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Getting Started with GST Compliance: A Primer for Business Owners in India

The Goods and Services Tax (GST) is a comprehensive indirect tax system in India that has replaced multiple indirect taxes such as VAT, Central Excise Duty, and Service Tax. Since its implementation on 1st July 2017, GST has undergone several amendments to simplify the process of tax compliance for businesses.


GST has brought significant changes to the Indian tax system by introducing a unified tax regime that aims to remove cascading effects of taxes and promote ease of doing business in India.

Beginner's Guide for GST

As a business owner or a taxpayer, it is essential to have a comprehensive understanding of the various aspects of GST. This includes the GST rates and categories, Input Tax Credit (ITC), GST return filing, GST audit, GST compliance rating, and GST refund. These aspects are critical for businesses to comply with GST provisions and avoid any legal implications or penalties.


In this blog, we will discuss in detail the key aspects of the GST law in India. We will provide a comprehensive overview of each aspect and explain how it impacts businesses. By the end of this blog, you will have a better understanding of the GST law and its various provisions. Whether you are a small business owner, a medium-sized enterprise, or a large corporation, this blog will serve as a guide to help you navigate the complex GST system in India. So, let's dive in and understand the important aspects of the GST law in India.


What are the different tax slabs under GST, and how are they determined?

 

Under GST, there are four different tax slabs - 5%, 12%, 18%, and 28%. The tax rates for goods and services are decided based on the Harmonized System of Nomenclature (HSN) codes.


Goods and services with a higher HSN code attract higher tax rates, while those with lower HSN codes attract lower tax rates. For instance, essential items such as milk, vegetables, and fruits attract a lower tax rate of 5%, while luxury items such as perfumes, cigarettes, and air conditioners attract a higher tax rate of 28%.


The GST Council reviews and decides on the tax rates for goods and services from time to time. The Council considers various factors such as revenue collection, inflation, industry demands, and the impact on consumers while deciding on the tax rates.


The GST Council also has the power to recommend a special rate for certain goods and services based on their importance, public interest, or to incentivize particular industries. For instance, the GST rate on electric vehicles is 5% compared to the standard rate of 28%.


Overall, the tax rates under GST are determined based on various factors such as the nature of goods and services, their significance, and the economic impact on businesses and consumers.


What is Input Tax Credit (ITC), and who is eligible for it?

 

Input Tax Credit (ITC) is a mechanism under GST that allows businesses to claim a credit for the tax paid on inputs used in the production or supply of goods and services. In other words, ITC allows businesses to reduce their tax liability by claiming credit for the tax already paid on the purchase of goods and services.

To be eligible for ITC, a business must be a registered GST taxpayer and must have a valid tax invoice or debit note for the purchase of goods or services. The purchased goods or services must be used in the normal course of business or for further supply.


However, ITC cannot be claimed for certain goods and services such as petroleum products, alcoholic beverages, and tobacco products. Additionally, ITC cannot be claimed for goods and services used for personal consumption or for non-business purposes.


It is essential to note that businesses can only claim ITC for the tax paid on inputs that are used for taxable supplies. If a business makes exempt supplies or supplies outside the scope of GST, ITC cannot be claimed on the inputs used for such supplies.


Overall, ITC is an essential mechanism under GST that helps businesses reduce their tax liability and avoid the cascading effect of taxes. However, businesses must ensure that they comply with the rules and conditions for claiming ITC to avoid any legal implications or penalties.


What are the various types of GST returns, and how often do businesses need to file them?

 

Under GST, businesses need to file various types of returns based on their activities and turnover. Here are the different types of GST returns and their frequency of filing:

  1. GSTR-1: This return is filed by businesses to report their outward supplies of goods and services. It needs to be filed monthly by businesses with an annual turnover of up to Rs. 1.5 crore. Businesses with an annual turnover of more than Rs. 1.5 crore need to file GSTR-1 on a quarterly basis.

  2. GSTR-3B: This return is a summary of a business's monthly transactions and needs to be filed by all registered taxpayers by the 20th of the following month.

