The current Goods and Services Tax regime in India allows threshold based exemption from registration. Any business supplying goods or services worth less than ₹20 lac (₹10 lac for North-Eastern States) within state is exempt from enrolling under GST. This also implies that tax on inter-state sale is applicable from ₹1. Once a person is registered under GST, all the provisions of the regime apply. This means increased compliance if an entity decides to register voluntarily. Despite this, experts recommend voluntary registration for any person or entity providing taxable goods or services. Why?
Interstate transactions do not enjoy turnover based exemption. This means that if you do not register, your business will remain limited to your state.
With the blanket application of the reverse charge mechanism, all goods and services have come under the tax net irrespective of the turnover of the seller. Reverse charge is not a new concept. The Service Tax regime also imposed this rule on select services under which the recipient of the service was required to pay the tax instead of the provider. Under the new tax, following categories are covered:
- Vendor located in a non-taxable territory to any person in taxable territory
- Goods Transport Agency to various categories of business or taxable persons
- Legal services by an Advocate/ Firm of Advocates to any business
- Arbitral Tribunal to any business
- Sponsorship services to any corporate or partnership
- Specified services by Government or Local Authority to any business
- Director to a company or body corporate
- Insurance agent to an insurance company
- Recovery agent to a bank/FI/ NBFC
- Transportation vessel providing import services to an importer under sec. 2(26) of Customs Act, 1962
- Permitting the use of copyright by an author/music composer/photographer/artist etc. to a publisher, music company or producer
- Rent-a-cab services to anyone (tax payable by the aggregator)
Now, you might think that in case you make less than ₹5,000 per day of sale, your buyer would be exempt. That may not be the case. The exemption limit for your buyer is in respect of all unregistered dealers collectively. Therefore, if they are buying from some other unregistered dealers also and the aggregate purchases in a day cross the threshold, tax will apply on the entire amount. Manage your transactions and get complete GST support: +91 9654421064 or consulting@eurionconstellation.com
Such buyers will have to get a GST registration and all provisions of the Act and Rules will apply as if they were a taxable person, including payments, returns, invoices, interest, penalties and all other compliance. They will have to continuously monitor their daily purchases and time the transactions to remain within the ceiling. If they miss out tax payment for any day, interest and penalties will apply accordingly. This is a lot of work and therefore, most buyers will prefer dealing with registered sellers. And, you can increase your customer base by being one of them.
The case of goods sold at MRP is even trickier. We will cover that in future posts.
Unless you are dealing in tax exempt or zero-rated goods/services, the only way you can avail Input Tax Credit (ITC) is by registering. This means that the GST you pay to your suppliers will be accumulated in your account and will be used to set-off the amount of GST you collect from your customers and deposit with the tax department. If you are not able to claim this ITC, you will be paying taxes two times and depending on your volumes, this can have a significant impact on your cash flows.
GST registration also has an unexpected benefit of improved market reputation. Once so enrolled, you will need to raise tax invoices on all sales. Therefore, your customer base will largely be unaware of your actual turnover and you will not lose out on customer perception. If unregistered, it will be clear that your total sales are less than ₹20 lac. Secondly, a new point grading system for compliance has been introduced, which can add one more layer of authenticity for your business. More authenticity means more business. To get complete GST packages or affordable stand-alone services, please call us at +91 9654421064 or write to us at consulting@eurionconstellation.com. To more about us, visit www.eurionconstellation.com