Goods and Services Tax

With the government’s push to promote e-commerce in India, many businesses are now selling their products on popular online marketplaces such as Amazon, Flipkart, and Snapdeal. If you are planning to start selling online, it is important to be aware of the GST compliance requirements.

All businesses selling products or providing services in India must register for GST. If your annual turnover is below INR 20 lakhs, you can opt for the composition scheme and pay a fixed rate of tax.

You must issue a tax invoice to customers for all sales made through your business. The invoice should include the following details:

• Name, address and GSTIN of the supplier
• A unique invoice number
• Date of invoice
• Name, address and GSTIN of the recipient (if registered)
• HSN code of the product being sold
• Description of the product being sold
• Quantity and unit price of the product being sold inclusive of taxes
• Total value of the sale inclusive of taxes

At the time of writing this article, the GST rate in India is 18%.

1. Determine if you are eligible to register for the Composition Scheme. If your business’s turnover is less than ₹1 crore (US$140,000) in the previous financial year, you may be eligible to register for the Composition Scheme. This would mean that you would only need to pay a GST of 2.5% on your supplies, as opposed to the standard rate of 18%.
2. Register for GST by filling out the relevant forms and submitting them to the authorities.
3. Apply for a GST Identification Number (GSTIN).
4. Once you have registered for GST and obtained a GSTIN, log into your account on the marketplace where you plan to sell your products.
5. Enter your GSTIN under “Company Details” or a similar section.
6. Start listing your products for sale on the marketplace, making sure to include all required information such as product name, price, quantity, etc.
7. When someone purchases one of your products, calculate the applicable GST using the current tax rate (18%). Include this amount in your invoice to the buyer.
8. Pay any taxes due on time to avoid penalties and interest charges.
9. File your GST returns periodically as required by the authorities.

Who is required to register for GST?

Persons who are required to register for GST include:

1. Any person who carries on business in India and has a turnover exceeding Rs. 20 lakhs per annum
2. Any person who supplies goods or services interstate (across state borders)
3. Any person who is engaged in e-commerce transactions
4. Non-residents who supply goods or services in India
5. Persons who are required to pay tax under the reverse charge mechanism
6. Input service distributors
7. Casual taxable persons
8. Persons who are required to deduct tax at source (TDS) or collect tax at source (TCS)
9. Persons who are registered under the previous laws

How to register for GST?

Complete and submit the following forms to the authorities:

• Form GST REG-01 – Application for registration
• Form GST REG-02 – Consent to act as a common portal registered user
• Form GST REG-03 – Cancellation of registration by registered person (cancels previous registration)
• Form GST REG-04 – Amendment to registration particulars by registered person
• Form GST REG-05 – Transfer of registration from one state to another by registered person
• Form GST REG-06 – Surrender of registration by registered person
• Form GST ITC-01 – Application for refund of integrated tax paid on export of goods or services or both
• Form GST ITC-02 – claim for input tax credit
• Form GST ITC-03 – Adjustment of input tax credit where goods or services are received in installments
• Form GST ITC-04 – Claim for refund of unutilized input tax credit

What are the benefits of registering for GST?

Complying with GST regulations helps businesses to:

1. Streamline their tax compliance procedures
2. avail of input tax credit, which can be used to offset GST liabilities on taxable supplies
3. Pay taxes electronically, using the GST Electronic Commerce Portal
4. File returns electronically, using the GST Return Filing System
5. Submit certain applications electronically, using the GST Application Programming Interface
6. Claim refunds of GST paid on eligible exports

Businesses that are registered for GST can claim input tax credits (ITCs) for the GST paid on their purchases. ITCs can be used to offset GST liabilities on taxable supplies. This helps businesses to improve their cash flow and reduces the cost of doing business.
In addition, businesses that are registered for GST can file their returns and make payments electronically using the GST Electronic Commerce Portal. This saves time and money, and makes compliance with GST easier.

What are the different types of GST returns?

