How to Register for GST as a Small Business Owner or E-commerce Merchant in India

|   4 days ago

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As a small business owner, why is it important for you to register for GST, what’s in it for you? What do I potentially gain out of this?

Before GST, there were many different taxes that businesses had to pay to the central and state governments separately. This made it very complicated for small businesses to calculate and file all these different taxes.

When GST was introduced, it combined all these different taxes into one single tax. This made it much easier for small businesses to understand and comply with the tax system.

The government's slogan "One Nation One Tax" means that now there is one unified tax rate across the country, instead of different tax rates in different states.

So in essence, GST simplified the tax structure and made it easier for small businesses to calculate what they owe and file their taxes. However, there was an initial period of adjustment as businesses had to update their accounting systems for the new GST rules.

The idea behind GST was to make tax compliance easier, especially for startups and small businesses that may not have large accounting teams. However, it did take some time for businesses to transition to the new system.

Read More: A beginner's guide to understanding GST for small business and e-commerce merchants 

Benefits & Advantages of GST

GST registration provides several advantages for small businesses that outweigh the compliance efforts involved. The key benefits include:

1. Simplified Tax Structure:

  • GST has replaced multiple indirect taxes like VAT, service tax, excise duty etc. into one unified taxation system.
  • This reduces the burden of paying "taxes on taxes" and eases the overall tax compliance process for small entrepreneurs.

2. Composition Scheme:

  • Businesses with annual turnover up to Rs. 1.5 crore can opt for the Composition Scheme under GST.
  • They pay a flat rate tax of 1% (for traders) or 5% (for services) instead of normal GST rates.
  • This significantly reduces the compliance burden for eligible small businesses.

3. Efficient Transportation:

  • GST has removed interstate entry taxes and octroi duties on goods transportation across states.
  • This lowers the logistical costs for procuring raw materials and distributing finished products.
  • It enables small manufacturers to scale up operations across states more efficiently.

4. Enhanced Credibility:

  • Obtaining a GSTIN (GST Identification Number) adds credibility, especially when dealing with larger businesses.
  • It signals tax compliance and legitimacy of the small business entity.

5. Easier Access to Credit:

  • GST registration requires documenting financial records linked to income tax filing.
  • This transparency makes it simpler for SMEs to secure loans from banks without collateral requirements.

6. Fair Taxation:

  • GST follows a value-added approach, taxing products partially at each stage of production.
  • This avoids cascading taxes and leads to cost-efficiency and fairer pricing for consumers.
  • While transitioning to the GST regime initially had teething troubles, the long-term benefits of a streamlined tax system hold significant advantages for the growth and sustainability of small businesses in India.

Enjoy Tax Credit on Purchases under GST

One of the major benefits that GST has brought for startups and small businesses, especially in the services sector, is the ability to claim tax credits on purchases. Here's how it works:

Before GST, service providers had to pay service tax on their services, but could not claim credits for the VAT paid on goods/inputs purchased for business use. This created a tax-on-tax cascading effect.

However, under the GST regime, businesses can now set off the GST paid on purchases (like office supplies) against the GST payable on the services/products they sell.

Let's understand with an example:

Pre-GST Scenario:

A startup buys office supplies for Rs.50,000 + 5% VAT (Rs.2,500)

It provides a service for Rs.80,000 + 15% Service Tax (Rs.12,000)

 

Total Tax Outgo = Rs.12,000 (Service Tax) + Rs.2,500 (VAT) = Rs.14,500

Post-GST Scenario:

The same startup buys supplies for Rs.50,000 + 12% GST (Rs.6,000)

Provides service for Rs.80,000 + 18% GST (Rs.14,400)

 

GST Payable = Rs.14,400 (on service)

Less: GST Credit = Rs.6,000 (on purchases)

Net GST Outgo = Rs.8,400

So by claiming credits, the tax burden is reduced from Rs.14,500 to Rs.8,400, providing substantial cost savings.

This input tax credit system under GST eliminates the previous tax cascading and helps in improving profitability and working capital for small businesses and startups.

Consequences of Evading GST Rules

However, it's important to be compliant with GST rules. Offences like not registering, not filing returns, fraudulent practices etc. can attract penalties ranging from:

- 10% to 100% of tax dues 

- Late fees of Rs.100-200 per day for delays

- Higher penalties like Rs.25,000 for incorrect invoicing/filing

The interest of 18% per annum may also be levied on any GST shortfalls. So while GST provides opportunities for cost savings via input credits, it's crucial for businesses to diligently follow the GST regulations to avoid harsh penalties.
 

What do you need for GST registration?

Manufacturing companies and businesses with over ₹40 lakhs turnover require GSTIN. For service and ecommerce, it’s ₹20 lakhs or more. Rs 10 lakh for the States of Manipur, Mizoram, Nagaland, and Tripura.

Documents Needed:

  • Owner's passport photo
  • Company's PAN card
  • Owner's ID proof (passport/Aadhaar/driving license)
  • For companies - Certificate of Incorporation
  • Bank account details and statements
  • Partnership deed (if applicable)

Steps to Register:

  • Gather all the required documents mentioned above
  • Visit the GST website at https://www.gst.gov.in/
  • Create a new user account on the GST portal
  • Fill in details like personal/business info, goods/services details, HSN/SAC codes, bank details
  • Review and submit the application
  • If all details are correct, you will receive your GSTIN (GST Identification Number)
  • The key aspects are having all the relevant business incorporation documents, ID proofs, and bank details and properly filling out the details on the GST website. Once completed, the GST registration will be approved and you'll receive your GSTIN which allows you to collect/pay GST on transactions.
 

 

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