Goods and Services Tax or the GST has revolutionised India’s tax system by replacing the numerous indirect taxes imposed by both the central as well as the state governments. This streamlined approach has aimed to eliminate the complexities inherent in the previous tax structure.
Functioning as a destination-based tax, GST is applicable to the supply of goods and services across the entire nation. Its overarching objectives encompass promoting market uniformity, fostering transparency and eradicating the issue of tax cascading. By simplifying taxation processes and encouraging a unified market, GST has ushered in a new era of tax reform in India.
Importance of GST Registration for Small Businesses
For small businesses operating in India, GST registration holds immense significance. It stands as a legal requirement for businesses whose annual turnover exceeds the government-set threshold. By registering under GST, small businesses are bestowed with a unique Goods and Services Tax Identification Number (GSTIN). This, in turn, empowers businesses to collect GST from their customers, make use of input tax credits, engage in inter-state trade and establish credibility within the market.
Notably, GST registration ensures adherence to tax regulations, fosters transparency in business transactions and enables small businesses to actively contribute to India’s economic growth. Undoubtedly, GST registration serves as a foundational step for small businesses, enabling them to navigate operations seamlessly and avail the advantages offered by India’s unified tax system.
GST Registration Process for Small Businesses
The online as well as offline method of registration for small businesses in GST is as stated below:
Online registration procedure
- Creating an account on the GST portal: To initiate the process, a GST account needs to be created on the official GST portal. Small businesses are required to establish an account on this platform, which provides the option to register either as a regular taxpayer or to opt for the Composition Scheme, depending on their eligibility. By registering on the GST portal, a gateway is unlocked, enabling small businesses to comply with tax regulations and gain access to the benefits and privileges conferred under the GST framework.
- Filling and submission of the GST registration form: Once the account is created, businesses need to fill out the GST registration form, known as Form GST REG-01. The form requires details such as business name, address, PAN, Aadhaar, bank account information and other relevant particulars. Supporting documents need to be uploaded along with the form.
- Verification and processing of the application: After submission, the application undergoes verification by the concerned tax authorities. Additional information or clarification may be requested by the authorities, if deemed necessary. Following the completion of the verification process, the issuance of the GST registration certificate takes place. This certificate encompasses the unique Goods and Services Tax Identification Number or GSTIN, which serves as a distinctive identifier for the registered entity. It is through this certification that small businesses obtain the official recognition necessary to operate within the GST framework.
Offline registration procedure
- Visiting the nearest GST Seva Kendra: Alternatively, small businesses can opt for offline registration by visiting the nearest GST Seva Kendra. These Kendras are set up by the government to provide assistance and support related to GST registration and GST compliance.
- Submission of the necessary documents and information: The required documents, including the PAN card, Aadhaar card, proof of business address, bank account details and any other supporting documents as specified by the authorities, are to be submitted at the GST Seva Kendra. Upon arrival at the Kendra, small businesses will be guided by the officials who will aid in completing the registration form and verifying the provided documents. The assistance rendered by the officials ensures a smooth and efficient registration process, allowing businesses to fulfil the necessary requirements and acquire their GST registration with ease.
- Assistance from the GST officials: GST officials at the Kendra will guide small businesses through the registration process, clarify any doubts and ensure all necessary documents and information are accurately provided. They may also conduct a physical verification of the business premises, if required.
It’s important for small businesses to follow the prescribed registration process, whether online or offline, to obtain a valid GST registration. This registration enables businesses to operate legally under the GST regime and enjoy the benefits and privileges associated with it.
Composition Scheme for Small Businesses
The composition scheme is a simplified taxation scheme under GST designed specifically for small businesses. It offers certain relaxations and reduced compliance requirements to eligible businesses.
Eligibility criteria for the composition scheme
To qualify for the composition scheme, businesses must meet the following criteria:
- Annual turnover: The annual turnover threshold for businesses opting for the composition scheme varies for different states and Union Territories. For most states, it is up to Rs. 1.5 crore, while for special category states, it is up to Rs. 75 lakhs.
