GST Guide: Everything You Need to Know
The Goods and Services Tax (GST) is a unified tax structure launched to alter the process of business operation and tax payment in India. The GST tax has replaced multiple indirect taxes such as VAT, service tax, excise duty, etc. and simplified the taxation system of the country. As a business owner, accountant, or financial professional, it is important to have a clear idea about what GST is, the different types of GST, and how the new GST rules affect your daily purchases or day-to-day business operations to avoid any penalty.
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Who Should File GSTR-6?
The filing of GSTR-6 is essential for businesses that follow a centralized invoicing model but operate across multiple states or branches. Even if there are no transactions in a given period, ISDs are required to file a ‘Nil’ return.
What is GST?
The Goods and Services Tax, popularly known as GST is a destination-based tax levied on every stage of value-addition in the supply chain. As a one-nation-one-tax system, GST has replaced multiple indirect taxes in India and simplified the process of buying and selling goods and services for domestic consumption. Collected by the seller and paid to the government, GST is included in the final price paid by the consumer.
Who Needs to Register for GST?
GST registration is mandatory for certain individuals and businesses under Indian tax law. Understanding the GST eligibilityGST eligibility criteria is crucial to staying compliant and accessing the benefits of GST.
The following entities need to register for GST:
- Businesses with Turnover Above Threshold Limits: Entities whose aggregate turnover exceeds ₹40 lakhs (₹20 lakhs for services) in most states and ₹10 lakhs in special category states.
- Inter-State Suppliers: Businesses supplying goods or services across state boundaries, regardless of turnover
- E-commerce Operators: Platforms involved in the supply of goods or services through electronic means.
- Casual Taxable Persons: Individuals undertaking occasional transactions that concern the supply of goods or services in a taxable territory where they don’t have a fixed place of business.
- Non-Resident Taxable Persons: Non-residents making taxable supplies in India.
- Agents of a Supplier: Individuals acting on behalf of a taxable person, such as commission agents.
- Input Service Distributors (ISD): Offices distributing credit of input services to branches with different GSTINs.
- Persons Paying Tax Under Reverse Charge: Entities are required to pay tax on behalf of the supplier.
- TDS/TCS Deductors: Government agencies and e-commerce operators are required to deduct tax at source.
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Voluntary GST Registration
Businesses not falling under the mandatory criteria can opt for voluntary registration to get the benefits of GST. This unified taxation system legitimizes the business, helps in the input tax credit claims, facilitates interstate trade, and enhances business credibility. Registration is done through the GST portal, which requires PAN, business details, and proof of address, followed by verification and issuance of a GSTIN (GST Identification Number).
GST Rates Structure
To accommodate the diverse goods and services, GST is charged in multiple slabs. This rate structure helps ensure affordability for essential items while imposing higher taxes on luxury or non-essential goods. Here’s a breakdown:
| GST Rate | Description | Examples |
|---|---|---|
| 0% | Essential goods and services exempted from GST. | Fresh fruits and vegetables, milk, bread, educational services, healthcare services. |
| 5% | Commonly used goods and services. | Footwear priced below ₹500, clothing under ₹1000, packaged food items, branded paneer, cream, skimmed milk powder. |
| 12% | Standard goods and services. | Butter, cheese, frozen meat products, ghee, animal fat, sausages, packaged dry fruits, fruit juices, ketchup, and sauces. |
| 18% | Standard goods and services. | Pastries, pasta, cakes, hairdryers, panels, vacuum cleaners, wires, telecom services, IT services. |
| 28% | Luxury and sin goods. | Paint, washing machines, cement, automobiles, shampoo, aerated water, sunscreen, motorcycles. |
A cess may be applied on select demerit goods like pan masala and cigarettes. The GST Council periodically reviews these rates.
GST Filing Process
All GST-registered businesses are required to file returns periodically. These filings detail their sales, purchases, tax collected on sales, and tax paid on purchases. The accuracy of GST filings ensures compliance and avoids penalties.
Step-by-step GST filing process:
- Log in to the GST portal using your credentials.
- Navigate to the Returns Dashboard and select the financial year and return period.