The different types of GST returns are:
1. Form GSTR-1 – details of outward supplies
2. Form GSTR-2 – details of inward supplies
3. Form GSTR-3 – monthly return
4. Form GSTR-4 – quarterly return for composition taxpayers
5. Form GSTR-5 – return for non-resident taxable persons
6. Form GSTR-6 – return for input service distributors
7. Form GSTR-7 – return for authorities deducting tax at source
8. Form GSTR-8 – annual return
 
Form GSTR-1 is filed by taxpayers who are registered under the GST regime. This form includes details of all outward supplies made by the taxpayer during a month.
 
Form GSTR-2 is filed by taxpayers who are registered under the GST regime and includes details of inward supplies received by the taxpayer during a month.
 
Form GSTR-3 is a monthly return that needs to be filed by all taxpayers who are registered under the GST regime. This form includes details of both outward and inward supplies made/received by the taxpayer during a month, as well as any tax liability arising from these supplies.
 
Form GSTR-4 is a quarterly return that needs to be filed by composition taxpayers (i.e. those whose turnover does not exceed Rs 1 crore in a financial year). This form includes details of inward and outward supplies made/received by the taxpayer during a quarter, as well as any tax liability arising from these supplies.
 
Form GSTR-5 is filed by non-resident taxable persons (i.e. those who carry on business in India but do not have a permanent establishment here) for each period they are liable to pay tax in India. This form includes details of inward and outward supplies made/received by the taxpayer during the relevant period, as well as any tax liability arising from these supplies
 
Form GSTR-6 is filed by input service distributors (i.e. those who distribute credit of GST paid on inputs amongst various suppliers) for each month. This form includes details of inward supplies received by the taxpayer during a month, as well as any tax liability arising from these supplies.
 
Form GSTR-7 is filed by authorities deducting tax at source (i.e. those who are required to deduct tax at source from payments made to suppliers) for each month. This form includes details of tax deducted at source during a month, as well as any tax liability arising from these deductions.
 
Form GSTR-8 is an annual return that needs to be filed by all taxpayers registered under the GST regime, irrespective of whether or not they have carried out any business transactions during the year. This form includes details of outward and inward supplies made/received by the taxpayer during the financial year, as well as any tax liability arising from these supplies
 

How to file GST returns?

All GST returns need to be filed electronically using the GST Return Filing System (RFMS). You will need to log in to the RFMS using your GSTIN and password.
Once you have logged in, you will be able to file your return by selecting the relevant form and entering the required information. After you have filed your return, you will receive a confirmation message on the screen as well as an email confirming that your return has been successfully filed.

What is the composition scheme?

Do you know what the composition scheme is?
The composition scheme is a system under which certain types of businesses can pay taxes at a reduced rate. This scheme is available to businesses whose turnover is below a certain threshold. The main benefit of the composition scheme is that it simplifies tax compliance for small businesses.
Under the composition scheme, businesses are required to file quarterly returns and pay taxes at a reduced rate. The main disadvantage of the scheme is that businesses are not eligible for certain tax benefits, such as input tax credit.

How can I avail of the composition scheme?

Do you know how you can avail of the composition scheme?
To avail of the composition scheme, businesses need to file an application with the authorities. The application must be made on Form GST CMP-02. The authorities will then issue a certificate of registration to the business, which needs to be renewed every year.
The composition scheme is only available to businesses whose turnover is below Rs. 1 crore in the previous financial year.
 

Are there any other compliance requirements under GST?

Remember, GST compliance is not only about filing returns and paying taxes. There are other important compliance requirements as well, such as:

1. Maintaining proper records: businesses need to maintain proper records of all their business transactions. These records must be kept for a minimum period of 5 years.
2. Appointing a GST practitioner: businesses with a turnover exceeding Rs. 5 crores in the previous financial year are required to appoint a GST practitioner. This person will be responsible for filing the business’s GST returns and dealing with other GST-related matters on behalf of the business.
3. Furnishing security: businesses with a turnover exceeding Rs. 10 crores in the previous financial year are required to furnish security to the authorities in the form of bank guarantees or deposits. The amount of security to be furnished depends on the turnover of the business.
4. Obtaining e-way bills: businesses are required to obtain an e-way bill for transporting goods worth more than Rs. 50,000. An e-way bill is a document that contains details of the consignment being transported, such as the origin, destination, and value of the goods.
5. Registering for GST: businesses must register for GST if their turnover exceeds the threshold limit of Rs. 40 lakhs (Rs. 10 lakhs for NE States).

