Top 5 things every entrepreneur should know about GST

Last Updated at: Jan 13, 2021
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Top 5 things every entrepreneur should know about GST
Top 5 mandatory things every entrepreneur should know about GST
NR Narayana Murthy, the Infosys founder has said that most entrepreneurs have lost 15-20 % of their revenues during the lockdown period. It will have an important bearing on the GST collections of the Govt. He also said that the country must accept the Coronavirus situation as the new normal.

 

GST Registration

GST Registration is mandatory if the business turnover in an FY exceeds Rs.40 lakh (in case of the supply of goods) and Rs.20 lakhs (in case of the supply of services). 

If a business applies for GST, a 15-digit unique number called GSTIN will be assigned to the agency. GSTIN has substituted the TIN (Tax Identification Number) issued to all VAT-registered service and products providers. In GSTIN, the first two digits range from 01-35 indicating state codes, the next 10 digits are PAN number of the entity, 13th digit indicates the count of other GST registered entities with the same PAN, the 14th digit indicates the default letter Z as specified by the Government. A 15th digit is a random number for check code.

Also, a business entity can opt for voluntary registration of GST. However, once opted the GST should be compulsorily charged unless exempted.

Rate of tax for goods or service (HSN code or SAC code)

Once the entity is GST registered, the next step is to identify the rate of tax which needs to be charged on the goods or services which are to be supplied. You can do this by visiting the GST website.

The tax rate on goods is mentioned along with its HSN Code, where HSN (Harmonious System of Nomenclature) is a code given to that particular good or class of goods.

Goods and Services Tax (GST) is the value-added tax levied on all goods and services that we use within the country. We offer a GST rate finder service that lists out the GST rates of all goods and services that are available in india. This service is also known as the HSN finder.

 

Similarly, for services, the tax rate is mentioned along with its SCN code. For an accurate levy of GST rates, correct HSN or SAC Code (Service Accounting Code) is necessary during Return filing.

Register for GST Now

Charging GST on every invoice – CGST, SGST, IGST

Once GST registered, the GST should be charged on the invoice issued along with the GST Number. The GST number has to be mandatorily mentioned by every taxable person providing the taxable services.

In case of supply within the state (aka Intra-state supplies) the supplier has to charge CGST & SGST/UTGST, and in case of supplies outside the states (Inter-Sate Supplies) on the respective invoice.

Providing GSTN number for every purchase to claim ITC

To claim the Input tax credit for the purchase made or for the services paid, the entity has to mandatorily provide its GST number to the vendor.

Payment of GST and filing returns

The last step is to pay the tax and file the returns on the GST portal. All taxpayers shall file returns monthly and pay taxes monthly. However, in case of small taxpayers (turnover of up to Rs. 5 crores) can file the returns quarterly however the tax payment has to be made monthly. 

Under the New Return System, there will be one main return GST RET-1 and 2 annexures GST ANX-1 and GST ANX-2. 

Benefits of GST registration

  • Improved registration threshold

Earlier, any business that had a turnover of more than Rs 5 lakh (in most states) was liable to pay VAT according to the VAT structure. This cap always differs from state to state. Service tax for service providers with a turnover of less than Rs 10 lakh was also exempted.

However, under the GST regime, this threshold was raised to Rs 20 lakh, which exempts several small traders and service suppliers.

  • Simple Procedure

All of the GST process (from registration to filing returns) is done online, and it’s surprisingly easy. This provides a particular benefit to start-ups. As they do not have to run from one place to another to get specific approvals for various taxes like VAT, excise and service tax.

  • E-commerce operation defined

Before the GST regime, there was no definition of supplying goods through the e-commerce sector. It had laws on variable VAT. GST has, for the first time, given provisions applicable to the e-commerce sector and, since they are applicable throughout the country, there should no longer be any issues regarding the movement of goods between states.

  • The unorganized sector is subject to GST regulation

 It was frequently seen in the pre-GST era that few industries in India such as construction and textiles were largely unregulated and unorganised.

Nevertheless, GST allows provisions for online regulations, payments, and for the provision of input credit only when the amount has been approved by the supplier. That has given those industries transparency and regulation.

  • Logistic efficiency

Earlier, India’s logistics industry had to handle several warehouses in different states to escape existing inter-state movement taxes on CST and state entry. Such warehouses were expected to work below their capacity, which gave way to higher operating costs.

Nevertheless, under GST, those limitations on inter-state movement of goods have been reduced.

  • Elimination of cascading tax effects

GST is an integral indirect tax aimed at bringing multiple indirect taxations under one umbrella. More importantly, the cascading (tax on tax) effect of the tax which was well seen previously will be eliminated. 

  • Less compliance

Previously there was VAT and service tax, each with its returns and compliances. Nevertheless, under GST, there is only one, single return that must be submitted. The number of returns to be filed has also plummeted. There are approximately 11 GST returns from which 4 are basic GST returns that apply to all taxpayers. The main GSTR-1 is manually populated, whereas are GSTR-2 and GSTR-3 auto-populated.

  • Small businesses’ composition scheme

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) shall be benefitted from using the composition scheme as it gives an option to lower taxes. This transition has reduced the burden of tax and compliance for various small businesses.

 

A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.