 lakhs are exempt from filing GST returns in India. The Central Board of Indirect Taxes and Customs (CBIC) have also tried to introduce further relaxations for small businesses and start-ups to reduce their GST compliance burdens. Registration under GST:
Registration as part of the GST system means that the taxpayer will be registered on the official system and will be able to collect input tax credit on the taxes paid for their customers. Registration means that the taxpayer will be recognized as a supplier of services, can collect tax from their customers and receive input tax credit on the taxes paid for suppliers and purchasers. The input tax credits that are claimed can also be utilized by the taxpayer towards payment of taxes on further supply.
Essentially every supplier of goods and services as understood under the Acts, are required to register under the law, except in the case of businesses with a turnover of below INR 20 lakhs. Such small business can opt to register as well, but there is no requirement. GST registration is linked to the PAN (Permanent Account Number) and once the registration is successful, a unique 15 digit GSTIN will be allotted to the company.
The following supplier of services has to be registered under the GST law regardless of their turnover:
- If they provide inter-state supplies.
- A person receiving services that is chargeable under the reverse charge mechanism.
- Non-resident taxable persons who do not have a fixed place of business in India.
- Agent or principle that is supplying services on behalf of someone else.
- E-commerce operators
- Other such service providers as demarcated under the law.
Taxable supply providers have to be registered under the central GST and the respective state GST.
Other than the above list of business that mandatorily require GST, only businesses with annual turnover greater than 20 lakhs have to register for GST, and this limit is further reduced to 10 lakhs for north eastern states. However, to receive the benefits of input tax credit, even small businesses will have to be registered under GST.
There is also the composition scheme which has been introduced to specifically help small business with turnovers less than 75 lakhs. Composition Scheme for Small Businesses:
A composition levy scheme has been provided under section 10 of the CGST Act for businesses whose aggregate turnover does not exceed INR 1.5 crore. Such businesses may opt for the scheme, where they would only have to pay tax at an amount equal to certain fixed percentages based on the business’s annual turnover. The rates of tax are dependent on the aggregate turnover of the business, and may vary from 1 -6 %.
The taxes can be paid on a quarterly basis and the businesses opting for the scheme do not need to maintain extensive accounts and records. They will also only need to file single quarterly return in Form GSTR-04 and not the two monthly statements and return that has to be filed by normal GST taxpayers.
For opting for the scheme, the business is required to do the following:
- Already have an existing valid GST registration.
- Provide intimation in the appropriate form, opting for the scheme.
- The intimation must be filed electronically in FORM GST CMP-02 prior to the commencement of the financial year. They must also furnish a statement in GST-ITC 03.
Persons opting for the scheme have to issue bills of supply, and not taxable invoices. The drawback of the composition levy scheme is that taxpayers option under it are not allowed to issue taxable invoices or claim input tax credit on input purchases. They will be required to pay all input taxes and taxes on reverse charge basis, and declare “composition taxable person” on all their signboards displayed at their place of business.
The following persons are not eligible to opt for the composition scheme:
Filing Exemptions for Small Businesses:
- Non-resident Indians
- Businesses with aggregate turnovers exceeding INR 1.5 crores.
- Supplier of taxable services (other than restaurant service)
- Supplier of services taxable under reverse charge mechanism.
- Persons making any inter-state supply of goods.
- Manufacturers of ice cream, paan masala, tobacco, etc.
While the GST limit used to be business with aggregate turnovers of less than 20 lakhs. This limit has now been increased to 40 lakhs in 2020. This means that businesses with aggregate turnovers lesser than 40 lakhs are now exempt from having to pay GST.
Furthermore, small businesses have also been exempted from mandatory e-invoicing under GST. The government had made the process of e-invoicing or electronic invoicing mandatory for businesses with aggregate turnovers of INR 400 crores in 2020. This threshold was reduced to INR 100 crores in January of 2021. And as of March 2021, this threshold has further been lower to cover businesses with aggregate turnovers of INR 50 crore or more. The threshold has been fixed at INR 50 crore to try and protect the interests of smaller entities.
India has also recently launched a quarterly filing system for businesses with less than 5 crore turnover. This new scheme called the Quarterly Return Filing & Monthly Payment of Taxes (QRMP) scheme will be applicable for small taxpayers with aggregate annual income of less than INR 5 crores. They will be provided the option of choosing to file returns either monthly or quarterly, under the scheme. To be eligible, they must be registered under GST and should have filed applicable sales return till November 30 2020. The scheme came into effect on January 1st 2021.
To counter rampant use of fake invoices to receive higher input tax credits, the CBIC has also recently introduced a notification whereby all GST taxpayers to pay at least 1% of their GST liability in cash. However businesses with less than monthly aggregate turnover of INR 50 lakhs or aggregate turnover of less than INR 6 crore have been exempted from the new rule.
While new rules are being introduced to increase GST returns for the government, India is still seeking to protect the interests of small businesses and entities, especially knowing the burdens caused by the pandemic of the last year. How to Obtain Registration for GST:
The process for GST registration is fully digital, and is a hassle free process. Before initiating the registration process, companies must be sure to have the following details and documents:
- The company must have a PAN card.
- Charter documents that provide proof of constitution like the Memorandum of Association or Articles of Association. Or the certificate of incorporation.
- List of directors or partners along with their proof of address, and PAN details (if Indian).
- Details of the authorized signatory along with the proof of their appointment.
- Details of their principle place of business, along with the proof of address.
- Bank account details along with their proof documents.
- Have certified digital signature certificates.
The registration can be done online at the GST online portal (https://www.gst.gov.in/ ), after selecting registration from the ‘services’ tab. Briefly, the following are the steps for registration:
- Create a new registration by entering the details required and generating a Temporary Reference Number.
- Once the TRN is generated, the user may login and fill in the details of the GST application form.
- Along with the form, the scanned copies of all the required documents must also be attached.
- The form must be submitted by the authorized signatory long with their DSC or e-signature.
- Once the application is approved, the GSTIN (GST Identification Number) a unique code assigned to each business will be generated.