As we all know, the historic date i.e., 1st July 2017 was when the Goods and Services Tax (GST) was introduced. It has replaced around 13 indirect taxes in the form of excise duty, service tax, VAT, entertainment tax, etc. into one single tax known as GST. In this blog, let us briefly understand the important things to know about GST that every present and potential entrepreneur must be aware of.
GST Registration: GST Registration is obligatory if the business turnover in an FY exceeds Rs.40 Lakhs (in case of the supply of goods) and Rs.20 Lakhs (in case of the supply of services). It is also possible for a business to choose voluntary registration of GST in the case the GST will be compulsorily charged unless the business is exempted from it.
GST Slabs: The next step is to determine the rate of tax that needs to be charged to the particular goods and services that the entrepreneur is dealing with. There are two major slabs – HSN Code (Harmonized System of Nomenclature) and SAC Code (Servicing Accounting Code) that systematically classify goods in a legal and logical structure with precise rules.
Types of GST –CGST, SGST, UTGST, IGST: Once you are done with the GST registration, the next important thing to know about GST is the type of GST that will be levied on the invoice issued with the GST number. When the supply of goods or services happens within a state or intra-state transactions, then both the CGST and SGST will be claimed. In case of supply between states or inter-state transactions, then only IGST will be collected and when it happens within union territories then UTGST will be levied.
Impact of GST on Industry: With a transparent taxation system, it will be impossible to hide the costs of doing business. In fact, conducting business will become far easier and more seamless. As GST is levied consistently across all categories of goods and services, GST registration and online payment will eventually make it easy for entrepreneurs to pay tax.
Impact of GST on Inflation: Another thing to know about GST is that during the initial stages of the entrepreneurship period, the inflation rate will be quite high but will eventually be under control in the long run. As a result of GST, the economic growth will increase by 1%-2%, which will benefit all parties involved.
Claiming Income Tax Credit: In order to claim the income tax credit or the input tax credit against the buying and selling of goods and services, the entrepreneur will have to compulsorily share the GST number with the vendor.
Payment of GST and Filing Return: All big and small entrepreneurs will have to necessarily pay the taxes and file the tax returns on the GST portal. This is the last step that has to be done on a monthly basis. There is an exemption in the case of entities with a turnover of up to Rs. 5 Crores as they can file the tax returns on a quarterly basis but have to pay the tax on a monthly basis.
Payment of GST under RCM: Typically, the supplier of goods or services bears the tax but under RCM (Reverse Charge Mechanism), the recipient of goods or services is responsible to pay the tax. Hence the overall accountability of the GST payment gets reversed. For instance, payment of GST under RCM is the services received from the individuals like a GTA, advocate, tribunal, or supply from an unregistered dealer to a registered dealer for an amount exceeding Rs. 5000.
Composition Scheme: This scheme is offered to small businesses under which they are liable to pay tax at the rate of 1% to 6% of their turnover. As a small manufacturer or supplier of goods and services, you can opt for the composition scheme under GST if your turnover falls under Rs .1.5 Crores in the previous financial year. Additionally, special category states have a further limitation of Rs. 75 Lakhs on this Rs. 1.5 Crore cap.
GST Compliance Rating: Lastly, one important thing to know about GST is compliance ratings that reflect the level to which registered businesses have adhered to the GST rules and regulations, and this score will be made visible to all other businesses. The score given by the government is not based on the size, turnover, or type of the business. For instance, a GST compliance rating can be on a scale of 1-10 with 10 being that the company has followed all rules and 1 being the least compliant with the rules.
There is a wide range of small and medium-sized businesses in India that contribute significantly to economic growth. With Goods and Services Tax, the plethora of indirect taxes will be digitized and simplified, which will prove to be very beneficial to entrepreneurs over time. However, it is important for budding entrepreneurs to be acutely aware of the above-mentioned aspects of GST to run a successful business and avoid any complications in the long run.