Goods and Services Tax (GST): Definition, Types, and How to Register

GST (Goods & Services Tax) replaced the previous indirect taxes such as VAT, service tax and excise duty to ensure there’s no double taxation by applying GST only on the value added at each supply chain stage. Businesses can claim a return for the GST paid on raw materials or services purchased against the GST they collected on selling their product or service. This ensures businesses are taxed on their actual profit.

Let’s understand what GST is, how it works, its types and who should register for it.

What is GST?

GST (Goods & Services Tax) is an indirect, multi-stage and destination-based tax levied on the supply of goods and services in India. It is levied only on the value added to a product or service at each stage of the supply chain.

GST was introduced to replace the previous multi-layered, indirect taxes such as VAT, excise duty and service tax to prevent double taxation by using the Input Tax Credit (ITC) system. It offers a unified “One Nation, One Tax) system to make compliance easier.

How GST Works

GST is a multi-stage tax, meaning it’s applicable on every step of the supply chain, from the manufacturers to the final retailers. The GST collected on the supply of goods and services stays within the state where they were consumed and not where they were manufactured, making it a destination-based tax.

As per the Input Tax Credit (ITC) system, businesses can claim returns on the taxes paid on the purchase of goods or services against the final goods or services sold, ensuring they are taxed on the real profit and eliminating the “tax-on-tax” effect.

GST Rate Slabs in India

The following are the GST rate slabs in India.

Under 5% Slab

As per GST Reform 2.0, essential and commonly used goods and services come under the 5% slab.

Goods: The 5% slab covers footwear and apparel, packaged foods, sugar, edible oils, spices, tea, coffee, agarbatti, domestic LPG, Braille items, basic medicines and hygiene products.

Services: Small restaurants, rail tickets and local transportation.

Under 18% Slab

Under the 18% slab, the following standard goods and services are included.

Goods: Two-wheelers up to 350 cc, cosmetics, consumer electronics, work contracts, and Ayurvedic medicines.

Services: Hotels and guest houses with tariffs above ₹1,000 and ₹2,500 per night and standard restaurant dining.

Under 40% Slab

In the GST reform 2.0, premium or restricted goods and services are included.

Goods: Tobacco, cigarettes, pan masala, caffeinated/aerated beverages, luxury vehicles, and private aircraft or yachts.

Services: License of bookmakers at race clubs, high-end money betting gaming, casino, and business-class air tickets.

Note: 3% GST is levied on gold, and 0.25% is levied on precious and semi-precious stones and rough diamonds.

Who Should Register for GST?

Businesses can voluntarily register for GST; certain businesses and entities have to mandatorily register for GST. The following are the businesses and entities that must register for GST.

• Excise, VAT, service tax, and other businesses or professionals registered under the Pre-GST law. companies whose revenue exceeds the ₹40 lakh, ₹20 lakh, or ₹10 lakh level.
• Except for those that make interstate supply. Up to the ₹20 lakh revenue barrier (or ₹10 lakh in special category states), interstate service providers are not required to register.
• Non-resident taxable person or casual taxable person.
• Agents of a distributor of input services and suppliers.
• People who use the reverse charge mechanism to pay taxes.
• An individual who provides goods through an online retailer (except for those listed under Section 9(5) of the CGST Act).
• Section 52 of the CGST Act applies to all e-commerce aggregators.
• Individuals who must pay taxes in accordance with the CGST Act Section 9(5).
• Section 51 of the CGST Act mandates that government offices and departments deduct TDS.
• An individual who provides database access or retrieval services and online information from outside India to an individual in India who is not a registered taxable person.
• Anyone who provides online money gambling services to an Indian from a location outside of India.

GST Registration Threshold Limit

The following is the threshold limit for suppliers and service providers as per the GST law.

Suppliers of Goods: Suppliers of goods with an annual turnover above ₹40 lakhs, in most states, must register for GST. In specific states such as Arunachal Pradesh, Assam, Jammu & Kashmir, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand, the threshold limit is at ₹20 lakhs.

Service Providers: Service providers with annual turnover above ₹20 lakhs, in most states, must register for GST. In specific states such as Arunachal Pradesh, Assam, Jammu & Kashmir, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand, the threshold limit is at ₹10 lakhs.

Documents Required for GST Registration

You can find out the documents required for GST by visiting the GST.gov.in based on your type of business and premise possession type. The following are the basic documents required for GST registration.

• PAN Card of the business and the authorised signatory.
• Passport size photograph of the proprietor, partners, or directors.
• Proof of Principal Place of Business, such as an electricity bill, water bill, or landline bill (recent), Municipal Khata copy or property tax receipt, rent agreement with owner’s No Objection Certificate (NOC).
• Cancelled cheque or photo of the first page of the passbook or bank statement.
• Digital Signature Certificate (DSC), which is mandatory for LLPs, Public and Private Limited Companies, and trusts.
• Sole proprietors must submit a copy of their Aadhaar card and Shop and Establishment Act Certificate (if applicable).
• Partnership firms must submit their Partnership Deed, PAN of the partnership firm, PAN and Aadhaar of all partners.
• LLP or companies must submit their Certificate of Incorporation (Ministry of Corporate Affairs), Memorandum/Articles of Association (MoA/AoA), Board Resolution/Authorisation letter naming the authorised signatory.

How to Register for GST Online

You can easily register for GST online on the GST portal by following the steps below.

Step 1: Visit the Government GST Portal (gst.gov.in) and navigate to the Registration Tab

Step 2: Fill in the requested personal details in Part A of Form GST REG-01 and verify the OTP. A temporary application reference number will be sent to your Mobile and email. An acknowledgement will be issued electronically in Form GST REG-02.

Step 3: Fill Part B of Form GST REG-01 duly signed (by DSC or EVC). You must upload the required documents specified according to the business type and enter the temporary application reference number you received.

Step 4: If additional information is required, Form GST REG-03 will be issued. The applicant needs to respond in Form GST REG-04 with the required information within 7 working days from the date of receipt of Form GST REG-03. The application may be rejected if any errors are found. You will be informed about this in Form GST REG-05.

Once all verifications and approvals are completed, a registration certificate will be issued in Form GST REG-06 by the GST department.

GST Returns and Compliance

A GST return is an official document that registered businesses must file at the GST portal. It included all details such as sales, purchases, Input Tax Credit (ITC) claimed, and the tax payable or paid. The due date for GST returns forms depends on your annual turnover and selected scheme. Businesses with an annual turnover over ₹5 crore must file GST returns monthly, while small businesses with an annual turnover of up to ₹5 crore can file their returns quarterly.

If you fail to file your GST return on time, you may attract late fees of up to ₹50 per day (capped at a maximum of ₹5,000) and interest penalties of 18% per annum on outstanding taxes.

FAQs

What is the GST?

GST is a single indirect tax applicable to the supply of goods and services throughout India.

What are the different types of GST in India?

Depending upon the nature and place of transaction, there are four types of GST, namely, CGST, SGST, IGST and UTGST.

Who needs to register for GST?

GST registration is mandatory for businesses having a turnover beyond the prescribed threshold limit or involved in specific taxable activities.

How to Register for GST Online?

The registration can be done by furnishing the required details and documents on the official GST portal.

What are the documents required for GST registration?

Documents generally required were PAN, Aadhaar, proof of business registration, proof of address and bank account details.