MSME related FAQs on GST

Q: What is GST?

A: GST stands for Goods and Services Tax, which is levied on the supply of goods or services or both. “Supply” is a legal term that has a very broad sweep and various types of economic activities are covered by it. Except otherwise specified, a supply must be made for consideration and must be in furtherance of business.

For example, the sale of goods by a wholesaler to a retailer for an agreed price is a type of supply.

Q: On what supply is GST levied?

A: GST is levied on all types of supplies which are – (i) made for a consideration and (ii) are for the purpose of furtherance of business. There are some exceptions when these conditions are not met, yet supply is considered to have been made, for example, inter-state stock transfer of goods even without consideration made in the furtherance of business.

Q: Will GST be levied on all goods or services or both?

A: No, levy of GST on alcohol for human consumption is constitutionally prohibited. GST on Crude, Motor Spirit (Petrol), High-Speed Diesel, Aviation Turbine Fuel, and Natural Gas will be levied with effect from a date to be decided by the GST Council. Electricity is exempted from levy of GST. Securities are neither goods nor services for the purposes of the Act and therefore the supply of securities is not taxable. Several other goods and services are also exempt from the levy of GST.

Q: How many types of GST will be levied on different kinds of supply of goods or services?

A: GST is a dual levy to be simultaneously levied by both Centre and State. On every supply within a State/Union Territory (intra-State supply), GST levied will have two components – Central Tax and State/Union Territory Tax popularly called CGST and SGST/UTGST respectively. On every supply across States/Union Territories (inter-State), an Integrated Tax popularly called IGST will be levied. The rate of CGST and SGST/UTGST are equal. IGST is levied at a rate generally equal to the sum of CGST and SGST/UTGST.

Q: Whether a registered person will have to approach two authorities – Centre as well as State for various permissions, audit, etc. under the Act?

A: No, a registered person needs to approach only one tax authority for all practical purposes. Each registered person would have one tax administration office, either of the Centre or of the State. Legal provisions (called cross-empowerment) have been made to ensure that one tax authority can discharge all functions under CGST, SGST/IGST/UTGST Act in relation to a registered person. The registered person would be informed of the tax administration concerned with him. A common registration is granted for the purposes of CGST, SGST/UTGST, and IGST.

Q: What is a destination-based consumption tax?

A: When a supply originates in one State and is consumed in another State, tax can accrue to either of the two States. In a destination based consumption tax, taxes accrue to the State where the supply is consumed. In origin-based tax, the tax accrues to the State where the supply originates. GST is basically a destination based consumption tax. For example, if a car is manufactured in Chennai but is purchased eventually by a consumer in Mumbai, SGST (or the State component in IGST) would accrue to Maharashtra and not to Tamil Nadu.

Q: Who will pay GST to the Government?

A: GST is generally paid to the Government by the supplier, i.e. the one who makes the supply after collecting it from the recipient. The supplier collects GST from the recipient of the supply as part of the consideration. However, in a few exceptional cases, the recipient would be liable to pay GST to the Government on a reverse charge basis.

Q: What is Input Tax Credit?

A: A person doing business will be purchasing goods/availing services for making further supplies in the course or furtherance of business. When such purchases are made by him, the tax would have been charged by his supplier and collected from him. Since the tax is collected from him, he can avail credit of the tax paid by him to his supplier (that is to say, he can use this amount for making payment of tax due from him on a further supply made by him). This is known as the input tax credit for the recipient.

Q: Is GST going to increase the compliance burden on the trade?

A: No. On the contrary, GST will result in streamlining of processes and reduction of compliance burden. GST is a simple tax that uniformly applies across the country. GST has been designed to have a minimal human interface and would be implemented through a strong IT platform run by GSTN. Also, in the earlier regime, there were multiple compliances required for taxes such as Central Excise, Service tax, VAT, etc. with Centre and State. GST makes it single and uniforms compliance for indirect taxes across the country. Under GST, there is just one interface with no face-to-face meeting between taxpayers and tax authorities and practically every activity will be done online.

Q: What is the threshold for registration in GST?

A: A person having a business that has an aggregate turnover of more than ₹ 40 Lakh (for the supply of goods) calculated for a given PAN across the country would need to register under GST. There are some exceptions to this rule as mentioned in section 24 of the GST Act. Aggregate turnover is defined in section 2(6) of the said Act. In the case of the supply of services, the aggregate turnover limit is ₹ 20 Lakh. The threshold turnovers are lower in the case of certain special category States.

