On July 1, 2017, the Government of India implemented the Goods and Services Tax more popularly called as GST, a unified tax system. Because of the provision for GST Registration of Service Providers, doing business and trade in India has become fairly simple and easy.
Because of the 23rd GST Council Meeting in Guwahati in 2017, service providers now have simpler access to the GST Registration requirements.
GST Registration Limit for Service Providers
The registration threshold for service providers under GST laws is as follows:
For Regular Taxpayers (except Special category states)
According to the original GST structure announced by the government in July 2017, the turnover limit for service suppliers was Rs. 20 lakhs, excluding special category states. It should be noted that the GST exemption limit for service providers still remains at Rs. 20 lakhs, as declared at the 32nd GST Council Meeting.
For States in the Special Category
The exemption ceiling for service providers in hilly and North Eastern states during the initial GST regime was Rs. 10 lakhs. Again, the exemption level remains unaltered and as of the 32nd GST Council Meeting, it is Rs 10 lakhs.
GST Registration for Service Providers
Regardless of their annual revenue, service providers in the stated category must obtain GST registration. The list of such Service Providers for GST Registration is as follows:
- Service Providers associated with OIDAR
- Operators involved in E-Commerce activities
- Non-resident entities providing services to Residents
- Regular taxpaying Indian residents
Providers of Interstate and Intrastate Services
If a service provider only operates in one state, it is an intrastate service provider and GST will be beneficial since it will receive greater input-tax credits because there will be less of a compliance cost. However, if a service provider operates in more than one state, it is referred to as an Interstate Service Provider and given that the majority would have activities in numerous states, so in that case, GST would be drastically different.
The Indian taxation system divides all commodities and services into various slabs. It is important for all business owners to understand which category their goods or services fall into.
Invoice for GST on Services
If a Service Provider has registered for GST, they can issue invoices and collect GST from their clients. If they have not registered for GST, they can produce a bill of supply without mentioning any GST.
GST has simplified doing business and trading. Every trader’s market size has increased and fir them, the market is now the entire country. In the service sector, GST has positive effects such as tax simplification for inter-state service providers, a clear separation between products and services, an input credit option and regularised GST return filing.
Clarification on GST Registration for Service Providers in Multiple States
There has been considerable confusion regarding the GST registration process for service providers operating in different states. To clarify, providing services in a state does not necessitate registration in that state. Registration is only mandatory when you have a physical presence or business operations in a particular state.
GST Registration for Multi-State Services
Previously, a service provider could have a single registration even if they operated in more than 10 states, based on their headquarters’ location. However, as service provision often requires establishing offices in different states, the need for multiple registrations arises. Each registration entails separate compliance and invoicing according to the specific state, affecting input tax credit allocation. Therefore, for multi-state service providers, the registration process presents both advantages and challenges.
Required Documents for GST Registration of Service Providers
GST Registration necessitates the submission of the following documents for service providers:
- A valid Permanent Account Number (PAN) Valid
- A working Indian Telephone Number
- Email address that is valid
- Business Address
- Valid Indian Bank Account Number with IFSC code
- At least one Proprietor/Partner/Director/Trustee/Karta/Member with PAN is required
- An authorised signature from one who is a resident of India and has valid information, including a PAN card.
Stepwise Process for GST Registration
The comprehensive procedure for registering under GST laws for service providers is given below:
- Provisional ID and Password: Log into your service tax account and you will be provided with a provisional ID and password for enrolling in GST.
- Choose ‘New User Login’: Access the GST portal and select the ‘New user login’ option for the enrolment process.
- Login with Credentials: To access the GST portal, enter your account credentials.
- Enter Your Email Address and Phone Number: After logging in, you will be directed to a page where you must enter your email address and phone number.
- OTP Verification: After entering the necessary information, a One Time Password will be delivered to your phone and email address for verification.
- Create Username and Password: Create your user name and password for secure access to the GST portal.
- Security Questions: Set up some security questions to further enhance the security of your account.
Composition Scheme for Service Providers under GST
To understand the composition scheme for service providers and their registration under it, the following needs to be dealt first:
Eligibility for Composition Scheme for Service Providers:
- Service providers with an aggregate turnover up to INR 1.5 crores (INR 75 lakhs for Special Category States) in the preceding financial year are eligible for the composition scheme.
- Manufacturers, traders and restaurants not serving alcohol with turnover up to INR 5 lakhs or 10% of total turnover (from 1st February 2019) can opt for the composition scheme.
- All registered persons with the same PAN must opt for the composition scheme; if one chooses the normal scheme, others become ineligible.
Conditions/Restrictions under Composition Scheme for Service Providers:
- Service providers in the composition scheme should not make non-taxable goods supplies or inter-state outward supplies.
- They cannot supply goods through an electronic commerce operator.
- Service providers in the composition scheme should not collect tax from recipients nor claim input tax credit.
- They must pay tax on the reverse charge basis for inward supplies.
- The words ‘composition taxable person, not eligible to collect tax’ must be mentioned on bills and notice boards.
Tax Rates under Composition Scheme for Service Providers:
- Service providers with turnover up to INR 50 lakhs can pay tax at 6% of turnover (5% for restaurant services).
- Manufacturers and traders with turnover up to INR 1.5 crores can pay tax at 1% of turnover.
Penalties for Service Providers under GST Regulations on Non- Compliance
The penalties structure under GST for Service Providers includes the following:
- Late Filing: Late filing of GST returns incurs a penalty of Rs. 100 per day (CGST- Rs. 100 + SGST- Rs. 100) with a maximum cap of Rs. 5000. For IGST filings, the late fee provision has been deferred by the tax authority. Additionally, entities are charged 18% interest on the taxable amount on an annual basis.
- Violating Filing Norms: Failure to comply with monthly GST return filings can lead to penalties and suspension of subsequent filings. Violation of tax provisions or underpayment attracts a penalty of 10% on the due tax amount, applicable only to amounts exceeding Rs. 10,000. Offenders may face a 100% penalty with a minimum amount of Rs. 1,00,000. Intentional non-compliance may also result in jail term.
- Cases of Fraud: In instances of fraudulent transactions or excessive tax credit claims, CGST/SGST officers conduct inspections to scrutinise relevant areas of interest and take appropriate action.
- Incorrect Tax Payment: Any entity found to have made incorrect tax payments or miscalculated tax liabilities may be subject to penalties and further scrutiny.
- False Documentation: Providing false or incorrect documentation to tax authorities can result in severe penalties and legal consequences.
- Evasion of GST: Deliberate evasion of GST through fraudulent means can lead to hefty penalties, including a significant portion of the evaded tax amount and possible imprisonment.
Final Thoughts
GST registration has significantly streamlined business operations for service providers in India since its introduction on July 1, 2017. The clear turnover limits for registration have made the process straightforward, with the exemption limits remaining unchanged for both regular taxpayers and those in Special Category states.
The composition scheme offers attractive benefits for eligible service providers, including lower tax rates and reduced compliance burdens. However, strict adherence to the scheme’s conditions and restrictions is necessary to avoid penalties. Late filing, violation of filing norms and cases of fraud can lead to fines and penalties, underscoring the importance of timely and accurate GST return filings. By complying with GST regulations and utilising the composition scheme where applicable, service providers can flourish in the unified tax system, contributing to India’s economic growth effectively.
For more details on GST registration for service providers, connect with our experts at StartupFino.
