There are a number of challenges attached to starting a business in India, from registrations and compliance to figuring out taxation. In all of these, the Goods & Services Tax is one of the most important concepts every businessperson has to understand. Whether you are a local store owner, have started an eCommerce business, or are a logistics firm, knowing GST is the key to a seamless operation and compliance with the law.
Understanding the Concept of Goods & Services Tax
The Goods and Services Tax is a multi-stage tax. It is a comprehensive tax that is levied at each stage of value addition within the supply chain. GST was introduced in July 2017 as a replacement for various indirect taxes such as VAT, Service Tax, Excise Duty, and Central Sales Tax – all of them united into a single system.
The objective of having GST was to simplify taxation and harmonize it across states. It also guarantees that taxes are paid on the difference of value added at every level, and the old issue of tax on tax, which is also referred to as cascading taxation, is removed.
Why GST Matters for Small and Medium Businesses
GST has various benefits for SMEs and startups. It facilitates compliance, lessens paperwork, and brings in transparency. Companies do not have to address numerous taxation bodies anymore — all the business is managed through the GST portal.
In addition to this, registering under GST gives businesses an opportunity to claim an Input Tax Credit on purchases. This implies that the tax paid on raw materials, commodities, or services may be offset against the tax paid on sales – a reduction on the total tax liability.
Key Components of GST You Should Know
India has a structure of Goods and Services Tax that involves three major components-
- The Central Goods and Services Tax or CGST- The Central Government collects sales tax within the state.
- The State Goods and Services Tax or SGST – This is the GST collected by the State Government on the same transaction.
- The Integrated Goods and Services Tax, or IGST, is levied upon inter-state sales or imports by the central government.
This system guarantees equitable allocation of tax revenues between the Centre and the States, and makes the taxation process open and effective.
Who Needs to Register for GST?
Registration under GST is required for any business whose annual turnover is more than 40 lakhs and 20 lakhs for services. In the case of the Northeastern states, it is less, as it is ₹10 lakhs.
Moreover, the companies that conduct interstate trade, dealing with e-commerce or import-export, have to be registered, regardless of the turnover.
GSTIN (Goods and Services Tax Identification Number) is a unique identifier of your business, which you need to fill in the returns, claim ITC, and print out compliant invoices.
How GST Impacts Pricing and Profitability
It is important to be aware of the impact that GST is going to have on the pricing of the business. GST is applied on value addition and therefore, it avoids the cascading effect of numerous taxes.
For example, under the old system, the manufacturer would pay excise duty, and then the product price would be taxed with VAT, including excise, and this would lead to a two-tax system. Under GST, taxes are charged on value added only; this would make the pricing fair and better control the flow of cash.
Moreover, companies that are GST compliant seem to be more reliable in the eyes of consumers and lenders, which enhances the possibility of borrowing business funds and trading.
Filing GST Returns: A Step-by-Step Overview
All registered businesses are required to submit regular GST returns on which sales, purchases, and taxes paid or received are to be reported. Common return types include-
- GSTR-1 – Outward supply details (sales)
- GSTR-3B – Summary of sales and input tax credits.
- GSTR-9 – Annual return
The filing of returns is done online through the GST portal, making record-keeping easy. Failure in compliance or delay may lead to fines and interest, and hence it is important to file on time.
Input Tax Credit (ITC) – A Key Benefit for Businesses
The Input Tax Credit system is one of the largest merits of the Goods & Services Tax. The GST paid on the inputs (such as raw materials or services) can be offset by the businesses against the GST collected on sales.
This does not just eliminate the case of double taxation, but also increases the performance of working capital. To claim ITC without any hassles, it is very important to keep proper records of invoices and purchase bills.
Common Challenges New Businesses Face Under GST
Although GST makes taxation easier, new businesses may also experience difficulties in the form of–
- Complex Return Filing – It is difficult to grasp several types of returns.
- Regular Policy Review – The GST Council regularly reviews its laws and rates.
- Input Mismatch Issues – Incorrect invoice matching can result in ITC denial.
These traps can be avoided by engaging the services of a qualified tax consultant or by using good GST accounting software to ensure compliance.
Digital Transformation and GST Compliance
The use of e-Invoicing and online submission of GST has made the Indian tax ecosystem more modern. Accounting systems using the GST Network (GSTN) can now be used to write invoices directly by businesses.
Such computerized measures have minimized mistakes, enhanced the security of data, and made it more efficient to audit taxes– a step forward in the right direction.
The Broader Economic Impact of GST
Other than compliance, GST has brought positive change to the economy of India. It has brought one national market together, minimized the logistics bottlenecks that formerly existed with taxes at state borders, and promoted the formalization of small businesses.
The Goods & Services Tax has brought about taxation transparency and predictability, enhanced the Ease of Doing Business, increased exports, and promoted the Make in India efforts.
Empowering Businesses Through GST Awareness
Knowing the Goods & Services Tax is not only about compliance, but it is also about having a smarter, more transparent, and efficient business. GST has several advantages that new companies would not want to miss; it facilitates smooth credit flow, as well as increases financial credibility. When equipped with the correct guidance and technology and with financial partners, entrepreneurs will be able to make GST compliance a potent instrument of sustainable growth.
For expanding companies, it may be difficult to regulate cash flow within the GST system. That’s where Credlix helps. Credlix enables exporters and logistics companies to sustain their healthy liquidity as a reliable source of invoice financing and working capital. Credlix is providing quick and convenient funding for unpaid invoices, which helps businesses remain compliant, pay taxes, and grow well in the international market.
Frequently Asked Questions about GST
Q1: How is GST beneficial to new businesses?
It simplifies compliance with tax, decreases costs with the help of the Input Tax credit and simplifies and accelerates inter-state trade.
Q2: Are freelancers or small online sellers obliged to be registered for GST?
Yes, when the annual turnover is above 20 lakhs or 10 lakhs in special states or when the sales are made across state lines.
Q3: What are the online methods of registration for GST?
The application can be done on the GST portal. You need to provide business PAN, address proofs, bank details, and a digital signature.
