GST Guide for Indian Small Businesses
Everything you need to know about Goods & Services Tax — from registration to return filing.
1. What is GST?
Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It replaced multiple indirect taxes like VAT, Service Tax, Excise Duty, and others, creating a unified tax structure across the country.
GST was implemented on 1st July 2017 under the 101st Constitutional Amendment Act. It follows a destination-based consumption tax principle — meaning tax is collected by the state where the goods or services are consumed, not where they are produced.
2. Types of GST
GST in India operates as a dual tax system — both the Central and State governments levy tax simultaneously on the same transaction.
| Type | Full Form | When Applied | Collected By |
|---|---|---|---|
| CGST | Central GST | Intra-state supply (within same state) | Central Government |
| SGST | State GST | Intra-state supply (within same state) | State Government |
| IGST | Integrated GST | Inter-state supply (between different states) | Central Government (shared with destination state) |
| UTGST | Union Territory GST | Supply within Union Territories | Union Territory |
How does it work in practice?
If your business is in Punjab and you sell to a customer in Punjab, it's an intra-state supply. The GST rate (say 18%) splits equally: 9% CGST + 9% SGST.
If your business is in Punjab and you sell to a customer in Maharashtra, it's an inter-state supply. The full 18% is charged as IGST.
3. GST Registration
Who must register?
GST registration is mandatory if your aggregate turnover exceeds the threshold limits:
| Category | Threshold (Normal States) | Threshold (Special Category States) |
|---|---|---|
| Supplier of Goods | ₹40 Lakhs | ₹20 Lakhs |
| Supplier of Services | ₹20 Lakhs | ₹10 Lakhs |
| Inter-state Supply | No threshold — mandatory | No threshold — mandatory |
GSTIN — Your GST Identification Number
Upon registration, you receive a 15-digit GSTIN. Here's what each part means:
Example: 03AAFCO0321G1Z5
- 03 — State Code (Punjab)
- AAFCO0321G — PAN of the business
- 1 — Entity number (for multiple registrations in same state)
- Z — Default character
- 5 — Check digit
4. GST Tax Invoice — What Must It Contain?
Every registered person making a taxable supply must issue a tax invoice. Here are the mandatory fields as per Rule 46 of CGST Rules:
- Name, address, and GSTIN of the supplier
- Consecutive serial number (unique for each financial year)
- Date of issue
- Name, address, and GSTIN/UIN of the recipient (if registered)
- HSN/SAC code of goods or services
- Description of goods or services
- Quantity and unit of measurement
- Total value before tax
- Taxable value after discounts
- GST rate and amount (CGST, SGST/UTGST, or IGST)
- Place of supply (for inter-state transactions)
- Whether reverse charge applies
- Signature of the supplier or authorized representative
5. HSN and SAC Codes
HSN (Harmonized System of Nomenclature) codes classify goods, while SAC (Services Accounting Codes) classify services. These codes determine the applicable GST rate.
HSN Code Requirements on Invoice
| Annual Turnover | HSN Digits Required |
|---|---|
| Up to ₹5 Crore | 4-digit HSN code |
| Above ₹5 Crore | 6-digit HSN code |
Look up the correct HSN or SAC code for your goods and services using our HSN & SAC Code Finder — search from nearly 2,000 codes with GST rates.
6. GST Rates in India
| Rate | Applicable On |
|---|---|
| 0% (Exempt) | Essential goods: fresh milk, vegetables, grains, bread, salt, books, newspapers |
| 0.25% | Rough diamonds, precious/semi-precious stones |
| 3% | Gold, silver, platinum, gold jewellery |
| 5% | Common use items: sugar, tea, coffee, spices, coal, footwear (below ₹500), transport services |
| 12% | Processed food, mobile phones, sewing machines, business class air tickets |
| 18% | Most goods and services: IT services, financial services, telecom, electronics, capital goods |
| 28% | Luxury and demerit goods: cars, tobacco, pan masala, aerated drinks, cement |
7. Input Tax Credit (ITC)
Input Tax Credit is the mechanism that prevents the cascading effect of tax (tax on tax). If you pay GST on purchases (inputs), you can claim credit for that amount against the GST you collect on sales (output).
Conditions for Claiming ITC:
- You must have a valid tax invoice
- You must have received the goods or services
- The supplier must have filed their return and paid the tax
- You must file your return claiming the ITC
- Payment to supplier must be made within 180 days
8. GST Returns — Filing Schedule
| Return | Purpose | Due Date | Who Files |
|---|---|---|---|
| GSTR-1 | Outward supply details (sales) | 11th of next month | All regular taxpayers |
| GSTR-3B | Summary return with tax payment | 20th of next month | All regular taxpayers |
| GSTR-9 | Annual return | 31st December | Turnover > ₹2 Crore |
| GSTR-4 | Composition scheme return | 30th April (annual) | Composition dealers |
| CMP-08 | Quarterly statement | 18th of month after quarter | Composition dealers |
9. Reverse Charge Mechanism (RCM)
Under the Reverse Charge Mechanism, the liability to pay tax shifts from the supplier to the recipient. This applies in specific scenarios defined under Section 9(3) and 9(4) of CGST Act.
- Services by a Goods Transport Agency (GTA)
- Legal services by an advocate
- Services by an author/music composer
- Import of services
- Purchase from unregistered dealers (specific notified goods/services)
- Renting of motor vehicle by a body corporate
10. Composition Scheme
The Composition Scheme is a simplified tax scheme for small businesses with turnover up to ₹1.5 Crore (₹75 Lakhs for special category states).
| Category | Composition Rate |
|---|---|
| Manufacturers | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants (not serving alcohol) | 5% (2.5% CGST + 2.5% SGST) |
| Other suppliers | 1% (0.5% CGST + 0.5% SGST) |
| Service providers (turnover up to ₹50 Lakhs) | 6% (3% CGST + 3% SGST) |
11. E-Way Bill
An e-Way Bill is mandatory for movement of goods with a consignment value exceeding ₹50,000.
- Valid for distances based on km range (1 day for every 200 km)
- Can be generated by supplier, recipient, or transporter
- Not required for exempt goods, goods moved by non-motorized transport, or goods moved within 10 km from place of business
12. Penalties and Late Fees
- Late filing of GSTR-3B: ₹50 per day (₹20 for nil return), capped at ₹10,000
- Late filing of GSTR-1: ₹50 per day (₹20 for nil return), capped at ₹10,000
- Interest on late tax payment: 18% per annum on the amount of tax due
- Non-registration: Penalty of 100% of tax due or ₹10,000 (whichever is higher)
Need Expert Help with GST Compliance?
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This guide is for informational purposes only and should not be considered as legal or tax advice. GST laws and rules are subject to frequent changes. Always consult a qualified Chartered Accountant or tax professional for advice specific to your business. While we strive to keep this information accurate and up-to-date, RaiseBill and Pardeep Jha & Associates do not guarantee the completeness or accuracy of the information provided.