Goods and Services Tax (GST) is a value-added tax that is levied on the supply of goods and services in India. It is a comprehensive indirect tax that has replaced multiple indirect taxes like excise duty, service tax, and value-added tax. GST was introduced in India on 1st July 2017 and since then, it has been a topic of discussion among businesses, especially small businesses. In this article, we will discuss what small businesses need to know about GST services.
- What is GST?
GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. GST is levied at each stage of the supply chain and is collected by the seller from the buyer. It is a destination-based tax, which means that the tax revenue is collected by the state where the goods or services are consumed, rather than where they are produced.
- Who needs to register for GST?
Under GST, any business with an annual turnover of over Rs. 20 lakhs (Rs. 10 lakhs for special category states) is required to register for GST. Businesses engaged in inter-state supply of goods or services, or those who sell goods or services through e-commerce platforms, are also required to register for GST, irrespective of their turnover.
- GST Rates
GST rates are categorized into four slabs – 5%, 12%, 18%, and 28%. In addition to this, some goods and services are exempted from GST, while some are subject to a special rate of 0.25%. The GST rates are determined by the GST Council, which is chaired by the Union Finance Minister and comprises of the finance ministers of all the states.
- Input Tax Credit (ITC)
ITC is one of the key features of GST. It allows businesses to claim the tax paid on their purchases as a credit against the tax they are required to pay on their sales. For example, if a business purchases goods worth Rs. 1,00,000 on which they paid a GST of Rs. 18,000, and sells the same goods for Rs. 1,20,000, on which they collect a GST of Rs. 21,600, they can claim an ITC of Rs. 18,000 and pay only Rs. 3,600 as GST.
- Composition Scheme
The composition scheme is a simplified scheme under GST for small businesses with an annual turnover of up to Rs. 1.5 crore. Businesses registered under the composition scheme are required to pay a fixed percentage of their turnover as GST, instead of the actual GST rate. However, businesses registered under the composition scheme are not eligible for ITC.
- GST Returns
Under GST, businesses are required to file regular returns to report their sales and purchases. The frequency of filing returns depends on the turnover of the business. Businesses with an annual turnover of up to Rs. 5 crore can file quarterly returns, while businesses with an annual turnover of over Rs. 5 crore are required to file monthly returns.
- GST Compliance
GST compliance is critical for small businesses to avoid penalties and legal hassles. Businesses must ensure that they are registered under GST, collect and deposit the correct amount of GST, file their returns on time, and maintain accurate records of their transactions. Non-compliance can result in penalties, interest, and even prosecution.
- GST Audit
Businesses with an annual turnover of over Rs. 2 crore are required to get their accounts audited by a chartered accountant or a cost accountant. The audit report is to be submitted along with the annual return.
- GST Helpdesk
The GSTN (Goods and Services Tax Network) provides a GST helpdesk for businesses to clarify their doubts and seek assistance with their GST-related issues. The helpdesk can be accessed through phone or email, and is available from Monday to Saturday. Businesses can also seek help from GST practitioners, who are professionals authorized by the government to provide GST-related services.
- GST Benefits for Small Businesses
While GST compliance can seem like a burden for small businesses, it also offers several benefits. Firstly, GST reduces the cascading effect of taxes, which means that businesses can claim credit for the tax paid on their purchases, resulting in lower tax costs. Secondly, GST eliminates the need for multiple registrations and compliances, as it is a single tax applicable across India. This simplifies the compliance process for small businesses. Lastly, GST reduces the scope for tax evasion, as it is a transparent and technology-driven system.
In conclusion, GST is a comprehensive tax system that has replaced multiple indirect taxes in India. While GST compliance can seem like a burden for small businesses, it is important for them to understand and comply with the regulations to avoid penalties and legal hassles. Small businesses can also benefit from GST by claiming input tax credit and simplifying their compliance process.
As GST is still a relatively new system, businesses must ensure that they are updated on any changes to the regulations and seek assistance from GST practitioners or the GST helpdesk if needed.