GST Registration: Is it Required for ₹40 Lakhs Trading Turnover?

For countless Indian businesses, navigating the Goods and Services Tax (GST) landscape can be a complex endeavor. A fundamental question that often arises, particularly for traders, revolves around the threshold for mandatory GST registration. Specifically, many entrepreneurs wonder: GST Registration: Is it required if your trading turnover exceeds ₹40 lakhs? This guide aims to demystify the rules, exceptions, and implications of GST registration for businesses operating in India, focusing on the crucial ₹40 lakhs limit.

Understanding these regulations is not just about compliance; it’s about ensuring your business operates legally, avoids penalties, and leverages the benefits of a formalized tax structure. Let’s delve into the specifics to help Indian traders and startups make informed decisions.

Understanding GST and Its Thresholds

The Goods and Services Tax (GST) is a comprehensive indirect tax introduced in India in 2017, replacing multiple cascading taxes levied by the central and state governments. It is a value-added tax levied on most goods and services sold for domestic consumption. GST is paid by consumers but it is remitted to the government by businesses selling the goods and services.

A critical aspect of GST is its registration threshold, which determines when a business is legally obligated to register under the GST regime. These thresholds vary based on the nature of supply (goods or services) and the state of operation.

• General Threshold for Goods: For most states, the aggregate turnover limit for mandatory GST registration for suppliers of goods is ₹40 lakhs. This means if a business primarily deals in goods and its annual turnover crosses ₹40 lakhs, it must register for GST.
• General Threshold for Services: For suppliers of services, the aggregate turnover limit for mandatory GST registration is ₹20 lakhs across India. Some special category states have even lower limits.
• Special Category States: Certain states, referred to as Special Category States, have different, often lower, thresholds. For goods, these states typically have a ₹20 lakh limit, and for services, a ₹10 lakh limit.

It’s crucial to understand that ‘aggregate turnover’ includes the value of all taxable supplies, exempt supplies, inter-state supplies, and export of goods or services or both, computed on an all-India basis, but excludes the value of inward supplies on which tax is payable by a person on a reverse charge basis.

The ₹40 Lakhs Turnover Limit for Goods Traders

For traders exclusively dealing in goods, the ₹40 lakhs limit is a significant benchmark. If your business’s aggregate turnover from the supply of goods exceeds ₹40 lakhs in a financial year, GST registration becomes mandatory. This relaxation from the earlier ₹20 lakh limit was introduced to ease the compliance burden for small and medium-sized enterprises (SMEs) involved in trading.

What Constitutes Trading Turnover?

Trading turnover refers to the total value of sales of goods made by a business during a financial year. It encompasses all sales, whether local or inter-state, taxable or exempt. For a business solely engaged in buying and selling goods, this turnover is the primary metric for assessing GST registration liability.

When Does the Limit Apply?

The ₹40 lakhs limit applies to businesses primarily involved in the supply of goods, subject to specific state jurisdictions and exceptions. It’s important to calculate your aggregate turnover from April 1st of a financial year. Once this threshold is crossed, you are required to apply for GST registration within 30 days.

Exceptions and Special Categories Where Limits Differ

While the ₹40 lakhs limit is common, there are several crucial exceptions and special scenarios where different thresholds or mandatory registration rules apply, irrespective of turnover:

1. Suppliers of Services

If your business primarily supplies services, the threshold for GST registration remains ₹20 lakhs (or ₹10 lakhs in Special Category States). This distinction is vital for businesses offering a mix of goods and services; the dominant nature of supply often dictates the applicable threshold.

2. Special Category States

A few states still adhere to a ₹20 lakhs threshold for goods suppliers. These typically include states like Uttarakhand, Meghalaya, Sikkim, Nagaland, Tripura, Arunachal Pradesh, Mizoram, Manipur, and some Union Territories. Businesses operating in these regions must verify the specific threshold applicable to them.

3. Inter-State Supply of Goods

If your business engages in inter-state supply of goods, GST registration is mandatory, regardless of your aggregate turnover. There is no threshold for inter-state suppliers of goods. This rule ensures that tax is properly accounted for across state borders.

