This article is written by Dhiya Sadanandan, pursuing Diploma in Business Laws for In-House Counsels from LawSikho.

What is known as the Goods and Services Tax (GST)?

Goods and Services Tax (“GST”) is an indirect tax that is multi-stage (levied on every value addition in the supply chain), comprehensive and destination-based, levied on the supply of goods and services in India. It is levied by both the Central Government and the State Government. The laws governing GST are:

1. Integrated Goods and Services Tax Act, 2017 for the inter-state supply of goods and services. 
2. Goods and Services Tax (Compensation to States) Act, 2017 – for the Central Government to share funds with the states. 
3. Respective states Goods and Services Tax Act – each state is required to have a separate state law for collecting the tax within the territory of the state. 
4. Union Territory Goods and Services Tax Act, 2017 – for collection of the tax within the union territories. 

On any given transaction there are three (3) taxes being imposed i.e. Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST). There is the provision of input tax credit so that the cascading impact of multiple taxes down the supply chain is eliminated. A single registration with one tax authority is sufficient as the registration is common to all four types of GST. 

Compulsory registration under GST

Every business is required to compulsorily register if:

1. The aggregate turnover exceeds Rs. 40 lakhs in a financial year for the sale of goods or, 
2. Aggregate turnover exceeds Rs. 20 lakhs in a financial year for the sale of services. For Special category states, the limit is Rs.10 Lakhs for the States of Manipur, Mizoram, Nagaland, and Tripura and Rs.20 lakhs for the States of Jammu and Kashmir, Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim, and Uttarakhand.
3. Businesses that engage in inter-State trading in goods. 
4. Businesses that engage in e-commerce. Every electronic commerce operator is required to either have an office or appoint a representative in the taxable territory (taxable territory varies depending on which GST law is applicable – State or Union)  Service providers making inter-State supplies, including supplies made through e-commerce operators, whose aggregate annual turnover does not exceed ₹ 20 Lakh have been exempted from the requirement of registration under GST.
5. Businesses or persons who are required to pay tax under the reverse charge mechanism. 
6. A non-resident taxable person making a taxable supply of goods or services. 

Categories exempt from the requirement to take GST registration

Certain categories of persons are not liable for registration i.e:

1. Businesses or business owners who are only engaged in supplying non-taxable goods or services under GST Acts, 
2. Agriculturist, only for that part of his livelihood connected with the supply of produce out of cultivation of land, and
3. Persons only engaged in making taxable supplies of goods or services or both, the total tax on which is liable to be paid on a reverse charge basis by the recipient of such goods.

Businesses that have turnover less than these prescribed thresholds may choose to voluntarily get GST registration.

Benefits of GST registration

1. Input tax credit

A big incentive for businesses to voluntarily register for GST is to be able to get the benefit of the input tax credit. (that is to be able to use the credit against the tax payable for goods or service purchased for the furtherance of the purposes of business) This input tax credit can be claimed only provided that the requirements with regard to the regular filing of GST returns are done within the prescribed deadlines. 

1. Availing input tax credit- The business can avail the credit on all the purchases made for the business such as consultancy services, raw materials, etc. This increases the profitability of the business, as the business now effectively spends less on these items. 
2. Passing on input tax credit- The customers that are other business owners that purchase from this business can avail of the input tax credit. It is an incentive for other businesses to prefer a GST registered business over a business that does not have GST registration. 
3. Utilize unutilized input tax credit from previous indirect tax regimes i.e. VAT, sales tax, etc. 

The input tax credit is such a great incentive for coming into the GST regime that there have been several frauds involving shell companies and fraudulent registrations and plain old money-laundering all through abusing the input tax credit advantage under the GST regime. (The SOP on tackling fake invoices available on the GST Council website makes for an interesting read).

2. More avenues for business growth

GST registration is required for inter-state sales and e-commerce businesses. Both these avenues for increasing business are open to the business owner with GST registration. 

3. Improves reputation or standing

Any business that has GST registration and is regularly filing the returns shows that the business is being well-run/managed. This improves the odds of the business owner renting premises or gives banks confidence in the business owner’s reliability to see that the GST compliance has been managed properly, which improves the likelihood of getting loans for developing the business. 

4. Status of a registered business owner

A lot of businesses such as sole proprietorships, unregistered partnership firms, joint family businesses, etc. do not have any formal documentation for the business registration. The GST registration certificate is a formal recognition for these business owners. 

5. Increased efficiency in logistics

It lessens the amount of paperwork by eliminating border taxes, brings uniformity to the paperwork required for the different transactions and reduces check-post discrepancies. Also makes invoices conform to a set format which reduces confusion. 