Q: Is an agriculturist liable to the registration?

A: No. An agriculturist, to the extent of supply of produce out of cultivation of land, is not liable to registration.

Q: What is the most important precaution to be taken to avail the facility of threshold exemption?

A: An MSME availing threshold exemption should not be making any inter-State supply of goods, though the MSME may receive supply from other States.

Q: I am engaged exclusively in the business of supplying goods or services which are exempt from GST. Am I liable for registration?

A: No.

Q: How do I make supply, if I have not applied for registration?

A: You should apply for registration at the earliest on the GST common portal and obtain an application reference number (ARN). You need not disrupt your business and may continue to make supplies on invoices without GSTIN. The application for registration must be made within 30 days of the turnover crossing ₹ 20 Lakh or attracting any of the conditions mentioned in section 24. After registration, you can issue revised invoices for the supplies made between the effective date of registration and the date of generation of GSTIN, as permitted under section 31(3)(a) of the GST Act. These supplies should be shown in the first return filed after registration and taxes paid on them.

Q: How can an application for fresh registration be made under GST? Within what time will registration be granted?

A: Application for fresh registration is to be made electronically on the GST common portal (www.gst.gov.in) in FORM GST REG-01. If the details and documents are in order, registration will be granted within 3 working days, except in cases where an objection has been raised.

Q: I am an SME selling printed books after printing and have a turnover of ₹ 45 Lakh per annum. I print only Children’s picture, drawing or coloring books which are exempt from GST. Do I need to register?

A: No. A person dealing with only exempted supplies is not liable to registration irrespective of his turnover. Section 23(1)(a) of the GST Act refers.

Q: If I register voluntarily though my turnover is less than the prescribed threshold limit, am I required to pay tax on supplies made post registration?

A: Yes. If you obtain voluntary registration despite the turnover being below the prescribed threshold, you would be treated as a normal taxable person and would need to pay tax on supplies even if they are below the threshold for registration. You will also be entitled to take the input tax credit.

Q: How will the taxpayer get the certificate of registration?

A: The taxpayer can himself download the certificate of registration online from the GST common portal (www.gst.gov.in).

Q: Can registration particulars once furnished be amended?

A: Yes, request for amendment has to be made online. All amendments in registration particulars, except some core fields which are not allowed, can be amended in the system without the intervention of any official by merely filing the details of the amendment in FORM GST REG-14. Also for some amendments, approval may be needed. Examples of fields that require approval are – legal name of the business, address of the place of business and addition, deletion or retirement of partners or directors, etc. responsible for the day to day affairs of the business. Examples of fields that can be amended without any approval are – change of telephone number, email ID, bank account, etc.

Q: In which State will a person be registered?

A: A person liable to be registered has to apply for registration in each State from where he makes or intends to make outward supplies under GST. Within each State, generally, only one registration is required to be obtained, although the taxpayer is free to obtain more than one registration within a State also.

Q: Are all manufacturers necessarily required to be registered under GST?

A:  No, there is no provision requiring that a manufacturer irrespective of threshold or nature of supply register himself under GST. For example, a manufacturer dealing only in exempted goods or where his turnover is only intra-State and below ₹ 40 Lakh, is not required to be registered.

Q: Who is liable to issue a ‘tax invoice’ and how many copies are required to be issued?

A: Every registered person (other than a registered person availing the benefit of composition or a registered person supplying exempted goods or services) supplying goods or services or both is required to issue ‘tax invoice’. The invoice should be issued in triplicate. The original copy is meant for the buyer, duplicate for the transporter, and triplicate copy for record of the seller. A registered person under composition scheme or supplying exempted goods or services shall issue a bill of supply instead of a tax invoice.

Q: What details are to be contained in a ‘tax invoice’?

A: The tax invoice shall contain details as specified in rule 46 in this regard. The key details specified in the rules are – name, address, and GSTIN of the supplier and the recipient (if registered), a unique number of the invoice and the date of issue, description of goods, the value of goods, rate of tax, amount of tax and signature.

Q: Is it necessary to issue invoices even if the value of the transaction is very low?

A: A registered person may not issue a tax invoice if the value of the goods/services supplied is less than ₹ 200, subject to the condition that the recipient is not a registered person and the recipient does not ask for such invoice (if the recipient asks for the invoice then the same must be issued, irrespective of the value). In such cases, the registered person shall issue a consolidated invoice at the end of the day in respect of all such supplies.

Q: When should a tax invoice be issued for goods?