4. E-commerce Operators and Suppliers Through E-commerce

If you supply goods or services through an E-commerce Operator (ECO) that collects Tax Collected at Source (TCS), then GST registration is mandatory, irrespective of turnover. Similarly, e-commerce operators themselves (like Amazon, Flipkart) are mandatorily required to register.

5. Casual Taxable Persons

A casual taxable person is someone who occasionally undertakes transactions involving the supply of goods or services in a state or Union Territory where they have no fixed place of business. Such persons are mandatorily required to register for GST before commencing business, irrespective of turnover.

6. Non-Resident Taxable Persons

Non-resident taxable persons making taxable supply in India must mandatorily register for GST, irrespective of turnover.

7. Reverse Charge Mechanism (RCM)

Businesses that are liable to pay tax under the reverse charge mechanism (RCM) must register for GST, even if their aggregate turnover is below the threshold.

8. Voluntary Registration

Even if your turnover does not cross the threshold, you can opt for voluntary GST registration. This can offer advantages such as claiming input tax credit, expanding business reach, and enhancing credibility. Marcken Consulting can guide you through the process of voluntary registration and help you understand its benefits for your startup.

Why Comply with GST Registration?

Adhering to GST registration requirements is not merely a legal obligation; it offers several strategic advantages and helps avoid significant penalties.

Benefits of GST Registration:

• Legal Recognition: Provides your business with formal recognition as a supplier of goods or services under the GST law.
• Input Tax Credit (ITC): Registered businesses can claim Input Tax Credit on purchases, effectively reducing the overall tax burden and preventing tax cascading.
• Wider Market Access: Enables businesses to make inter-state supplies without restrictions and sell through e-commerce platforms, which often require GST registration.
• Enhanced Credibility: Improves business credibility, making it easier to attract customers, secure loans, and engage with other registered businesses.
• Compliance with Law: Avoids penalties and legal complications associated with non-compliance.

Consequences of Non-Compliance:

• Penalties: Failure to register when mandatory can lead to hefty penalties, typically 100% of the tax due or ₹10,000, whichever is higher, along with interest.
• Loss of ITC: You cannot claim Input Tax Credit on your purchases, increasing your operational costs.
• Business Restrictions: Inability to undertake inter-state sales or sell via major e-commerce platforms.
• Legal Troubles: Can lead to legal proceedings, audits, and damage to your business reputation.

How to Register for GST: A Step-by-Step Overview

The GST registration process is largely online and involves a few key steps:

1. Visit the GST Portal: Go to the official GST portal (www.gst.gov.in) and navigate to the ‘Services’ > ‘Registration’ > ‘New Registration’ tab.
2. Fill Part A of Form GST REG-01: Provide basic details like your PAN, mobile number, and email ID. The portal will verify these details through OTPs.
3. Temporary Reference Number (TRN): Upon successful verification, a TRN will be generated, which you’ll use to complete the rest of the registration application.
4. Fill Part B of Form GST REG-01: Log in with your TRN and proceed to fill out Part B, which requires more detailed information, including business particulars, promoter/partner details, authorized signatory, principal place of business, additional places of business (if any), goods and services details, and bank account information.
5. Upload Documents: You will need to upload various documents, such as PAN card of the proprietor/entity, Aadhaar card, proof of business registration, address proof for the business premises (rent agreement/electricity bill), bank statement/passbook, and photographs of proprietor/partners.
6. Verification and Submission: After filling all details and uploading documents, verify the application using DSC (Digital Signature Certificate) or EVC (Electronic Verification Code).
7. Application Reference Number (ARN): Once submitted, an Application Reference Number (ARN) will be generated. You can track the status of your application using this ARN.
8. GSTIN Issuance: Upon successful verification by the GST officer, your GSTIN (GST Identification Number) will be issued. This usually takes 3-7 working days if all documents are in order.