6. Composition scheme for small business owners

Recognizes that small business owners find doing compliances very burdensome as opposed to big businesses that can afford dedicated resources and gives them a different / simpler compliance regime for GST returns and payments. This is explained in more detail below. 

7. Gives all business owners an incentive to become tech-savvy

Since GST requires online return filing and has dedicated government websites for each type of GST, it increases transparency and accountability. Also introduced e-way bills (An e waybill is a document which can be generated online, and is required by the person in charge of the transportation for the movement of goods exceeding ₹ 50,000 in total value) and e-invoicing (E-invoicing is the exchange of the invoice documents between a supplier and a buyer in an integrated electronic format) for businesses. 

Registered business owners who were not mandatorily required to be registered under GST may also take as credit in their electronic credit ledger the credit of value-added tax and entry tax, if any, in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, in union territories. 

Demerits of GST registration

1. Multiple return filing

Depending on the volume of business, a business owner may file 3 returns every quarter or up to 37 returns in any given year, i.e. 3 returns GSTR1, GSTR2, and GSTR3 every month of the year plus an annual return. 

2. Multiple registrations

Business units in each state require separate GST registration, this adds to the compliance burden on business owners. 

3. Increases tax liability

Voluntary GST business owners will have to take into account the additional tax that is being paid by them under this head of business, which tax liability is equivalent to the compulsorily registered GST business owners since they will be treated as a normal taxable person. 

4. Exposure to penalties

Under the GST laws for failure to comply with all the prescribed requirements. 

5. Loss of business

From unregistered dealers or business owners. 

6. Affects the liquidity of the business owner

As the business owner is now required to make sure to set aside money for the GST liability.

In its 25th meeting held on 18.01.2018, the GST Council made a decision to allow taxable persons who had completed the voluntary registration process to apply for cancellation of registration even before the expiry of one year from the effective date of registration. Previously, business owners or individuals who have voluntarily registered had the option of cancelling the GST registration only after the first year from the date of the registration has been completed. Provided that in the meantime the business continued to not meet the criteria for compulsory registration. 

Businesses or individuals who deal in goods or services that are exempt from GST cannot register and have no reason to register for GST. 

How to apply for GST registration?

Any person, business owner or business representative who chooses to make an application for registration for the first time is to visit the GST common portal (www.gst.gov.in) and submit the application electronically in FORM GST REG-01. If the details and documents are in order, registration will be granted within 3 working days, except in cases where an objection has been raised.

Composition levy scheme

A small or medium taxpayer whose turnover is under the prescribed limit may opt for this scheme. “A taxpayer registered under composition levy scheme is required to pay an amount equal to a certain fixed percentage as tax to the government. The tax amount cannot be collected in the form of GST from the customers. The rate of tax under the composition levy scheme is as given below:

1. 1% of the turnover in the State of UT, in the case of eligible manufacturers.
2. 1% of the turnover of taxable supplies in the State of UT, in the case of traders.
3. 5% of the turnover in the State of UT, in case of supplies referred to in para 6(b) of Schedule II (i.e. restaurant services and works contracts services).
4. 6% of the turnover of taxable supplies in the State of UT, in case of suppliers dealing in services alone or both goods and services jointly.”

The composition taxpayers have a lesser compliance burden i.e. they pay the taxes quarterly based on a declaration and are only required to file a single return – the annual return. A condition of opting for this composition scheme is that the taxpayer “has to mention the words “composition taxable person, not eligible to collect tax on supplies” at the header portion of every bill of supply issued by him.”

A person paying tax under composition levy may withdraw voluntarily from the scheme by filing a duly signed or verified application in FORM GST CMP-04. In case he wants to claim an input tax credit on the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date of withdrawal, he is required to furnish a statement in FORM GST ITC-01 containing the details of such stock within a period of thirty days of withdrawal.

Conclusion

As discussed above, there are a lot of advantages to voluntary registration under GST like the input tax credit. Before GST, there was a problem of “cascading taxes” meaning tax on tax. In those situations, a customer had to pay tax above tax which used to result in an unnecessary increase in the price of a particular commodity. GST has opened doors for the growth of business without any hindrance which will help in the growth of our economy. But as the famous saying goes “to every advantage there is a corresponding disadvantage”. Similarly, voluntary registration also has certain disadvantages which have made the tax procedure complicated. Moreover, the issue of alignment under SGST across the states is still a concern and requires clarity.

References

• GST_MSMEs_Booklet_01072019.pdf (gst council.gov.in)
• https://taxguru.in/goods-and-service-tax/voluntary-registration-gst.html
• https://cleartax.in/s/voluntary-registration-for-gst#:~:text=Small%20businesses%20with%20turnover%20less,or%20avail%20input%20tax%20credit.

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