GST, or Goods and Services Tax, is a single indirect tax that has replaced a number of other indirect taxes in India. It was introduced in July 2017 with the aim of simplifying the tax system and making it more efficient. For small businesses, GST registration is mandatory if their annual turnover exceeds Rs. 40 lakhs for goods or Rs. 20 lakhs for services. However, there are a few exceptions to this rule, such as businesses that only sell to consumers in their state of registration.
GST could be a mixed bag for small and medium enterprises in India in the short term. However, in the longer term, the impact is likely to be a lot more positive and value accretive. The SME segment in India contributes to nearly 40% of the exports and almost 70% of the total employment generated. The most enduring image of the post-GST scenario has been the large number of traders and small businessmen who have been protesting against the GST across India. Their concerns are not entirely misplace. GST will result in a sharp increase in compliance requirements and will also bring a lot of untaxed entities into the taxation fold. Here are the key takeaways from the perspective of a small business.
1. They can now have a single standard registration online.
This is a far cry from the current situation. Currently, businesses are require to register under various tax imposts separately. For example, they need to register separately for excise duty, VAT, sales tax, service tax, etc. All this can now be subsum into one single GST registration. Even though you require separate registration for different states, the process is the same, and the entire process can be done online, along with e-verification and authentication. The actual GST payable is divide into SGST, CGST, and IGST, but only one single registration is require for all of them. The GST registration also substantially does away with the physical paperwork as most of the uploads can be manage online and digitally signed. This is quite contrary to the current situation wherein the business is require to register under VAT in each state for turnover in excess of Rs.5 lakhs making the entire process cumbersome. And, if you are an existing taxpayer, then you are automatically migrated to the new system with minimal hassles and procedures involve.
2. GST increases the threshold for GST registration for small businesses
To reduce the compliance pressure on small businesses, the GST Council has set a limit of annual turnover of Rs.20 lakhs for registration under GST. Businesses with turnover below this threshold do not require GST registration. Of course, this limit stands further reduced to Rs.12 lakhs in the case of North Eastern states. Turnover includes actual sales and sales by way of samples, and that needs to be kept in mind while calculating your turnover. However, there are certain exceptions to this rule. Firstly, if the supply of goods is inter-state, then GST registration is mandatory irrespective of the value of turnover. Also, this threshold limit is only applicable to manufacturing and not to services. It needs to be said that this should surely come as a relief to very small traders and businesses.
3. There is also an additional benefit under the Composite Scheme
In addition to the threshold of Rs.20 lakhs for registering for GST. The GST Council has offered an additional benefit for small businesses in the form of the Composite Scheme. Under this scheme, companies with a turnover of up to Rs.75 lakhs per annum can opt for this scheme, where the business can pay a flat tax in the range of 1-5%. However, there are some conditions and exceptions to this scheme. The Council has specifically earmarked select businesses where this scheme will be available. Secondly, this scheme will not be available for any company involve in inter-state sales. Lastly, when you avail of the composite system, you are not entitle to any input tax credit (ITC) on the tax paid by you on the inputs.
4. Access to a common national market across India
This is a significant benefit for small businesses. In the old tax regime, most industries were require to maintain bulky distribution and logistics networks as these networks were design to meet the needs of state-level tax minimization. In the new dispensation, distribution, and logistics networks will be driven by business needs. And hence even small companies will get a level playing field with the larger ones. This common market across India will be a big boon for small companies and businesses that want to expand their national footprint with minimal investments. Many small businesses have been oppose to higher compliance requirements under the GST. However, they need to appreciate that under the GST, the creation of a seamless national market will more than compensate for the higher compliance requirements.
Benefits of GST Registration for Small Business
Here are some of the benefits of GST registration for small businesses:
- Reduced compliance burden: GST is a more straightforward tax system than the previous indirect taxes. Meaning there is less paperwork and compliance requirements for small businesses. This can save businesses time and money, and it can also reduce the risk of errors.
- Increased transparency: GST is a more transparent tax system, which means that businesses and consumers can quickly see how much tax is being paid. This can help to build trust between businesses and consumers, and it can also help to reduce corruption.
- Improved ease of doing business: GST has made it easier for businesses to trade across state borders. Which has helped to improve the ease of doing business in India. This can give small businesses access to new markets and customers, and it can also help them to grow their businesses.
- Elimination of cascading taxes: GST eliminates the cascading effect of taxation, which means that businesses no longer have to pay tax on tax. This can save businesses money, and it can also make their products and services more competitive.
- Access to input tax credit: GST allows businesses to claim input tax credit. Which means that they can offset the GST they pay on their purchases against the GST they collect from their customers. This can save businesses money, and it can also help them to improve their cash flow.
In conclusion, GST registration can be a great benefit for small businesses. It can help to reduce their compliance burden, increase their transparency, improve their ease of doing business. And create new opportunities for growth.
However, it is essential to note that GST is a complex tax system, and there are a number of compliance requirements that businesses need to meet. If you are considering GST registration, I recommend that you speak to a tax advisor to get more information.