Running a small business in India is exciting, but it also comes with responsibilities. One of the most important once is following is Goods and Services Tax (GST). A lot of business owners find GST confusing at first but once you understand the basics, it’s not that tough to manage on the other hand if you ignore GST rule you might end up paying fines, extra interest or even restrictions on your business activities.
That’s why it’s better to stay on top of GST compliance from the beginning. GST compliances refer to the legal obligations and procedural requirements that every registered taxpayer must follow under the GST law. These compliances include timely registration, accurate filing of returns, proper maintenance of records, correct collection and payment of tax, and adherence to audit and assessment requirements.
In this blog, we will talk about the main GST compliances that small businesses should follow. Hope this article will helpful and easily understand and relate even a new entrepreneur can understand.
1. GST Registration
The first and most important step is getting your GST number (called GSTIN). But the good part is not every small business needs to register for GST.
- Your yearly sales are more than ₹40 lakhs (for service providers the limit is Rs.20 lakhs in most states).
- You sell goods or services to customer in other state.
- You sell online through website like Amazon or Flipkart.
- You are in businesses where GST registration is compulsory (like export)
Once you cross the limit or fall into these categories you have to apply for GST registration online. After registration, you will get a GSTIN (Identification Number), this number must be shown on your bills, returns, and other GST documents.
2. Issuing GST Invoices
After you register under GST the bills (invoice) you give to you customer must follow the GST format. A proper GST invoice should have:
- Invoice number and date
- Your business name and address
- GST number of seller and buyer (if registered)
- Detail of goods or services
- Quantity and price
- HSN code (for good) or SAC code (Service Accounting Code) for services
- Tax rate and tax amount (CGST, SGST, or IGST)
If you are a small businesses under the composition scheme (a simple GST scheme for very small business), you don’t issue a tax invoice instead you issue a bill of supply.
Issuing correct invoices is very important why? Because it helps you claim Input Tax Credit (ITC) and keep thinks clear and transparent for customers.
3. Filing GST Returns
Filing GST returns is something every registered business has to do regular. Think of it as giving the government a report of your sales and text.
- GSTR-1: this is where you give details of all the sales you have made.
- GSTR-3B: A summary return where you declare total sales, purchases, and pay taxes.
The due dates usually are:
- GSTR-1: 11th of the next month (for monthly filers).
- GSTR-3B: 20th of the next month.
If you are a small business turnover is up to ₹5 crores, you don’t have to file GST return every month. You can choose the QRMP scheme (Quarterly Return, Monthly Payment) This simply means you pay tax every month, but file the detailed return only once every three months..
Filing your returns on time is very important if you delay crucial. Late fees and interest, on top of that you may not be able to generate e-way bill which can cause trouble if you move goods from one place to another.
4. Composition Scheme for Small Businesses
If you are a very small business and don’t want to get stuck with complicated GST filling, you can opt for the composition scheme.
Key points about this scheme:
- It is Available for businesses with yearly sales up to ₹1.5 crores.
- Instant of calculating GST on every bill, you pay a fixed percentage of your total sales (e.g., 1% for traders, 5% for restaurants, and 6% for some service providers). You cannot collect GST from customers separately.
- You can’t change GST secretly from your customer.
- You also don’t get the benefit to claiming input tax credit (ITC).
This scheme is very useful for small shops, restaurants, and small service providers who want to reduce paperwork.
5. INPUT TAX CREDIT (ITC)
The Input Tax Credit (ITC) is one of the important features of the GST. It means you don’t have to pay taxes twice. You can also use the GST that you have collect on sales to offset the GST you already paid on purchases.
Here’s a simple example:
- You purchase raw materials of ₹1,000,000 and paid ₹18,000 for GST.
- You sold your finished product for ₹2, 00,000 and you added ₹36,000 as GST.
- Instead giving the full ₹36,000, to government you got credit for the ₹18,000 GST which your customer paid to you.
- Now, you only had to pay remaining ₹18,000 to the government.
By doing this, you can save money and prevent double taxation. However, you have to follow a few basic rules in order to use ITC. You should have a legitimate GST invoice.
6. E-Way Bill
If your business includes transporting goods, you have knowledge about e-way bills
E-way bill is required when:
- The value of goods being transported is more than ₹50,000.
- The movement is inter-state or certain intra-state movements.
The e-way bill is generated online and includes details of goods, transporter, and vehicle. If these are not included your goods can be seized, and penalties may be charged.
E-way bill system is a must. For small businesses that frequently use transportation of goods
7. Maintaining Proper Records
GST requires you to maintain proper records of accounts .If you are a small business, you should maintain:
- Sales book
- Purchase book
- Stock register
- Expense accounts
- Maintain Records of tax invoices, credit notes, debit notes, and e-way bills
These records should be preserved for at least 6 years. Maintaining proper records not only for help in GST compliance but also that gives you a clear picture of your business performance.
8. Annual Return
Apart from monthly or quarterly returns, certain businesses must also file an annual return (GSTR-9).
- Companies with turnover exceeding ₹2 crores must also get their accounts audited and submit GSTR-9C (reconciliation report).
- For very small businesses under composition, GSTR-9A was required earlier, but now the rules and regulation have been relaxed.
Annual returns act as a summary of the entire year’s GST transaction. Filing them correctly is important as they reflect your overall compliance.
9. Avoiding Common Mistakes
Some small businesses face problems due to basic mistakes. These are Some common errors to avoid are:
- Missing deadlines for filing return
- Upload wrong invoices.
- Not reconciling purchases with GSTR-2A/2B.
- Claiming ITC on items which are not eligible (like personal expenses).
- Forgetting to generate e-way bills.
Being careful and keeping a compliance calendar can save you from penalties.
10. Penalties for Non-Compliance
GST law has strict fines for non-compliance. For example:
- Late submitting: ₹50 per day (₹20 for nil returns).
- Submit incorrect invoices: ₹25,000.
- Failure to generate e-way bill: fine of ₹10,000 or amount of tax evaded, whichever is high .
These fines can be big burden for a small business, so it is always better to check on time.
Conclusion
GST compliance may look like difficult, but with the discipline and basic knowledge, small businesses can handle it smoothly. The important is to stay organized, make proper records, and filing returns on time. If you have a doubt, then consult to a professional accountant or GST expert.
Remember, following compliance rules not only protects you from penalties but also builds trust with the customers, suppliers, and banks. It shows that your business is professional and trustable.
So, if you are running a small business, take GST seriously. Stay updated, stay disciplined, and you will realize that compliance is not a burden but essential part to run business operation smoothly.