It is crucial to have all required documents ready and accurately fill out the forms to avoid delays. For smooth GST return filing and registration, consider seeking professional assistance.

Maintaining GST Compliance Post-Registration

Once registered, the journey of compliance truly begins. Businesses must diligently adhere to several post-registration requirements to remain compliant and avoid penalties.

1. Issuing Tax Invoices:

Every registered business must issue proper tax invoices for taxable supplies, credit notes for sales returns, and debit notes for purchase returns, as per GST rules.

2. Timely GST Return Filing:

This is a cornerstone of GST compliance. Businesses must file various GST returns (GSTR-1, GSTR-3B, GSTR-4 for composition scheme, etc.) periodically, usually monthly or quarterly. The deadlines are strict, and delays attract late fees and interest. Staying updated on requirements like E-invoicing requirements in India is also essential for eligible businesses.

3. Payment of GST:

The tax collected from customers must be remitted to the government within the stipulated deadlines, typically along with the GSTR-3B filing.

4. Proper Record-Keeping:

Maintain accurate and comprehensive records of all sales, purchases, input tax credits, and output tax liabilities. This includes invoices, bills of supply, delivery challans, and other relevant documents for a period of six years from the due date of filing the annual return for the financial year pertaining to such accounts and records.

5. Reconciliation:

Regularly reconcile your sales and purchase data with the GST portal (GSTR-2A/2B with purchase register) to ensure all input tax credits are captured and any discrepancies are resolved promptly.

6. Amendments and Cancellations:

Keep your GST registration details updated. Any change in business name, address, or constitution must be amended on the GST portal. If your business ceases operations or no longer meets the registration criteria, apply for cancellation of GST registration to avoid future compliance burdens.

References

• Central Board of Indirect Taxes and Customs (CBIC) – Official GST Website
• GST Portal – Goods and Services Tax India
• ClearTax – GST Registration Guide
• TaxGuru – GST Registration Threshold Limits
• Business Standard – GST registration threshold for goods increased to Rs 40 lakhs
• The Central Goods and Services Tax Act, 2017

Conclusion

For Indian businesses engaged in trading, the ₹40 lakhs turnover limit for GST registration is a critical piece of information. While it offers a welcome reprieve for many small traders, it’s paramount to understand the nuances, exceptions, and mandatory registration scenarios that can override this threshold. Compliance is not optional; it’s the foundation for sustainable growth and avoiding legal complications. By staying informed and proactive, businesses can seamlessly navigate the GST regime.

If you’re an Indian startup or an existing business unsure about your GST registration obligations, Marcken Consulting is here to help. Our team of experts can provide tailored advice, assist with the registration process, and ensure your ongoing compliance. Contact us today for a consultation to secure your business’s financial future.

FAQs

Q: What is the primary GST registration threshold for goods traders in most Indian states?

A: For most Indian states, the primary GST registration threshold for businesses primarily engaged in the supply of goods is ₹40 lakhs in aggregate annual turnover.

Q: Are there any exceptions to the ₹40 lakhs limit for goods traders?

A: Yes, significant exceptions include businesses in Special Category States (where the limit might be ₹20 lakhs for goods), businesses making inter-state supplies of goods, those supplying through e-commerce operators, and casual taxable persons, all of whom typically require mandatory registration irrespective of turnover.

Q: What is the GST registration limit for service providers?

A: For service providers, the general GST registration threshold is ₹20 lakhs (or ₹10 lakhs in Special Category States) in aggregate annual turnover.

Q: Can a business voluntarily register for GST even if its turnover is below the threshold?

A: Yes, businesses can opt for voluntary GST registration even if their turnover is below the mandatory threshold. This can offer benefits like claiming Input Tax Credit and enhanced business credibility.

Q: What happens if a business fails to register for GST when mandatory?

A: Failure to register for GST when mandatory can lead to significant penalties, typically 100% of the tax due or ₹10,000 (whichever is higher), along with interest on the unpaid tax. It also restricts the business from claiming Input Tax Credit and engaging in certain types of trade, like inter-state sales.