- Upload invoices for outward supplies in GSTR-1.
- Review auto-populated data in GSTR-2A/2B for inward supplies.
- Reconcile and claim Input Tax Credit where applicable.
- File GSTR-3B with tax liabilities, input credits, and final tax payable.
- Make payment through online banking or challan generation.
- Submit and file the return with DSC/EVC.
If you miss the deadlines for GST filing, it can result in late fees and interest.
How to Claim GST Refunds
GST refunds help ensure businesses are not unduly burdened due to tax anomalies or excess payments. Refund can be requested in the case of excess tax payment, export of goods/services, inverted duty structures, and provisional assessments.
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Steps to Claim a GST Refund
- Log in to the GST portal and go to Services > Refunds > Application for Refund.
- Choose the relevant reason and fill Form RFD-01.
- Upload supporting documents including tax invoices, shipping bills (for exports), payment receipts, and tax challans.
- Submit the application with a digital signature (DSC) or Electronic Verification Code (EVC).
- Track the refund status using the Application Reference Number (ARN).
- The refund is processed within 60 days. If delayed, interest at 6% per annum is payable.
GST Exemptions and Exclusions
The GST regime exempts certain goods and services from tax to ease the burden on essential sectors and support inclusive economic growth. These exemptions apply to specific categories and income thresholds.
- Unprocessed food items such as fresh fruits, vegetables, unbranded cereals, and pulses are exempt from GST.
- Educational services provided by pre-schools and government-recognized institutions (not-for-profit) are GST-free.
- Healthcare services offered by licensed clinics, hospitals, and individual practitioners are exempt.
- Public transportation services, including local trains, metro, and public buses, are not taxed.
- Financial services such as interest on loans, savings accounts, and fund transfers have conditional exemptions.
- Composition scheme businesses which have an annual turnover of less than Rs. 1.5 crore pay nominal tax and enjoy simplified compliance.
- Goods outside GST purview like alcohol for human consumption, petroleum products (petrol, diesel), and electricity are excluded and continue to be taxed under previous systems.
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Common GST Errors and Solutions
Filing errors are common among taxpayers, especially SMEs, due to unfamiliarity with GST norms or technical glitches. These errors, if uncorrected, may result in penalties, disrupt credit flow or lead to compliance notices. Here are the most common issues and how to resolve them:
- Mismatch between GSTR-1 and GSTR-3B: This occurs when outward supply details entered in GSTR-1 don’t match the summary in GSTR-3B. Always cross-check both before filing and use reconciliation tools to avoid inconsistencies.
- Incorrect GSTIN entries: Typing wrong GSTINs leads to rejection of credit claims and supplier-side mismatches. Validate every GSTIN using the GST portal’s search functionality before submission.
- Wrong tax rate classification: Misapplying GST rates can result in underpayment or overpayment. Refer to the latest HSN/SAC code lists and updated rate charts to ensure proper classification.
- Delayed filing of returns: Late submissions attract a fee of Rs. 50 per day (Rs. 20 for nil returns) and interest. Use calendar reminders and auto-alerts to meet deadlines consistently
- Mismatch in Input Tax Credit (ITC): Arises when the claimed ITC does not match GSTR-2A or 2B. Ensure vendor returns are filed and matched, and reconcile purchase invoices monthly to avoid discrepancies.
Proactive checks, automation tools, and regular training can help businesses reduce filing errors and maintain smooth compliance.
Conclusion
Understanding GST is crucial for anyone involved in business, trade, or professional services in India. From understanding the basics of what GST is to learning about the nitty-gritty, like the different types of GST, eligibility, exemptions, and return filing, every single detail plays a role in ensuring tax compliance. Since the GST system is evolving every year, you should stay updated with recent developments to avoid any non-compliance issues and penalties. With proper knowledge and diligence, businesses can not only stay compliant but also utilize the system for better financial planning and operational efficiency.
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I am a Chartered Accountant with over 20 years of experience and a finance content writer. I focus on educating people about finance and taxation. I have written many blog posts on finance, taxation, trading, and investment on the BUSY website. My goal is to increase financial understanding by making complex concepts easier to grasp and to support educational programs in India.
