GST Compliance for Small Businesses

GST Compliance for Small Businesses

GST has always been a hardship for small businesses. I’m not talking about filing returns or paying taxes, but about the compliance with the GST Law. The CGST Act, 2017 has 174 sections. Referring all those sections and complying the same in their businesses may not be possible for the small businesses. A giant company with crores of turnover can appoint a consultant and comply with all the provisions. But the same could not be possible for a miniature business. Thus, ends up by paying the penalties. Therefore, this article primarily focuses on those small businesses who wants to comply with GST law without referring all the provisions of CGST Act, 2017 in detail.

Assumption made:

For the purpose of this article I’m making an assumption that the “small business” means:

• It doesn’t have any exports and SEZ supplies
• It doesn’t have any inter-state supplies i.e. supplies to other states.
• It doesn't provides any exempt supplies (For exempt supplies refer Notification 02/2017 - CTR & 12/2017 - CTR)
• Doesn’t cross an annual turnover of 2 crores. 
• It doesn’t opted for composition scheme

Registration:

1. Every business whose turnover exceeds 20 lakhs in a financial year, is liable to get registered under GST. This limit is 10 lakhs for businesses in special category states. [Section 22(1)]
2. But if you are exclusively supplying goods i.e. you don’t even have a single supply of service and you are not supplying ice cream/pan masala/tobacco products, then you are liable to be registered only of your turnover exceeds 40 lakhs in a financial year. [Notification 10/2019 – CT]
3. Further, a person intending to take GST registration voluntarily he can do so, even if his turnover doesn’t exceed the above limit. [Section 25(3)]
4. If he has any other place of business or goods storage areas, he has to disclose those places in the ‘additional place of business’ column of registration application. [Rule 10(1)]
5. Display the GSTIN and GST Certificate in the predominant premises of the business. Means it should be visible to the customers. [Rule 18]
6. Any change in the particulars of registration, shall be amended through GST REG-14 within 15 of such change. [Section 28(1) read with Rule 19(1)]

Returns

1. Once got registered, you have to file a first return disclosing the sales which have been made in the period between the date on which you became liable to be registered and the date on which registration has been granted. [Section 40]
2. The details of outward supplies made during a tax period shall be disclosed in GSTR 1, on or before the 10^th of month succeeding the tax period. [Section 37].
3. The payment of tax for a tax period shall be made through GSTR 3B, on or before the 20^th of month succeeding the tax period [Section 39]
4. Every registered person shall file an annual return i.e. GSTR 9 before the 31^st December of next financial year. But the same has been made option for the taxpayers with less than 2cr turnover for the FY 2017-18 & 2018-19. [Section 44 & Notification 47/2019 - CT]

Invoicing

1. An invoice has to be raised by the supplier at the time of delivery or at the time of goods making available to recipient. [Section 31(1)]
2. In case of services, invoice has to be raised before or after the provision of services but with 30 days of such provision of service. [Section 31(2) read with Rule 47].
3. The tax invoice should contain the following details:
• Name, Address and GSTIN of supplier and recipient
• Unique and consecutive invoice number not exceeding 16 characters
• Invoice date
• HSN code
• Description of goods or services
• Taxable value
• Rate of tax and tax amount charged
• Invoice value
• Place of supply
• Signature of authorised person [Rule 46]
4. If any advances are received, the issue a receipt voucher evidencing the receipt of advance. The advance voucher should contain the following particulars:
• Name, Address and GSTIN of supplier and recipient
• Invoice number and date
• Description of goods
• Advance taken
• Rate of tax and tax amount charged
• Place of supply and authorised signature. [Section 31(3)(d) read with Rule 50]
5. The small business could procure goods transport services for transporting the goods (assumption). In such a case, if the supplier i.e. transport agency is not charging 12% tax, then recipient has to pay tax under RCM at 5% [Notification 13/2017 – CTR].
6. In such a case of RCM transactions, a payment voucher has to be issued by the recipient and a self-invoice has to be raised. [Section 31(3)(f) and 31(3)(g)]
7. If you are using the tally, you can generate the invoice from tally itself. It contains all the details specified above which can reduce errors causes through manual invoicing.

Credit Notes and Debit Notes

1. If there is a reduction of value in sales made or any sales return, the seller has to issue a credit note to the buyer. The said credit note has to be disclosed in the return within September of next financial year or due date of annual return, whichever is earlier. [Section 34(1) & (2)] 
2. If there is an increase in the value of sales, the seller has to issue a debit note. There is no time limit for issuing debit note. [Section 34(3) & (4)]

Input Tax Credit

1. To claim the input tax credit, the following conditions have to be satisfied:
• You should be having a tax invoice issued by supplier
• You should have received the goods or services
• Supplier should have deposited the tax with the government
• You should have filed GSTR 3B. [Section 16(2)]
2. The credit on the following items should not be claimed as the same are blocked. The list is limited to only those supplies which are assumed to be used by small businesses.
• Motor vehicles which has less than 13-seater (except for providing further supplies)
• Food and beverages (except for providing further supplies)
• Goods or services purchased for construction or repairs of building
• Goods or services for personal use
• Goods lost, stolen, destroyed or disposed of by way of gifts [Section 17(5)]

Penalties applicable:

1. For the following contraventions, a penalty of Rs. 10,000 will accrue. Listed has been limited only to the small businesses:
• Supplies goods or services without issuing invoice or issues incorrect invoice
• Issues invoice without supplying goods or services
• Collects tax amount and doesn’t make payment to government within 3 months of due date of payment
• Availed or utilized the input tax credit without receiving goods or services
• Doesn’t get registration even after becoming liable to get.
• Furnishes false information at the time of registration
• Issues invoice with GSTIN number of others [Section 122]
2. If any other contraventions of the Act and Rules have been made apart from above, a penalty of Rs. 25,000 will accrue. [Section 125]

Suggestions for Small Businesses:

Before concluding the article, here are some small tips for the owners of small businesses:

1. Try to maintain the accounts in tally instead of manual book keeping. Because, every registered person shall maintain his books in his principal place and retain the same from due date of annual return. If such accounts are in tally, it is easy to retain the same. [Section 35 & 36] 
2. Appoint a proper person for filing the returns. Because nonpayment of tax or wrong availment of credit could lead to an interest of 18% and 24% respectively [Section 50].
3. Take the invoice copies from tally itself as it contains all the details specified in Rule 46.

Conclusion:

GST law is vast and comprehensive. Discussing each and every provision in an article is not possible. Through this article, an effort has been made to discuss the most common provisions which will be applicable to the small businesses. This is a limited list of provisions which will be applicable in common and everyone should comply with. As we have seen in section 125 discussed above, there is a penalty for contravention of any provisions of the Act or Rules. To avoid such penalties, the basic aspects have been discussed in this article.