Women these days are taking over the World. Be it politics, science, technology or business, there is no area where a woman is not claiming a dominant position. And it is not that there are just a handful of women excelling, but every woman today wants to be independent and fend for herself. Yet this desire is torn between being financially independent and looking after their families, especially their children. This dilemma has given rise to a whole new generation of what we call as womenpreneur or mompreneurs or solopreneur. A lot of women these days start their own small venture from home or otherwise so that they can manage both their work and children/ home easily.
But let’s face it starting a business, however small or big is not an easy task. A lot of things have to be kept in mind while starting a business –place of business, sourcing, target customers, finance, marketing, taxes, investment etc. While most women do not fear taking a lot of these decisions, but a lot of them shy from the financing or taxes part. They try to leave this aspect to their spouse or some other person. Maybe because of the misconception that men are good at handling finances or because of the belief that it is too technical and drab that many give up on it even before trying to understand it.
Just like one needs to handle other factors well to run and manage a business successfully, taxes are equally important to manage a booming business. In some cases, businesses have had to shut down solely because the taxes of the business were not managed well. Taxes also play an important role in determining a company’s bottom line.
Any business can have exposure to primarily 2 types of taxes – direct and indirect taxes. Direct taxes include income tax and indirect tax primarily includes GST.
The focus of this article would remain on GST and why it is so necessary for one to understand it for successful running of business.
Why should I know about GST for successful running of my business?
While in-depth knowledge about the industry and market trends is of utmost importance for successful running of business, blunder in taxes can lead to a major setback for any healthy and prosperous business. There are many reasons why basic knowledge about taxes would help you run your business better, some of which are listed below:
1. While professionals like Chartered Accountants (CA) are there to help with your taxes, but vital knowledge can always equip you to take proper tax decisions for your business, along with the aid of a CA. It would let you intelligently question the professional and derive the best value suited for your business.
2. Over reliance on accountants may lead to unnecessary penalty or litigation process – for example, if you outsource filing of returns to accountants but do not have the basic knowledge of whether the return is being filed correctly and in timely manner – wrong filing of returns or declaration of information may lead to litigation or hefty penalties in future.
3. Nobody can fool you in the name of GST – for example, if one gives you an invoice and asks for money over and above the invoice value in the name of GST, then you would know that unless GST is not mentioned in the invoice, you should not pay
4. Better business decisions can be made – for example, a person may take a decision that it is best suited for their business to source their raw materials from a vendor who has not opted for ‘composition scheme’ (even though their product may be slightly costlier) so that their ITC benefit can continue.
5. Some goods or services come under ‘exempt’ category under GST, i.e. a person may render services which do not attract GST under the law. But sometimes, when the law is not clear, the tax authorities may take a different interpretation and may issue notice for non–payment of GST. In such cases, if a person is aware of what Advance Ruling is, they may take advantage of the same to save litigation cost and hassle in future.
6. Sometimes business structures can be planned in a way, so as to make them tax efficient.
There are myriad reasons as to why fundamental knowledge of taxes can help your business and let you go for the right services to a GST professional so that maximum benefit can be availed. It is therefore recommended to equip yourself with this knowledge.
What is GST?
Goods and Service Tax (GST) is applicable when any person (or a business) supplies goods or provides services to others.
GST is applicable whether the goods are supplied within the same state (intra-state GST) or outside the state (inter-state GST).
When GST is paid for intra-state supplies – the total GST rate is equally split and paid as CGST (Central GST) and SGST (State GST). But when GST is paid for inter-state supplies total GST is paid as IGST (Integrated GST).
In both cases, the total percentage of the tax paid remains the same.
Who is required to pay GST?
GST is an indirect tax, which means that even though the tax burden is borne by the ultimate consumer – i.e. recipient of the goods or services, tax is to be deposited with the Government authorities by the supplier of goods or services. In a few specified cases only, the tax is to be deposited with the Government by the recipient of services itself.
In other words, a person selling goods or providing services have to deposit GST with the Government.
Does every person have to pay GST?
Every person doing business in India has to deposit GST with the Government, on sale of goods or provision of services, provided they cross the threshold limit, i.e. if a person crosses the following threshold limit then they would have to apply for GST registration and consequently deposit taxes with the Government.
