Decoding GST: A Beginner’s Guide for Indian Entrepreneurs

Introduction

If one had to identify the milestones that changed the taxation landscape in the Indian sub context, the role of Goods and Services Tax (GST) comes at the top. In terms of business, understanding the implications of GST for business is crucial. A person who is planning to be a solo entrepreneur needs to have their hands on understanding the implications of GST in businesses. This fiscal reform has given a 360 degree alteration to the economics of how a business functions , merging several indirect taxes into one unified system. For Indian entrepreneurs, navigating the GST regime is pivotal, not just for legal compliance purposes but also as a fundamental component of effective business planning. 

Through this blog we aim to learn the basics of GST, making it accessible for startups and small businesses venturing into India’s dynamic commercial environment.

Understanding GST

Definition and Purpose

To put it simply, Good and Service Tax is a tax levied on value added at each stage of production and distribution of goods. The primary aim is to combine different taxes into a single system, making tax collection and enforcement simpler, while also reducing tax overlap. 

Brief History of GST in India

Introduced on July 1, 2017, the introduction of  GST  marked a significant fiscal reform in India. It replaced a number of indirect taxes such as VAT, service tax, and excise duty with a singular tax framework, positioning a unified market across the nation.

Understand the different types of taxes: –

Central Goods and Services Tax (CGST): Tax collected by the Central Government on transactions within the same state. 

State Goods and Services Tax (SGST): Tax collected by the state government on transactions within the same state.

 Integrated Goods and Services Tax (IGST): Tax collected by the Central Government on transactions between different states, like from Uttar Pradesh to West Bengal.

Importance of GST for Businesses

Since its implementation, GST has revolutionised how businesses operate.

Streamlining Tax Structure

It has simplified the tax system by consolidating multiple indirect taxes, making it easier for businesses to comply with tax regulations. 

Enhancing Transparency

The transparency promoted by the GST framework provides businesses with clear visibility into their tax obligations and benefits.

Level Playing Field For Everyone

This streamlined tax regime has created a more favourable environment for business expansion, ultimately strengthening the Indian economy.

How to apply for GST?

Eligibility Criteria

Businesses with an annual turnover exceeding the prescribed threshold (currently set at Rs. 40 lakhs for goods and Rs. 20 lakhs for services) must register under GST. This threshold varies for North-Eastern and hill states.

Step-by-Step Guide

• Visit the GST portal (www.gst.gov.in).
• Complete the Part-A form to obtain the Temporary Reference Number (TRN).
• Use TRN to complete the Part-B form, attaching necessary documents.
• Upon submission, an Application Reference Number (ARN) is generated, used to track the application status.

Documents Required

Key documents include PAN card, business registration certificate, bank account statements, and proof of business address.

Filing GST Returns

Filing Process

Filing GST returns primarily involves the following steps:

• Log in to the GST portal.
• Navigate to the ‘Returns Dashboard’.
• Select the financial year and the return filing period.
• Fill in the requisite details and upload any necessary documents.
• Submit the return after verification.

Deadlines and Penalties

Deadlines for filing returns vary based on the type of return and the taxpayer’s turnover. Late filings attract a penalty of Rs. 100 per day, subject to a maximum of an amount calculated at 18% per annum on the tax due.

Common Challenges for Startups and Small Businesses

Compliance Issues

A trip through the GST landscape can be full of speed breakers,especially for new business owners. Frequent regulatory changes combined with the volatility of market conditions often pose challenges for smooth functioning of the business.

Managing Cash Flows

Small businesses often operate on tight margins. The added weight to pay GST upfront on invoices, regardless of payment receipt, can cause operational challenges and further strain cash flows.

Understanding and Utilising GST

Grasping the nuances of GST, such as the Input Tax Credit (ITC) mechanism, and effectively applying them within business operations requires time and effort, often necessitating professional guidance.

New Compliances under GST

E-way Bills:

GST introduced e-way bills on April 1, 2018, for interstate and April 15, 2018, for intrastate goods movement. This centralised system streamlines processes for manufacturers, traders, and transporters. Through this, they can generate e-way bills for the goods transported from the place of origin to its destination on a common portal with ease. 

E-invoicing:

Mandated from October 1, 2020, for businesses with over Rs. 500 crore turnover (from 2017-18), extending to those with over Rs. 100 crore from January 1, 2021. It requires a unique invoice reference number uploaded to the GSTN portal, ensuring invoice correctness via digital signature and QR code. E-invoicing fosters interoperability, reduces errors, and automates GSTR-1 filing and e-way bill generation.

A TIDE OF HELP FOR ALL THE ENTREPRENEURS

Tide has always pushed for a collective vision of how small business owners manage their finances and their businesses. With its innovative invoice generator feature, Tide empowers entrepreneurs to effortlessly create GST-compliant invoices, streamlining the invoicing process and ensuring legal compliance. Moreover, Tide goes beyond just invoicing. It simplifies the administrative burdens of running a business, allowing entrepreneurs to focus on what truly matters to them.

Conclusion

GST embodies a pivotal shift towards a more transparent and simplified tax regime, fostering a conducive business environment. Understanding its framework, staying compliant, and adeptly navigating its challenges can empower Indian entrepreneurs to leverage GST as a catalyst for growth. Embracing GST not only ensures legal compliance but also aligns businesses with the broader vision of economic progress and integrity in India.