Registration is the first step of any tax system to ensure taxpayers are following the tax rules. Under the registration process, statutory authorities will issue a unique number to the business entity who is registering. Through this number, Government collects tax from the entity and gives him input tax credit for his purchases. No tax implications can be entertained without registration process.
Registration has many advantages as mentioned below for the business entity that pays tax:
- Authority to collect taxes from suppliers and provide input tax credit to recipients who have purchased from them.
- Establish a legal identity that identifies a business entity as a supplier of goods and/or services.
- Input credit tax flows across the right chain and reaches the right people giving them the benefits.
- Tax liability of entity settles smoothly as the taxpayer can avail input tax credit for taxes paid by him and further pay the same when the tax liability on outward supplies arise.
While registering for GST, there is an option to choose from below schemes:
- Composition Scheme (subject to prescribed limit of aggregate turnover)
- Regular Scheme.
Composition Scheme
It is an easy to understand and execute scheme which is optional and voluntary. It can be availed by those who have a turnover of less than 1.5 crore (for North-Eastern State – 75 lakhs) where supply of goods is involved and 50 lakhs where supply of services is involved. However, there are exceptions where some people or businesses can’t register under this scheme:
- Entities that manufacture ice cream, pan masala, tobacco or aerated water.
- Inter-State suppliers
- Casual taxable person or non-resident taxable person.
- Entities selling on e-commerce platforms.
In cases, where entities don’t wish to opt for composition scheme or are ineligible, they can apply for Regular Scheme.
Voluntary Registration
Any person having annual turnover less than the pre-defined limit or when there is no liability arising to take mandatory registration may apply for voluntary GST registration.
Calculation of Aggregate Turnover
To choose a scheme based on turnover limit condition, following are to be included while calculating the turnover:
1. All taxable supplies
2. All exempt supplies
3. Export supplies
4. Inter-State supplies between units of person with same PAN to be computed on all India basis.
GST paid on supplies or value of purchases having a tax liability on reverse charge basis shall be excluded from this calculation.
