Good and Services Tax (GST) for small business in India

Understanding India’s small, micro, and medium enterprises (SMMEs) sector

India is on track to become a major economy with a GDP of $5 trillion by 2025. The government aims to boost the MSME sector to contribute $2 trillion to this growth. Micro, Small, and Medium Enterprises (MSMEs) are a crucial part of India’s economy, driving employment, exports, and development.

MSMEs account for 45% of industrial output, 40% of exports, and play a pivotal role in GDP. They are the foundation of India’s socio-economic progress. These enterprises contribute over 30% of GDP, almost half of exports, and a third of manufacturing output. With over 11 crore employees, this number is projected to grow to 15 crores by 2023.

Indian MSMEs are rapidly adopting digital payments, with 72% of transactions being electronic and only 27% in cash. This shift provides ample growth potential for the sector.

Registering for GST as a small business made easy

For small businesses and startups, understanding regulations and taxes is crucial. Enter GST, or Goods and Services Tax, a simpler tax system introduced in 2017 to streamline things for everyone.

Embracing GST brings numerous benefits to small businesses. By delving into its advantages, you’ll realize its positive impact on businesses over time. It’s a step towards a smoother and more favorable business journey.

What you need for GST registration

Manufacturing companies and businesses with over ₹40 lakhs turnover require GSTIN. For service and ecommerce, it’s ₹20 lakhs or more. North-eastern states have a ₹10 lakhs minimum exception.

Registering for GST in India with required documents:

Here’s what you need:

  • Owner’s passport-sized photo.

  • Company’s PAN CARD.

  • ID proof (passport, Aadhaar card, or driver’s license).

  • For LLP, OPC, or private limited companies: certificate of association.

  • Detailed bank account info (statements, canceled checks, passbook, etc.).

  • Partnership deeds for partnership firms.

Steps to register your small business for GST:

  • Gather the mentioned documents.

  • Visit https://www.gst.gov.in/ to start the registration.

  • Create an account on the website.

  • Fill in personal and business info, goods details, HSN/SAC codes, and banking details.

  • If all is correct, you’ll get your GST number.

Positive impacts of GST registration for small businesses:

1. Reduced burden : Unified GST replaces multiple taxes, easing the economy and helping small and medium businesses save more directly.

2. Collateral-free loans : Having GSTIN enables easier access to loans without collateral, though evaluating your business’s financial health is wise.

3. Composite scheme : Businesses with up to Rs. 75 lakh annual turnover get a flat 1%-5% rate, aiding smaller entities that meet specific criteria.

4. Efficient interstate transport : GST streamlines interstate transport, reducing paperwork and checkpoints, making expansion possible without high transport costs.

5. Fair taxation : GST’s value-added approach avoids varying taxes on different production stages, leading to cost efficiency and fair pricing.

Challenges faced by small businesses with GST:

1. Working capital management : Many small businesses struggle with handling working capital due to the complex online GST system. Outsourcing becomes common, leading to added costs.

2. Technological hurdles : Businesses not adapted to the online GST system face tech challenges. GST registration is obligatory for annual turnovers of Rs. 20 lakhs or more.

3. Export tax changes : Unlike before, GST doesn’t exempt exports from taxes. This ties up business funds, hindering operations and sometimes requiring borrowing.

Conclusion:

GST Registration is crucial for smooth operations of small businesses in India. It offers benefits like securing loans, cost reduction, and operational flexibility. It’s a straightforward process with significant advantages for budding entrepreneurs.