Starting your own business is no easy caveat. Adding to it is the need to understand the Goods and Services Tax (GST) and GST Returns (GSTR) which is crucial for first time entrepreneurs. While your CA and Lawyer may use these terms daily its necessary that you speak the jargon too or at least understand it to run a successful enterprise.
What is GST?
Goods and Services Tax (GST) is a comprehensive, indirect tax i.e. Not levied on customer directly but on goods and services provided. It’s a Point-of-Sale tax levied on the sale of goods and services in India at sale. It replaced multiple indirect taxes like VAT, service tax, and excise duty, creating a unified tax system under one nation, one tax approach.The primary GST slabs for any regular taxpayers are presently pegged at 0% (nil-rated), 5%, 12%, 18% & 28%.
Types of GST:
- CGST (Central GST): Collected by the central government on intra-state sales i.e., Sales of goods and services made within the same state or Union Territory.
- SGST/UGST (State/Union Territory GST): Collected by state/UT governments on intra-state sales.
- IGST (Integrated GST): Collected on inter-state sales i.e. Sale of goods and services between 2 or more states can also include Import, export or supply to a Special Economic Zone (SEZ), or even include Export Oriented Units etc.
Thus, understanding GST is important as it provides for a simplified tax structure as GST simplifies compliance by merging multiple taxes into one. It helps avoiding penalties by regular filing of GST returns. Missing deadlines can lead to fines and legal issues. And lastly for claiming Input Tax Credit (ITC) by businesses. You claim credits on taxes paid for business-related purchases, reducing overall tax liability.
Simplifying GSTR (GST Returns)
GST Returns (GSTR) are periodic filings submitted to the GST portal, detailing a business’s sales, purchases, tax collected, and tax paid. Different types of GSTR forms are used depending on the nature of the business. They can be filed monthly, quarterly and annually.
Types of GST Returns:
1. GSTR-1: Monthly or Quarterly Return for Outward Supplies
- What it is: GSTR-1 is used to report details of sales or outward supplies made during a specific period.
- Frequency: Filed monthly for businesses with annual turnover above ₹5 crores, or quarterly for smaller businesses.
- Example: If you sold goods worth ₹1 lakh to customers in January, you’ll list those sales in the GSTR-1 for that month or quarter. The data includes customer details, invoice numbers, and sales amounts.
2. GSTR-2A and GSTR-2B: Auto-Generated Forms for Inward Supplies and ITC
- GSTR-2A: A dynamic, real-time form showing purchases reported by your suppliers. It gets updated whenever your suppliers file GSTR-1.
- GSTR-2B: A static statement generated monthly that helps in claiming Input Tax Credit (ITC). It remains unchanged even if the supplier modifies their filings later.
- Example: If a supplier reported selling goods worth ₹50,000 to you in January, this would appear in GSTR-2A and GSTR-2B, enabling you to claim input tax credit on the purchase.
3. GSTR-3B: Monthly Self-Declaration for Summary of Sales, Purchases, and Tax
- What it is: A simpler form used to declare total sales, purchases, tax payable, and tax paid for a given month.
- Example: If you had sales of ₹2 lakhs and claimed an input tax credit of ₹20,000, you would report these figures in GSTR-3B for the month, along with the total tax amount you need to pay.
4. GSTR-4: Annual Return for Composition Scheme Taxpayers
- What it is: Filed once a year by small businesses under the composition scheme who pay a fixed tax rate.
- Example: If a small trader with a turnover below ₹1.5 crores opted for the composition scheme, they would file GSTR-4 annually, summarizing total sales and tax paid.
5. GSTR-9: Annual Return Consolidating All Returns Filed
- What it is: A comprehensive summary of all the monthly or quarterly returns (like GSTR-1 and GSTR-3B) filed during the financial year.
- Example: At the end of the financial year, you compile data from all returns to fill GSTR-9, ensuring that all details of sales, purchases, taxes paid, and ITC claimed are accurate.
Why Each Return Matters:
- GSTR-1 helps match the sales figures reported by suppliers.
- GSTR-2A and 2B ensure that ITC claims are verified.
- GSTR-3B allows timely tax payments.
- GSTR-4 simplifies compliance for small taxpayers.
- GSTR-9 provides a final annual reconciliation.
You can easily file these your GST Portal. It is important to do so to ensure Compliance with Law as by filing returns on time ensures you stay legally compliant. It can also help in claiming Input Tax Credit (ITC). Regular filing enables you to claim ITC for reducing tax liabilities. And finally bettering Cash Flow Management along with accurate records help in forecasting tax outflows and managing cash reserves.
Consequences of Non-Compliance Include:
Penalties: Late filing incurs a late fee (up to ₹100 per day for CGST and SGST), plus interest on outstanding tax.
Blocked ITC: Not filing timely returns can restrict the ability to claim input tax credits.
Legal Implications: Persistent non-compliance can lead to legal actions or cancellation of GST registration.
As they say you think compliance is expensive try non-compliance!
Practical Tips for Entrepreneurs
- Use Accounting Software: Tools like Tally or QuickBooks can simplify GST filing.
- Maintain Accurate Records: Ensure all invoices and financial documents are up-to-date.
- Hire a Tax Consultant: For complex GST matters, professional guidance can be invaluable.
- Stay Updated: GST rules change regularly across industries and multiple government schemes provide tax benefits to new entrepreneurs as well; keep track of notifications and amendments.
Thus, GST is not just a tax system; it’s a business tool that, when understood well, can optimize cash flow, streamline compliance, and improve overall financial health. For entrepreneurs, mastering the basics of GST and GSTR is essential to avoid legal hurdles and make the most of tax benefits.
Author: Apoorva Lamba, 2nd Year LLB. Student of Madhav Mahavidyalaya, Jiwaji University, Gwalior
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Link to similar articles: https://tmwala.com/blog-reverse-charge-mechanism/
Link to Official GST Portal: https://www.gst.gov.in
