What is the Goods and Services Tax (GST)?
The Goods and Services Tax (GST) is an indirect, comprehensive, and multistage tax on value addition that came into effect on July 1, 2017.
With any indirect tax, the burden of tax can be shifted. So, an individual liable to pay the tax can collect the tax from someone else and pay it to the tax authorities.
The GST is also a destination-based consumption tax, which means it is collected in the state where the final product is consumed. And the GST is a “multistage” tax because it is charged at every level of the supply chain – raw material procurement, manufacturing, distribution and final consumption.
Why was the GST introduced?
The GST was introduced to replace all other indirect taxes charged at a state and central level for value addition. These include the Value Added Tax (VAT), Service Taxes, Excise Duty, Purchase Tax, and Luxury Tax.
Since its introduction, the GST has made it easier for taxpayers to pay their state and central taxes and for business owners to do inter-state business.
What are the different types of GST?
There are four different types of GST that a taxpayer must know:
1. Central Goods and Services Tax (CGST): Charged on the intrastate supply of products and services (within the boundaries of a state).
2. State Goods and Services Tax (SGST): Just like CGST, the SGST is charged on the sale of products or services within a state.
3. Integrated Goods and Services Tax (IGST): It is charged on inter-state transactions of products and services (across state borders).
4. Union Territory Goods and Services Tax (UTGST): This tax is levied on the supply of products and services in any of the Union Territories in the country and is collected along with CGST.
Who must register under GST?
- E-commerce aggregators
- Individual suppliers on e-commerce aggregators
- Individuals who pay tax as per the reverse charge mechanism
- Agents of input service distributors and suppliers
- Non-Resident individuals who pay tax in India
- Businesses that have an annual turnover more than the threshold limit
- Individuals who registered before the GST law was introduced
What is the threshold limit to register for GST?
The most recent GST threshold limits came into effect on April 1, 2019. The threshold for registration under GST is based on your Annual Aggregate Turnover.
|Annual Aggregate Turnover||Category||Purpose|
|More than Rs. 40L||Normal state||Sale of goods|
|More than Rs. 20L||Special state*||Sale of goods|
|More than Rs. 20L||Normal state||Providing services|
|More than Rs. 10L||Special state*||Providing services|
*The Special State Category refers to states in the North-East of India and hilly states.
Which states are included in the Special State Category under the GST law?
- Arunachal Pradesh
- Himachal Pradesh
- Jammu & Kashmir
What are the benefits of having a GST registration?
The introduction of the GST has resulted in many benefits for taxpayers over the years. These include:
- The introduction of the GST has simplified the tax system in India, grouping together all the indirect taxes under one tax.
- It has eliminated the cascading tax effect, under which entities were being taxed on tax!
- The entire GST system, from registration to filing returns, is done online through a user-friendly platform.
- It has allowed for regulation in the unorganized sector with the introduction of the Input Credit which allows businesses to overcome the cascading effect. The Input credit allows businesses to claim taxes paid on any kind of input for business. This greatly reduces the operation costs and has the potential to increase net profit margins.
- There is now a higher threshold for registration. Under the VAT system in some states, businesses with a turnover of 5L and above were liable to pay the tax. This threshold has increased under the new GST regime and is uniform across almost all states.
- The GST benefits small businesses that have a turnover of Rs. 20L -75L, by giving them the option of lowering their taxes by introducing a Composition Scheme. This scheme has reduced the burden of tax payment and compliance for many SMEs. Learn about the Composition Scheme.
- The GST has defined clear regulations for e-commerce operators and sellers, something that was missing from the earlier tax system.
How do I get my GST registration?
Taxpayers must apply for a GST on www.gst.gov.in. You will be required to submit documents about your business and its financial history to register.
Once your GST application is approved, you will also be allotted a 15-digit GSTIN. The Goods and Services Tax Identification Number (GSTIN) replaced the Tax Identification Number (TIN) in 2017. Businesses use this 15-digit GST number to claim credit returns and to collect/pay taxes.
Individuals and Sole Proprietorships need to provide the following documents to get a GST registration:
- Individual PAN Card
- Individual Aadhaar Card
- Address Proof (Electricity Bill, Rent Agreement, Ownership documents etc. are accepted)
- Details of Bank Account (Cancelled cheque/passbook extract/bank statements)
- Photographs of the individual
LLP and Partnership Firms must submit the following:
- Copy of Partnership deed
- Proof of registration of LLP
- Address proof of business
- PAN card of partners
- Address proof of partners
- Photograph of partners
- Proof of appointment of an authorized signatory
- Aadhaar card of the signatory
- Bank account details
Finally, Private Limited Companies must submit the following documents:
- Incorporation certificate issued by the Ministry of Corporate Affairs
- Memorandum of Association
- Address proof of the business
- Details of bank account
- PAN Card of the company
- PAN card of directors
- Address proof of directors
- Appointment proof of authorized signatory
- PAN Card of the signatory
- Aadhaar card of the signatory
Once your documents are in order, visit the GST portal and “Register Now” to start your application.
There are also services, like Vakilsearch, that help small businesses acquire the appropriate registrations and permits. Acquiring numerous permits can be a daunting and confusing task. As a small business owner, you should focus on running your business instead of spending time figuring out what documents you need to operate. That is why Vakilsearch provides SMEs with the support they need to easily acquire the registrations and permits without navigating the red tape.
Getting your documentation in order is the first step to getting the right business funding from a formal lender. When SMEs use CreditEnable’s service to access business financing, we help our customers find the right match for their business and ensure they have all the documents necessary to submit a complete loan application. Your GST registration is one primary document all our lender partners require.
If you have your documents in order and need business funding, we can help!
Business Loans. Enabled Simply.