What is GST?

GST stands for Goods and Services Tax. It is a destination-based tax on the consumption of goods and services. Under the GST system, tax is generally collected through the supply chain, while eligible input tax credits help prevent tax from being charged repeatedly on the same value addition.

GST replaced several central and state indirect taxes and created a common framework for taxing supplies of goods and services across India.

Why does GST matter to a small business?

For a business, GST can affect pricing, invoices, purchases, sales records, cash flow and periodic compliance. A business that is required to register needs to understand its registration status, invoicing requirements, applicable returns and input tax credit rules.

The exact requirements depend on factors such as the nature of the business, type of supplies, turnover, location and other applicable provisions.

CGST, SGST and IGST explained

GST has different components depending on the nature and location of a supply.

Whether a transaction is intra-State or inter-State depends on the applicable place-of-supply rules and the facts of the transaction.

What is GST registration?

GST registration gives an eligible or required taxpayer a GST registration number, commonly known as a GSTIN. Registration requirements are based on the GST law and depend on factors including turnover, nature of supplies and specific circumstances.

Not every business has the same registration requirements. Certain businesses may need registration because of the nature of their activities even where a simple turnover-based assessment would not tell the complete story.

What is Input Tax Credit?

Input Tax Credit, or ITC, generally refers to eligible credit of GST paid on business purchases and expenses. A registered person may be able to use eligible input tax credit against output tax liability, subject to the conditions and restrictions under GST law.

Documentation is important. Depending on the circumstances, supporting documents such as valid tax invoices or other prescribed documents may be required, and other statutory conditions can apply.

Businesses should therefore maintain accurate purchase records, sales records and supporting documentation rather than treating every GST payment as automatically eligible for credit.

GST invoices and business records

Proper invoicing and record keeping are important parts of GST compliance. A business should maintain appropriate records of its outward supplies, purchases, tax invoices, credit notes, debit notes and other relevant documents.

Good records can also make it easier to reconcile sales and purchase information, review input tax credit and prepare GST returns.

GST returns and periodic compliance

GST compliance can involve periodic reporting and payment obligations. The forms and filing requirements applicable to a taxpayer depend on the taxpayer's registration type and circumstances.

Businesses should keep their sales, purchase and tax records organized throughout the year rather than waiting until the filing period to reconstruct transactions.

Common GST compliance mistakes

A simple example

Suppose a registered business purchases goods for use in its business and later sells those goods to a customer. GST may be involved at both stages. Subject to the applicable rules and eligibility conditions, the business may be able to claim eligible input tax credit on the purchase and account for GST on its outward supply.

The actual tax treatment depends on the transaction, tax classification, place of supply, documentation and other applicable provisions.

Frequently asked questions