GST-Related Requirements for Starting a Small Business in India

27/07/2021

If you are starting a small business in India, this may be the right time to do it. More consumers are moving to online shopping in the wake of the COVID-19 pandemic. If you have a product to sell, you can explore to get into the digital space to ride this wave of growth. There are, of course, procedures to follow and a process has to be implemented to get your business rolling. Read this blog to find out more on the financial rules and regulations to observe to start a small business in India. A study of the Goods and Services Tax (GST), which has been implemented by the Government of India (GOI) to promote and regulate business growth, is important in this context.

GST-Related Requirements for Starting a Small Business in India

What is GST?

The GST initiative was launched by the GOI in 2017 with the intent of floating a simplified version of the taxing system that was operational in the country till then. Previously, the central government and the state governments collected various taxes, which caused various challenges for the business community looking for an easy-to-follow taxing system. Each state had its own system of Value Added Tax (VAT) registration and fee collection. This made it difficult to conduct business across state borders. The GST, which is governed by the GST Council, on the other hand, offered a centralized system of registration that permitted a registered company to conduct business across the country. Many taxes were also brought under one umbrella. Before the GST was implemented, several taxes, such as the Service Tax and the Central Sales Tax were levied separately. Now, several individual taxes have been placed under a single, unified tax structure. It is levied by the state where the service or goods are consumed, and not at the place of origin. Hence, it is a destination-based taxation system.

Do you need a GST registration for your SMB?

The first thing to find out is if your business needs a GST registration or not.

According to section 22(1) of the CGST Act, all suppliers must register. They have to register in the State or Union Territory from where they make taxable supplies of goods or services or both. However, this applies only if the aggregate turnover in a financial year crosses the limits tabulated below:

If the aggregate turnover is above INR 10 lakh when the supply falls under any of the Specified Special Category States. These states include Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
If the aggregate turnover is above INR 20 lakh when the supply falls under all other cases

Is GST required for e-commerce sellers?

GST registration is required for e-commerce sellers. Depending upon the volume of business, as mentioned above, and products being sold, GST is mandatory. One will need to be registered as a normal taxpayer if the exemptions do not apply to him/it.

Since, it is a destination-based tax; the place of supply of goods is factored in. It could be either:

Intra-state: This is when the location of the supplier and the address of the buyer is in the same state
Inter-state: This is when the address of the supplier is in a state different from the state of the buyer

It determines which category of taxing will apply. There are three sub-types:

CGST: Central Goods and Services Tax (CGST) is levied by the central government on intra-state supplies. Revenue sharing takes place with the state government in a predetermined, appropriate proportion.
SGST: State Goods and Services (SGST) is levied by the state government on intra-state supplies. Revenue sharing takes place with the central government in a predetermined, appropriate proportion.
IGST: Integrated Goods and Services (IGST) is levied by the central government for any inter-state supplies.

If you are looking at becoming a seller on Amazon.in, you will need a GST registration. Let us take a look at the process of how you can sell on Amazon.in:

Firstly, you need to register your account as a seller. For this, you will need your GST number and PAN.
Next, use photographs and other forms of cataloguing to upload the listing of products you want to sell. Read up more on this here.
Customers will place orders after viewing your products.
You will be notified once a customer places an order. Then, deliver the orders you receive. You can also obtain delivery services from Amazon subject to the applicable terms and conditions.

How has GST impacted SMBs positively?

GST has helped SMBs in a number of ways. Some of them are given below:

It has made bookkeeping more organized since this new taxation system is easier and more cost-effective.
With the registration process taking place online, filing and compliance has become streamlined.
The system is user-friendly and easy-to understand, making tax filing easier for first-time users who have just entered the e-commerce marketspace.

How can you register your SMB for GST? What are the documents required?

Registering your SMB has to take place online and you can read about it here. Here is a step-by-step guide to the process:

Part 1: Generating you GST Application Form

Firstly, you need to generate your GST Application Form. Go to the GST portal of GOI at https://www.gst.gov.in/. Obtain a Temporary Registration Number (TRN) through it on the Registration page. You will need a valid mobile number, email address, and a Permanent Account Number (PAN) to do so.
Next, log in with your TRN in the new Registration page. Once the process of verification is completed through OTPs sent to your registered mobile number, you will be directed to the “My Saved Application” page. Fill in the form there with requisite details and submit it within 15 days.

Part 2: Filling in your GST Application Form

At this stage, you will be filling in your GST Application Form. This has ten sections or tabs. It would be a prudent move to consult your tax lawyer before filling it.
You will need scanned copies of a few documents apart from a valid bank account number with its IFSC code. Proof of constitution or incorporation of business is also required at this stage.
Once you have filled in all the mandatory fields, you will be required to fill in the “Authorized Signatory” information.

Part 3: Registering your Digital Signature Certificate

It is mandatory for all companies and Limited Liability Partnership (LLP) to register their Digital Signature Certificate (DSC). This has to be of the Authorized Signatory. You will need to install the DSC software on your computer to be able to do so.

Part 4: Verifying and Submitting your GST Form

You can verify your form with DSC, e-signature, or through an Electronic Verification Code (EVC).
Once you submit the form, an Application Reference Number (ARN) will be generated and sent to your mobile number and email address.
When the application is approved, you will receive a Goods and Service Tax Identification Number (GSTIN) and a password that will reach your inbox. Use this to log into the GST portal. You can change the username and password after you log in for the first time.

Here is the list of documents that you will need to register online for GST:

Proof of constitution/incorporation of business
In case of a partnership firm, the Deed of Partnership
Once you have filled in all the mandatory fields, you will be required to fill in the “Authorized Signatory” information.
Proof of primary place of business
Photo of promoter, director, partner, karta of the Hindu Undivided Family (HUF), whichever is applicable
Proof of appointment of the Authorized Signatory
Photo of the Authorized Signatory; and
Front/first page of bank passbook/statement containing the bank account number, branch address, address of the account holder, and latest transaction details.

What does the GST Exemption List for SMBs include?

There can be three situations where you can be exempted from paying the GST.

It could be due to aggregate turnover;
The exemption could be on the goods; and
Once you have filled in all the mandatory fields, you will be required to fill in the “Authorized Signatory” information.

Section 23(1)(a) of the CGST Act states the exemptions. If a person operates a business exclusively dedicated to the business of supplying goods or services or both that are not liable for taxes or are wholly exempt from tax, his/her business is exempt from GST. For example, liquor for human consumption and specified petroleum products like petroleum crude, motor spirit (petrol), high-speed diesel, natural gas, aviation turbine fuel, etc. are exempt from GST.

Some supplies that are exempted from tax in GST include the selling or buying of agricultural produce and supplying medical services.

With a better understanding of what GST means and how you can register for it, start your small business today.

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