A: Tax invoice for goods shall be issued on or before the time of removal/delivery of goods. In case of a continuous supply of goods, it shall be issued on or before the time of issue of the statement of accounts /receipt of payment.

Q: In case of a supply of exempt goods or when tax is paid under Composition Scheme, is the registered person required to issue a tax invoice? How a bill of supply is different from a tax invoice?

A: No. In such cases, the registered person shall issue a Bill of Supply and not a tax invoice. The bill of supply is different from a tax invoice both in name and details contained. While most of the details to be provided in a bill of supply are similar to tax invoices, the bill of supply does not contain the rate of tax and the amount of tax charged as the same cannot be collected.

Q: If goods are transported in semi-knocked down condition, when shall the complete invoice be issued?

A: When goods are transported in semi-knocked down condition, the complete invoice shall be issued before dispatch of the first consignment. Delivery challan shall be issued for subsequent consignments. The original copy of the invoice shall be sent along with the last consignment.

Q: Is there any scheme for payment of taxes under GST for small traders and manufacturers?

A: Yes Composition levy is an alternative method of levy of tax designed for small taxpayers whose turn over is up to ₹ 150 Lakh (₹ 75 Lakh for special category States, excluding J&K and Uttarakhand) for supply of goods. It is a kind of turnover tax. The objective of the scheme is to provide a simplified tax payment regime for the small taxpayers. The scheme is optional and is mainly for small traders, manufacturers, and restaurants.
Composition scheme has also been made available for suppliers of services (to those who are not eligible for the presently available Composition Scheme) with a tax rate of 6% (3% CGST +3% SGST) having an annual turnover in the preceding FY up to ₹ 50 Lakh. They would be liable to file one Annual Return with quarterly payment of taxes. This has been made effective from 01.04.2019.

Q: What is the eligibility criteria for opting for composition levy? Which are the Special Category States in which the turnover limit for Composition Levy for CGST and SGST purpose shall be ₹ 50 Lakh?

A: Composition scheme is a scheme for payment of GST available to small taxpayers, dealing in supply of goods, whose aggregate turnover in the preceding financial year did not cross ₹ 150 Lakh. In the case of certain States, the limit of turnover is ₹ 75 Lakh in the preceding financial year, namely – Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.

Q: What is the form in which an intimation to pay tax under the composition scheme needs to be made by the taxable person?

A: Composition scheme is optional and an intimation that option has been availed should be made electronically in Form GST REG-01 by a new taxpayer. A person who has already obtained registration and opts for payment under composition levy subsequently needs to give intimation electronically in Form GST CMP-02.

Q: What is the rate of tax under Composition levy for a manufacturer?

A: The composition rate for manufacturers is 1% (0.50% CGST and 0.50% SGST) of turnover in the State or Union Territory.

Q: Are all manufacturers eligible for composition scheme?

A: A manufacturer is eligible to avail composition scheme except for manufacturers –

a) whose aggregate turnover in the preceding financial year crossed ₹ 150 Lakh;
b) who make any inter-State outward supplies of goods or services;
c) who make the supply of goods through an electronic commerce operator;
d) who manufacture the following goods:

Q: When will a registered person have to pay tax?

A: A registered person will have to pay GST on monthly basis on or before the 20th of the succeeding month and if he has opted for composition levy he will have to pay GST on a quarterly basis on or before the 18th day of the month after the end of the quarter.

Q: A person availing composition scheme during a financial year crosses the turnover of ₹ 150 Lakh / ₹ 75 Lakh during the course of the year i.e. say, he crosses the turnover of ₹ 150 Lakh/ ₹ 75 Lakh in December? Will he be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31st March?

A: No. The option to pay tax under the composition scheme shall lapse from the day on which his aggregate turnover during the financial year exceeds ₹ 150 Lakh/ 75 Lakh. Once he crosses the threshold, he shall file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such an event. He shall also furnish a statement in FORM GST ITC-01 containing details of the stock of inputs and capital goods as per the rules in this regard. This would help him join the input tax credit chain and avail credit of tax that he has paid on his inputs/goods lying in stock on the day he crosses over.

Q: For the purpose of availing composition how will aggregate turnover be computed for the purpose of composition?

A: Aggregate turnover shall be computed on the basis of turnover on an all India basis. It includes the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number but excludes GST and cess.

Q: Can a person who has opted to pay tax under the composition scheme avail Input Tax Credit on his inward supplies?

A: No, a taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take an input tax credit on the supplies received.