● A person supplying goods would have to deposit taxes when the aggregate turnover (and not profit) exceeds INR 40 lacs (20 lacs for businesses set up in special category states)
● A person providing services would have to deposit taxes when the aggregate turnover (and not profit) exceeds INR 20 lacs (10 lacs for businesses set up in special category states)
It is pertinent to note here that the above threshold limits are applicable only when intra-state sales of goods are made. If a person is making both inter-state and intra-state sale or only inter-state sale of
goods, then GST registration would have to be taken from the first transaction of sale itself and benefit of threshold limit will not be applicable.
Input Tax Credit
One of the most important features of GST is Input Tax Credit (ITC). ITC means availability of credit of taxes paid on inputs procured for running of business.
For example, Ms. ‘A’ is into the business of selling handmade soaps. To make such soaps, raw materials like soap base, essential oils, molds, packing material, etc. or services like mobile, office rent, etc. would be required. When procuring these raw materials or input services, GST would have to be paid by ‘A’ to the seller of such raw materials or to the service providers. The seller of these raw materials or service providers, would then deposit the GST so collected from ‘A’ with the Government authorities on the specified due date.
After, manufacturing the soap, ‘A’ sells them to customers for a price inclusive of GST. This GST on sale of soaps which ‘A’ collects from his customers would have to be deposited with the Government authorities by ‘A’. However, since GST has already been paid by ‘A’ on the raw materials or services procured by her, she would get deduction of such tax paid on raw materials or services from the final tax to be deposited with the Government.
This mechanism of deduction of tax paid on procurement of inputs or input services is called as ITC. This reduces the overall cost of the product (in this case, handmade soap) as tax is applicable only on the ‘value added’ portion of the final product.
GST compliances to be undertaken
Some of the basic compliances to be undertaken under GST law are:
1. GST registration is one of the first step of compliance that a person has to take undertake under GST. If a person has crossed the above mentioned threshold limit in a financial year then GST registration should be taken and the person should start paying taxes.
Payment of taxes – Taxes are to be paid on a monthly basis under GST law.
GST returns need to be filed regularly – Taxpayers with annual turnover up to Rs. 5 crore in a
financial year may opt to file their returns (GSTR-1 & GSTR-3) quarterly. However, if in any financial year, the annual turnover exceeds more than Rs. 5 crores, then monthly returns need to be filed.
Apart from these, annual GST returns are also required to be filed by taxpayers. Also for some specific transactions/ persons, specific returns are to be filed within the specified due date.
When a person selling goods, transports goods within or outside the state and the total value of the consignment to be transported exceeds Rs. 50,000, then an e-way bill is required to be generated online for quick and easy transport of goods across border check-posts. An E-way bill is not required if the total consignment value is less than Rs. 50,000.
Composition scheme has been specially introduced by the Government to help small businesses reduce their compliance burden. A small business, whose aggregate turnover in the preceding financial year does not exceed 1.5 crores, can opt for composition scheme in the current year.
Under composition scheme tax has to be paid at a fixed concessional rate on the total turnover of the taxpayer. This eliminates the need to maintain detailed accounts and records. Also the compliance burden is much less as compared to regular tax payment scheme. Under composition scheme, the following rate of taxes are applicable on the aggregate turnover:
Manufacturers and traders – 1% Restaurants - 5% Service Providers - 6%
As can be seen from above, that rate of taxes under composition scheme is less as compared to the normal rate of taxes. However, composition scheme has few restrictions, conditions and limitations, which may prove to be a deterrent for a business to opt for this scheme. Hence a proper due diligence should be done by a person to weigh whether composition scheme or regular tax payment scheme is better for their business.
This article is aimed at helping small business owners to overcome their fear of understanding GST. For a better understanding on the above topics and other important GST related topics, one can refer the book ‘GST For The Layman – How It Impacts Your Daily Life’ by Apeksha Solanki published by Bloomsbury. The book is specifically written for layman in simple, lucid language covering all the basic concepts of GST in a very interactive and conversational format to make the understanding of the subject easier and interesting. It also has detailed DIY steps on how to take GST registration, file GST returns, pay taxes and other basic compliance requirements. Also, the author has given other tips to help readers take better decisions from the perspective of GST. The book is available on Amazon and Flipkart and kindle version of the book is also available.
You can contact the author on her FB page: @AuthorApekshaSolanki