Who is eligible to get GST registration?

As per the guidelines of the government, the following people can register under the new GST regime.

1. Individuals enrolled under the existing taxation laws can get GST registration.
2. Businesses with turnover existing Rs. 40 lakhs (Rs. 10 lakhs for the states including Northeast, Jammu and Kashmir, Himachal Pradesh, and Uttarakhand.)
3. Suppliers and Input service wholesalers.
4. Casual taxable person (A person who is occasionally engaged in the supplies of taxable goods or services).
5. For any individual who is under the consideration of the reverse charge mechanism: Reverse Charge, the receiver here is liable to pay tax.
6. Individuals involved in E-commerce business.

What documents are required to register for GST?

Basing the nature of the entities and business ownerships, an individual is required to submit a different set of documents to obtain GST registration.

Following documents are required to be submitted for sole proprietorships:

• PAN Card of the applicant
• Aadhar Card of the applicant
• Passport Size Photograph
• Address proof
• Bank account details of the proprietor

Here is a list of documents that is to be submitted to obtain GST registration for a public or a Private Limited company:

• PAN Card of the company
• Incorporation certificate
• PAN and Aadhar details of the authorized signatory. (must be a citizen of India)
• Passport Size photographs
• MOA and articles of association
• PAN Card of all directors
• Address proof of the principal place of business
• Bank account detail

Documents required for a partnership firm:

• Id proof and address proof of all the directors
• Copy of the Partnership deed
• Bank account details

For a HUF the following documents are required:

• PAN Card
• Photograph of the owner
• Address proof of the principal place of business

What are different types of GST in India?

The Goods and Services Tax in India is divided into four types: State goods and Services Tax, Central Goods and Services Tax, Integrated Goods and Service Tax, and Union Territory Goods and Services Tax. There are four different rates of taxation.

» Central Goods and Services Tax is imposed by the central government on the inter-state supply of goods and services. This service is regulated and held by the central government.

» State Goods and Services Tax is a tax levied on sales of goods or services within a state but not outside that state. It is collected and administered by the respective state.

» Integrated Goods and Services Tax is a tax in India and it is applicable on the goods and services that are supplied from one state to another. This tax is also applicable in the case of imports from India and export from India. The IGST tax is collected by the government of India.

» Union Territory Goods and Services Tax is a consumer tax levied in the federal union territories of India. Most union territories, such as Delhi and the Chandigarh Capital Region, apply both this tax and the Central GST. The tax is collected by the territorial government. UTGST and CGST are levied together.

As a result, if businesses have registered under the new GST regime, then they would be required to pay these taxes.

What is the structure of the GST slab rates?

For the sake of simplifying GST, it has been divided into four divisions. Zero rates, lower GST rates, standard GST rates, and higher GST rates.

Zero rate Tax: The Nil rate tax applies to goods and services. It is a type of tax which is equivalent to tax exemption and does not affect the price of the product. The zero rate GST slabs keep the cost of essential items under check.
Lower rate tax: This is 5% of the tax rate which is applied to the consumer price index basket and mass consumption.
Standard rate tax: Here the rate of tax is between 12% and 18%.
Higher rate tax: The tax rate is 28% on goods like washing machines, air conditioners, soft drinks, etc. Earlier due to the cascading effect this tax which was just 27% was increased to 30-31%. But due to the higher tax rate under the GST scheme, it has become fixed to 28%.

Goods and services that come under GST.

As we saw that the structure of GST includes 4 slab rates the products and services that come under the GST are also divided under these 4 slab rates 5%, 12%, 18%, and 28% respectively. Since the 0% slab is the exemption slab it does not come under the tax rate list.
5%- Consumables like sugar, coffee, tea, edible oil, footwear, milk food, apparel for kids, etc.
12%- butter, ghee, processed /packed food, almonds, mobile, computer, umbrella, etc.
18%- Hair oil, toothpaste, Industrial intermediaries, soap, ice cream, toiletries, corn flakes, etc.
28%- Small card, High- end motorcycle, AC, fridge, Luxury items, and cigarettes, etc.

