GST and Exemptions for Small Businesses in India

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 have  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 businesses  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’  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 a 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

• 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.

Filing Exemptions for Small Businesses

While the GST limit used to be on businesses  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. As  of March 2021, this threshold has further been lowered  to cover businesses with aggregate turnovers of INR 50 crore or more. The threshold has been fixed at INR 50 crore to try to  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 have 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.

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:

1. The company must have a PAN card.
2. Charter documents that provide proof of constitution like the Memorandum of Association or Articles of Association or the certificate of incorporation.
3. List of directors or partners along with their proof of address, and PAN details (if Indian).
4. Details of the authorized signatory along with the proof of their appointment.
5. Details of their principle place of business, along with the proof of address.
6. Bank account details along with their proof of documents.
7. 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:

1. Create a new registration by entering the details required and generating a Temporary Reference Number.
2. Once the TRN is generated, the user may login and fill in the details of the GST application form.
3. Along with the form, the scanned copies of all the required documents must also be attached.
4. The form must be submitted by the authorized signatory long with their DSC or e-signature.
5. Once the application is approved, the GSTIN (GST Identification Number) unique code is assigned to each business will be generated