Q: How is a manufacturer under the composition scheme required to bill his supply? Can a registered person, who purchases goods from a composition manufacturer take input tax credit?

A: A manufacturer opting to pay tax under the composition scheme cannot issue a tax invoice to his buyer but would issue a Bill of Supply. He cannot collect any tax on supplies made by him on his Bill of Supply and is required to show only the price charged for the supply. Consequently, the registered person buying goods from a composition manufacturer cannot take the input tax credit.

Q: In case a person has registration in multiple States, can he opt for payment of tax under composition levy only in one State and not in other States?

A: No. An intimation that composition scheme has been availed in one State shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number in other States.

Q: What is the validity of the composition levy?

A: The option exercised by a registered person to pay tax under the composition scheme shall remain valid so long as he satisfies all the conditions specified in the law. The option is not required to be renewed.

Q: Can a person paying tax under composition levy, withdraw voluntarily from the scheme?

A: Yes, the registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP-04. In case he wants to claim the input tax credit on the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date of withdrawal, he is required to furnish a statement in FORM GST ITC-01 containing the details of such stock within a period of thirty days of withdrawal.

Q: Will withdrawal intimation in any one place be applicable to all places of business?

A: Yes. Any intimation or application for withdrawal in respect of any place of business in any State or Union territory shall be deemed to be an intimation for withdrawal in respect of all other places of business registered on the same Permanent Account Number.

Q: Can a person paying tax under the composition scheme make exports or supply goods to SEZ?

A: No, because exports and supplies to SEZ from Domestic Tariff Area are treated as inter-State supply. A person paying tax under a composition scheme cannot make an inter-State outward supply of goods.

Q: How can tax payments be made by a registered person under the composition scheme?

A: A registered person under composition scheme would not have input tax credit and he would make all his tax payments by debit in the cash ledger maintained at the common portal. The taxpayer can deposit cash anytime in the electronic cash ledger at his convenience.

Q: Does a registered person under the composition scheme pay his taxes every month?

A: No, registered person under the composition scheme will not pay taxes every month. Taxpayers under the Composition scheme have been allowed to pay ‘self-assessed tax’ on a quarterly basis till 18th of the month succeeding such a quarter and furnish a return till 30th April for the previous financial year.

Q: What are the accounts a manufacturer under the composition scheme needs to maintain?

A: Rules on Accounts and Records provide details of the accounts to be maintained. They are maintained under the normal course of business by any small manufacturer. The details to be maintained in accounts, inter-alia, consists of goods supplied, inward supplies attracting reverse charge, invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers, refund vouchers, etc.

Q: Does a manufacturer under the composition scheme need to maintain details of accounts of every supply received and made?

A: No, the requirement to maintain detailed accounts of stocks in respect of goods received and supplied, work in progress, lost, destroyed, etc. does not apply to a manufacturer under the composition scheme. Such a person shall maintain a true and correct account of production or manufacture of goods, the inward and outward supply of goods, stock of goods, tax payable, and paid.

Q: Does a manufacturer under the composition scheme needs to maintain the account of the inputs tax credit?

A: A manufacturer under the composition scheme need not maintain an account of input tax, input tax credit claimed, etc. as he is neither allowed to avail of input tax credit nor can he issue an invoice showing tax which buyer can avail input tax credit.

Q: Can a manufacturer under the composition scheme maintain his accounts manually? And
can he issue his bill of supply manually?

A: Yes, a manufacturer under the composition scheme can maintain his accounts in registers serially numbered and also issue a bill of supply manually following the conditions specified in rules in this regard.

Q: Whether a registered person under the composition scheme needs to learn the HSN code of any input purchases and output supplies?

A: No, a registered person under the composition scheme would not need to specify HSN code of their products in bill of supply or return.

Q: What details are required to be furnished in the return to be filed by the registered person under the composition scheme?

A: GSTR-4 may be referred to details required to be filled in the return. It is a very simple return containing consolidated details of outward supplies, details of import of services, or other supplies attracting reverse charge and inward supplies.

Q: Can a manufacturer/trader of goods opt for composition scheme if his service component
is it very small?

A: A person who opts to pay tax under composition scheme may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding 10% of turnover in a State or Union territory in the preceding financial year or ₹ 5 Lakh, whichever is higher.

Q: Can a service provider opt for composition scheme?

A: Yes. With effect from 01.04.2019, suppliers of service only or suppliers of service and goods together can opt for composition scheme for first clearances up to ₹ 50 Lakh. The rate of composition tax in such cases is fixed at 6%.