  3. GSTR-2A: This is an auto-populated return generated based on the GSTR-1 filed by the suppliers. Businesses can claim input tax credit based on this return.

  4. GSTR-4: This return is filed by composition taxpayers, who pay a fixed percentage of their turnover as tax. It needs to be filed on a quarterly basis by the 18th of the month following the quarter.

  5. GSTR-5: This return is filed by Non-Resident Taxpayers (NRI) for their inward supplies. It needs to be filed on a monthly basis by the 20th of the following month.

  6. GSTR-6: This return is filed by Input Service Distributors (ISD) to distribute the input tax credit to the units receiving the input services. It needs to be filed on a monthly basis by the 13th of the following month.

  7. GSTR-9: This return is an annual return that needs to be filed by all registered taxpayers by the 31st of December of the following financial year. It is a consolidation of all the monthly and quarterly returns filed during the financial year.

Overall, businesses must ensure that they file the relevant GST returns within the due date to avoid any legal implications or penalties. It is essential to maintain accurate records and comply with the rules and regulations of GST to avoid any inconvenience or penalties.


What is a GST audit, and who needs to get their accounts audited under GST?

 

A GST audit is an examination of a business's financial records to verify the accuracy and completeness of their GST returns. It is conducted by a GST auditor appointed by the Commissioner of Central Tax or State Tax.

Under GST, certain taxpayers are required to get their accounts audited by a GST auditor. Here are the types of taxpayers who need to get their accounts audited:

  1. Businesses with an annual turnover of Rs. 5 crore or more: All businesses with an annual turnover of Rs. 5 crore or more need to get their accounts audited by a GST auditor.

  2. Input Service Distributors (ISD): ISDs are required to get their accounts audited irrespective of their turnover.

  3. Businesses with multiple business verticals: Businesses with multiple business verticals that are registered separately under GST need to get their accounts audited for each registration.

The GST audit is conducted in accordance with the rules and procedures specified under the GST law. The auditor examines the financial records of the business to ensure that they have maintained proper books of accounts, complied with the GST provisions, and correctly calculated and paid the GST liability.


If any discrepancies or non-compliance are found during the GST audit, the business is required to rectify the same and pay any outstanding tax along with interest and penalties. Failure to comply with the GST audit requirements can lead to legal consequences and penalties under the GST law.



Overall, businesses must ensure that they comply with the GST audit requirements and maintain proper books of accounts to avoid any legal implications or penalties.


How can businesses claim a refund under GST, and for what reasons can a refund be claimed?

 

Under GST, businesses can claim a refund for the tax paid on input goods or services. Here are the different scenarios where a refund can be claimed under GST:

  1. Exports: Businesses that export goods or services can claim a refund of the GST paid on the inputs used in the production of the exported goods or services.

  2. Inverted duty structure: In cases where the GST paid on inputs is higher than the GST charged on the final product, businesses can claim a refund for the excess amount paid.

  3. Deemed exports: Businesses that supply goods to a recipient located in a Special Economic Zone (SEZ) or supplies goods to an exporter can claim a refund for the GST paid on the inputs.

  4. Refund of accumulated Input Tax Credit: When the input tax credit accumulated in the electronic credit ledger exceeds the GST liability, businesses can claim a refund for the excess amount.

To claim a refund under GST, businesses need to file a refund application in Form GST RFD-01 electronically on the GST portal. The refund application needs to be filed within two years from the relevant date. The relevant date for different scenarios is different and specified under the GST law.


Once the refund application is filed, the GST authorities will process the application and conduct a scrutiny of the documents submitted along with the application. If everything is found to be in order, the refund amount will be credited to the bank account of the taxpayer.


Overall, businesses must maintain proper records and comply with the GST provisions to claim a refund. Any discrepancies or non-compliance can lead to the rejection of the refund application or legal implications under the GST law.


What are the implications of non-compliance with GST provisions,

and what penalties can businesses face?

