2 MinsApr 03, 2023
As an entrepreneur in India, understanding the Goods and Services Tax (GST) is critical to operating a successful
business. Introduced on July 1, 2017, GST replaced multiple indirect taxes such as central excise duty, service tax and Value-Added Tax (VAT), with a unified tax system. In this blog, we'll discuss everything related to GST that every entrepreneur
What is GST?
GST is a consumption-based tax system that applies to the supply of goods and services. It is a destination-based tax, meaning that the tax revenue goes to the state where the goods or services are consumed rather than the state where they are
produced. GST has simplified the tax system by eliminating the cascading effect of multiple indirect taxes and streamlining the supply chain process.
Who is liable to pay GST?
Entrepreneurs with an annual turnover of more than ₹40 lakh are required to register for GST. However, if you are operating in the northeastern and hilly states of India, the threshold limit is ₹20 lakh. In addition, businesses that are engaged
in inter-state transactions are also required to register for GST, regardless of their turnover.
GST registration is mandatory for businesses that meet the turnover threshold. You can register for GST on the GST portal by providing your PAN, Aadhaar number, business name and contact information. After registering for GST, you will be issued
a unique Goods and Services Tax Identification Number (GSTIN). The GSTIN is a 15-digit number that is used to file GST returns.
GST returns are the tax forms that businesses need to file with the government to report their sales, purchases and taxes paid. There are four forms for GST returns -
- GSTR-1: This form is used for reporting the outward supply of goods and services
- GSTR-2: This form is used for reporting the inward supply of goods and services
- GSTR-3: This is the monthly return that reconciles the other two forms.
- GSTR-4: This form is used by small taxpayers for filing a quarterly return.
Input Tax Credit
Input Tax Credit (ITC) is the credit that businesses can claim for the tax paid on the inputs used to produce their goods or services. The ITC can be claimed for the tax paid on inputs, capital goods and services used in the course of business.
ITC is an essential feature of GST as it eliminates the cascading effect of taxes and reduces the tax burden on businesses.
GST rates are determined based on the nature of goods and services. The GST Council has classified goods and services into four primary GST slabs - 5%, 12%, 18%, and 28%. Essential goods and services such as food items, medicines, and healthcare
services are taxed at a lower rate of 5%, while luxury goods such as high-end cars and premium alcoholic beverages are taxed at 28%.
GST compliance refers to the various regulations that businesses must comply with to avoid penalties and fines. These compliance requirements include maintaining accurate records of invoices and expenses, filing GST returns on time and paying
taxes, among others. Non-compliance with GST regulations can result in penalties and legal action.
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Benefits of GST for MSMEs
Access to government schemes and incentives: MSMEs that are registered under GST can avail of various government schemes aimed at promoting the growth of small businesses. For instance, under the GST regime, the government
provides a refund of the GST paid by exporters. This can be a significant source of cash flow for MSMEs that are involved in exports.
Increased credibility and trust: When an MSME is registered under GST, it is required to maintain accurate records of its sales and purchases, file regular GST returns and pay taxes on time. This can help the MSME establish
a track record of financial discipline and demonstrate its creditworthiness to lenders (such as Axis Bank) and other stakeholders.
Reduced tax liability: MSMEs that are registered under GST can claim ITC for the tax paid on their purchases. This can reduce their tax liability and improve their profitability, making them more attractive to lenders and
Improved market competitiveness: GST registration can help MSMEs compete more effectively in the marketplace. Being GST-compliant can improve the MSME's reputation and increase its chances of winning contracts from large corporations
and government agencies.
Understanding GST is critical for every entrepreneur in India. GST registration and returns, ITC and rates are essential aspects of this tax system. A clear understanding of GST can help you streamline your business operations and reduce your
tax liability. You must comply with the regulations to avoid penalties and fines.
As a business owner you can use Axis Bank’s website to generate and send GST complaint invoices. You can also input your GST No. in the company profile details section. This will help make it easier for you to file GST returns, thereby saving time and effort.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.