Goods and Services Exempted under GST

Exempted goods under GST
Food: Cereals, edible fruits, and vegetables, edible roots and tubers, fish and meat, tender, coconut, jaggery, tea leaves, coffee beans, seeds, ginger, turmeric, betel leaves, papad, flour, aquatic feeds, and supplements.
Raw material: Raw silk, silk waste, wool, khadi fabrics, the cotton used for khadi yarn, raw jute fiber, firewood, charcoal, and handloom fabrics.
Tools: Hearing aids, hand tools (such as spades and shovels), tools used for agricultural purposes, handmade musical instruments.

Exempted Services under GST
Agricultural services: Agricultural services include harvesting, cultivating, packaging, renting, purchase, or leasing machinery for agriculture, warehousing, the supply of farm labor are all exempted under the GST regime.
Transportation Services: Transport of merchandise by inland waterways, transportation of travelers via air, transportation by non-AC vehicles, movement of rural production like milk, salt, or food grains.
Educational services: Include student and faculty transportation, mid-day meal program, catering services, security, housekeeping, and services during admission, examination, etc.
Medical services Include the services provided by a vet, clinics, or paramedics, services by ambulances, charity homes, and organizations that facilitate religious pilgrimages.

Advantages of GST

A Goods and Services Tax (GST) is an indirect tax in India. GST replaced many indirect taxes levied by the Central Government and the State Governments in India such as sales tax, service tax, excise duty etc.

It has a single rate for most goods and services but there are certain goods which have been kept outside its purview. These include alcohol for human use, petroleum products such as petrol, diesel, jet fuel etc., tobacco products, real estate, electricity bills, stamp duties and judicial & legal service.

The main objective behind introducing GST is to remove cascading or double taxation on value addition which takes place in the production of any good or service. For example: When a car manufacturer buys various raw materials required to manufacture a car such as steel & rubber from other companies and when he sells the finished car to an automobile dealer who sells it further to a customer; all these entities charge tax on the value addition at each stage of sale. So at each stage there is a tax on tax effect which results in higher prices of automobiles for final consumers compared to inter-state sales in other countries where VAT (value added tax) is charged only once but not twice unlike India where excise duty is charged on top of VAT @ 14 %. GST removes this cascading effect on sale and purchase of goods and services because it charges one single rate for most goods and services but there are certain goods which have been kept outside its purview including alcohol for human use, petroleum products such as petrol , diesel , jet fuel etc., tobacco products , real estate , electricity bills , stamp duties & judicial & legal services.

Disadvantages of GST

The main disadvantage of GST is that it is too complex to understand especially for small businessmen. This has resulted in delayed filing of GSTR 3B by most small businessmen leading to filing fine amounting upto Rs 1 lakh per month per person . While this may create some problems initially but once things settle down it will definitely lead to better compliance than present scenario where there are numerous taxes that need be paid.

In addition GST has removed exemptions from taxes which were enjoyed by different sections like agriculture , educational institution etc . These exemptions have resulted in lower revenue collections from these sectors since they were not liable to pay taxes earlier under VAT regime. This was done mainly due to political reasons so now these sectors will pay their fair share of tax leading to increased revenue collections by government and overall better fiscal health.

Compliances under GST.

Apart from GST return filings, several new GST regimes have been introduced.

E-way Bills
Introduced on 1st April 2018 for inter-state and 15th April 2018 for intrastate movement of goods, e-way bill can be generated by manufacturers, traders, and transporters with ease. The system benefits tax authorities by reducing time spent at check posts and thus reducing the chances of tax evasion.

E-invoicing
The E-invoicing system was announced on the 1st of October 2020 for the businesses that have an annual aggregate turnover of more than Rs.500 crore in any preceding financial year(2017-2018). On the 1st of January 2021, it will take effect. There is a special provision for those with an annual aggregate turnover of more than Rs.100 crore. E-invoicing has allowed interoperability of invoices and helps reduce data entry errors.

The application of Goods and Services Tax in India has been a revolutionary act as it is a step towards the development of the Indian Economy. It has helped India to bring rich and poor on the same platform and improve the country's ranking in the list of developed nations.