 

Non-compliance with GST provisions can have serious implications for businesses. The GST law specifies various penalties and consequences for non-compliance, which can include:

  1. Late fees: Businesses that fail to file their GST returns within the due date are liable to pay late fees. The late fee for GSTR-3B is Rs. 50 per day for CGST and SGST, and Rs. 100 per day for IGST. The maximum late fee is capped at Rs. 10,000.

  2. Interest: Businesses that fail to pay the GST liability within the due date are liable to pay interest on the outstanding amount. The interest rate is 18% per annum, calculated from the due date until the actual date of payment.

  3. Penalty for incorrect or false information: Businesses that provide incorrect or false information in their GST returns are liable to pay a penalty of up to Rs. 10,000 or 10% of the tax amount, whichever is higher.

  4. Penalty for non-maintenance of proper records: Businesses that fail to maintain proper books of accounts as per the GST law are liable to pay a penalty of up to Rs. 25,000.

  5. Suspension or cancellation of GST registration: In cases of persistent non-compliance, the GST registration of a business can be suspended or canceled by the GST authorities.

  6. Prosecution: In cases of serious non-compliance, such as tax evasion or fraud, the GST authorities can initiate prosecution proceedings against the business, which can result in imprisonment and fines.

Overall, businesses must comply with the GST provisions and maintain proper records to avoid any legal implications or penalties. It is advisable to seek professional help to ensure that the GST provisions are correctly understood and followed.


How has GST simplified the tax system for businesses in India?

 

Before the implementation of the Goods and Services Tax (GST) in India, the tax system was complicated and fragmented. There were multiple taxes levied by the Central and State Governments at different stages of the supply chain, which led to a cascading effect of taxes and increased the overall tax burden on businesses.

However, with the implementation of GST, the tax system has been simplified, and businesses have benefitted in the following ways:

  1. Elimination of multiple taxes: GST has replaced multiple taxes like excise duty, service tax, value-added tax (VAT), and others, which has led to a unified tax system. This has eliminated the cascading effect of taxes and has reduced the overall tax burden on businesses.

  2. One nation, one tax: GST has brought in the concept of 'one nation, one tax,' which has made the tax system more transparent and efficient. Businesses no longer have to comply with different tax laws and rates in different states, which has reduced the compliance burden.

  3. Input Tax Credit: GST allows businesses to claim Input Tax Credit (ITC) for the taxes paid on the inputs used in the production of goods or services. This has reduced the tax liability of businesses and has made the tax system more business-friendly.

  4. Simplified tax returns: Under GST, businesses need to file only one tax return per month, which has simplified the compliance process. The GST portal also provides an online platform for businesses to file returns and claim refunds, which has made the process more streamlined.

  5. Transparency: The implementation of GST has made the tax system more transparent. The GST portal provides real-time access to businesses to their GST compliance status and facilitates online payment of taxes, which has increased transparency and accountability.

Overall, the implementation of GST has simplified the tax system for businesses in India, reduced the tax burden, and increased transparency and efficiency.

In conclusion, the Goods and Services Tax (GST) has simplified the tax system for businesses in India by introducing a unified tax regime and eliminating multiple taxes. The concept of 'one nation, one tax' has reduced the compliance burden on businesses and made the tax system more transparent and efficient.


However, the GST law is still evolving, and businesses need to stay updated with the latest changes. In this blog, we discussed the key aspects of GST, including GST rates and categories, Input Tax Credit (ITC), GST return filing, GST audit, and GST refund. By understanding these aspects, businesses can ensure compliance with GST provisions and avoid any penalties or legal implications.

 

Our expert team can help your business navigate the complexities of GST compliance and provide assistance in filing GST returns, claiming refunds, and ensuring proper record-keeping to avoid penalties and legal implications. With our comprehensive range of GST services, businesses can focus on their core operations while leaving the GST compliance and regulatory requirements to us.


Contact us today to learn more about our GST services and how we can help your business achieve compliance and operate more efficiently in the GST regime.


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