In the last few years, Goods and Services Tax (GST) has revolutionized the way businesses are taxed by simplifying the tax structure and enhancing the transparency, ensuring GST registration in every small business. As a business proprietor, understanding the GST registration is critical for the sake of compliance along with the right use of GST. Most small business people are confused about- Is GST registration mandatory in the case of small businesses?
This article’s objective to also keep the light on whether small businesses are supposed to have GST registration, its advantages, and ways of determining its necessity for GST compliance for a business.
What does GST Registration mean?
GST registration is a kind of recognition every business gets when they come under the GST law. It provides the taxpayers with a new and exclusive GST identification number. This can be used to collect taxes from customers, repayments in the form of taxes to the government, and claiming input tax credits of the taxes paid on their business inputs.
For small businesses, GST registration either has far-reaching implications when compared to the need for registration or tremendous through the way tax should be handled in the course of doing the business with suppliers, customers, and the government.
Is Registration with GST Mandatory for Small Businesses?
The answer is: Yes, but not always for every small business. That depends greatly on the annual turnover and certain other determining factors. Let’s break it down:
1. Registration for GST Based on Annual Turnover
According to existing GST regulations, individuals or businesses exceeding a specified turnover threshold will have to comply with registration based on the type of business and location of the state. The current limit for GST registration is as follows:
- For Service Providers: If a service provider has a turnover of ₹20 lakhs (₹10 lakhs for special category states), then it has to get itself registered under GST.
- For Goods Suppliers: For persons in the business of supplying goods, the threshold for turnover to obtain proper registration under GST is ₹40 lakhs (₹20 lakhs for special category states).
However, if your turnover is less than the expressed thresholds in this country, you aren’t bound to get registered for GST. However, still, voluntary registration should be examined on a more positive note, due to several attractive provisions tendered through tax registration.
2. Small Business GST Registration- Voluntary
Regardless of turnover levels, voluntary GST registration is available for small businesses. This could prove a very wise move if:
- You Deal with Other GST-Registered Businesses: Many businesses prefer to engage suppliers to submit GST-compliant invoices for claiming input tax credits. If your business isn’t registered, you may lose prospective customers or suppliers concerned with GST-compliant invoices.
- You Want to Avail Input Tax Credit (ITC): You Want To Avail Input Tax Credit: Because of GST registration, you are entitled to an input tax credit on the GST paid on the purchase of raw materials or services or on any other inputs. This would substantially lower your business costs.
- You Plan to Expand: If you wish to scale up your business and increase turnover, such registration will only simplify compliance when your business grows.
- To Enhance Business Credibility: A GST-registered business looks more credible in the eyes of clients and suppliers. It means your business is serious about its compliance with tax policies and regulations.
3. GST Registration for E-commerce Sellers
For small businesses that sell products or services online on platforms like Amazon, Flipkart, or others, GST registration becomes mandatory once the turnover crosses ₹20 lakhs (₹10 lakhs in the case of special category states). E-commerce operators have to collect GST from the buyers and remit it to the government on behalf of sellers, which means that sellers have to become registered under the Act.
The e-commerce business must, however, comply with the provisions of GST TCS under which the e-commerce platform collects a percentage of the transaction as tax.
4. Special Provisions for Small Businesses (Composition Scheme)
To reduce the burden of compliance under GST on smaller businesses, the Composition Scheme was announced by the government. This scheme is for small businesses, with an annual turnover up to ₹1.5 crore (₹75 lakhs for service providers).
Under the Composition Scheme:
- Lower Tax Rates: Small businesses do not pay tax at normal rates; rather, they pay tax at substantially reduced rates based on the types of goods or services sold. These rates of taxation would be easier and cheaper than the regular GST tax slabs.
- No Input Tax Credit: However, one drawback about the composition scheme is that if you go for this scheme, you cannot avail the input tax credit. This could hurt your business considerably if you buy goods or services that have a lot of tax on them.
- Simplified Filing: Under this scheme, a business does not have to file returns every month, as most other enterprises do, but instead can file returns on a quarterly basis. This saves time and money on compliance.
How to Know if GST Registration is Compulsory for Your Business?
To know if GST registration is compulsory, follow these steps:To know if GST registration is compulsory, follow these steps:To know if GST registration is compulsory, follow these steps:
- Check Your Turnover: The first thing to do is check whether you cross the limit of turnover on GST. If it does, then registration is considered compulsory.
- Type of Business: Check whether you are from the goods or services category; different thresholds vary depending on that.
- E-commerce Sales: If you sell goods or services via an e-commerce platform, then GST registration might be required even if your turnover is below the average threshold.
- Expansion Plans: If you wish to expand your business or will be dealing with bigger suppliers or clients, voluntary registration could be a good idea.
- Consult a Professional: In case you are not sure whose case actually applies to you, it is always a good idea to consult with a tax professional or GST consultant who will be in a position to review your case and provide you with guidance.
Benefits of Small Business GST Registration
While it appears as though it would add more compliance and may seem burdensome, the benefits of GST registration for small businesses include:
- Legal Recognition: GST registration gives your business a legal status in the eyes of the government, adding credibility and trustworthiness.
- Claiming Input Tax Credit (ITC): You can claim ITC on the taxes you pay for your business inputs, which can lead to significant cost savings.
- Better Business Opportunities: GST-registered businesses are eligible to work with large companies that require their suppliers to be GST-compliant.
- Streamlined Process: GST reduces the complexity of indirect taxes by combining various state and central taxes into a single tax regime, making compliance easier.
- Access to Government Tenders: Only GST-registered businesses are eligible to apply for government tenders, which can be a lucrative opportunity for small businesses.
Conclusion
While small businesses whose gross turnover is below the specified threshold may not necessarily be required to register for GST, the benefits that may accrue from the registration outweigh the costs. These are: opportunity for the input tax credit, strengthening of business credibility, and overall simplification of the tax system proposed. For smaller businesses seeking expansion, to work with larger clients, or in order to structure tax more properly, GST registration is a smart move.
If you are unsure about whether your business needs to register for GST, it is usually wise to consult a professional like JR Compliance. Remember that the advantages provided by the GST system, whether one is obliged to take them up or are taken up voluntarily, can immensely contribute to long-term growth and viability for your business.
As the editor of the blog, She curate insightful content that sparks curiosity and fosters learning. With a passion for storytelling and a keen eye for detail, she strive to bring diverse perspectives and engaging narratives to readers, ensuring every piece informs, inspires, and enriches.