- Nature of business: Certain businesses, such as service providers (except restaurants) and manufacturers of ice cream, pan masala, tobacco, etc., are not eligible for the composition scheme.
Benefits and limitations of the composition scheme
Benefits of the composition scheme include:
- Reduced compliance: Businesses under the composition scheme have simplified compliance requirements and are not required to maintain detailed records or file regular returns.
- Quarterly payment: Tax under the composition scheme is paid quarterly, reducing the frequency of tax payments.
- Lower tax liability: The tax rate for businesses under the composition scheme is lower than the regular GST rates, easing the tax burden on small businesses.
Limitations of the composition scheme include:
- Restricted interstate trade: Businesses under the composition scheme cannot engage in inter-state supplies. They are limited to intra-state supplies only.
- No input tax credit: Businesses under the composition scheme cannot claim input tax credit on their purchases.
- Limited product range: Businesses opting for the composition scheme are restricted from selling exempted goods or providing certain services.
Procedure for opting the composition scheme
To opt for the composition scheme, eligible businesses need to follow these steps:
- Intimation: Businesses need to file an intimation in Form GST CMP-02 on the GST portal before the commencement of the financial year.
- Payment: Composition taxpayers need to pay tax at the prescribed rate, generally a fixed percentage of their turnover, on a quarterly basis.
- Invoice requirements: Businesses under the composition scheme are not required to charge GST on their invoices. Instead, they need to mention “Composition taxable person, not eligible to collect tax on supplies” on their invoices.
The composition scheme provides a simpler tax structure for small businesses, reducing their compliance burden and allowing them to focus on their operations. However, businesses must carefully evaluate the benefits and limitations before opting for the scheme to ensure it aligns with their specific requirements and business model.
Obligations and Compliance for Registered Small Businesses
Small businesses have certain necessary obligations as well as compliances to report under GST, as stated below:
- Maintenance of proper records and books of accounts:
It is the responsibility of registered small businesses to ensure the maintenance of accurate and current records and books of accounts pertaining to their GST transactions. These essential records comprise invoices, receipts, purchase registers, sales registers, input tax credit (ITC) records and various other pertinent documents. By upholding this obligation, businesses can keep track of their financial activities, substantiate their GST compliance and have a comprehensive overview of their business operations. The proper upkeep of these records facilitates transparency, facilitates efficient auditing and allows businesses to make informed financial decisions. It is essential to ensure that these records are organised, easily accessible and retained for the prescribed period as per GST regulations.
- Filing of GST returns:
Small businesses are required to file periodic GST returns based on their registration type and turnover. The frequency of filing returns depends on the turnover threshold, ranging from monthly to quarterly or annually. It is important for registered businesses to file their returns within the specified due dates to remain compliant with GST regulations.
- Payment of GST liabilities:
Registered businesses are responsible for timely payment of their GST liabilities. The GST liability is calculated based on the tax collected from customers minus the input tax credit (ITC) availed on eligible purchases. Small businesses must ensure that the appropriate tax amount is remitted to the government within the designated due dates. Failure to make timely payments can lead to penalties and interest charges.
- Input tax credit (ITC) rules for small businesses:
Registered small businesses can claim input tax credit (ITC) on eligible purchases made for their business activities. The ITC allows businesses to set off the taxes paid on inputs against their output tax liability. However, there are certain rules and conditions to be followed when claiming ITC, such as ensuring that the supplier has correctly reported the transactions, invoices match the prescribed format and ITC is claimed within the specified time frame.
Understanding and fulfilling obligations, as well as complying with GST regulations, hold significant importance for small businesses. Neglecting these responsibilities can lead to penalties, loss of benefits and legal ramifications. Hence, it is vital for registered small businesses to prioritise maintaining accurate records, filing returns punctually, promptly settling GST liabilities and adhering to input tax credit (ITC) rules.
Conclusion
GST registration is a vital step for small businesses in India to operate legally and take advantage of the benefits offered under the GST regime. The simplified guidelines for GST registration ensure that the process is accessible and streamlined, whether through online or offline procedures. Additionally, the composition scheme provides further flexibility for eligible businesses, reducing their compliance burden.
