Is GST Mandatory for Registered MSME?

GST (Goods and Service Tax) is a composite tax which subsumes all major taxes of economy. With launch of GST, each entrepreneur whether big or small has was to deal with GST taking in all major and minor business transactions. To specify applicability of GST to certain business units, government has provided criteria to decide whether a business unit has to get registered under GST or not. While the GST system provides simplicity in accounting, it also creates ambiguity for those who are new to such type of transaction basics.

To understand requirement of GST for MSME, we must first understand who should register for GST as per law. As per GST law, following conditions need to be fulfilled for transacting with GST :

  • For businesses getting an annual turnover of over more than Rs 20 lakh in a financial year ( Rs 10 lakh for North eastern and hill states)
  • For businesses engaged in Interstate supply, Input services, ecommerce operations, agencies dealing with suppliers.
  • Person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person.
  • For entities whothat are earlier registered for other tax liabilities like Excise duty, Service tax etc. have also to get registered under GST.
  • For business units counted under definition of reverse charge mechanism.

How MSMEs comply with GST?

As a registered identity, each business unit registered as MSMEs working in format of proprietorship, partnership or company have to apply for a GSTN Number. The GSTN number as provided would be used in each any every business transaction specifying the flow of goods and services, GST collected and paid etc.

For an MSME to register under GST have to apply on GST online portal along with following documents:

  1. Certificate of MSME Registration
  2. Existing Service Tax/VAT/CST/Excise Registration details
  3. Proprietor PAN details
  4. Bank account details opened in name of business.
  5. Aadhar details of proprietor
  6. Address proof of business ;
  7. Other documents as specified by government .

Benefits of GST to MSME

Reduction of Multiplicity of taxes: With summation of all taxes to GST, MSMEs would not be required to provide different tax registration details and would be able to pursue a restriction free trade.

Elimination to Cascading effect of taxes : With removal of tier based addition of taxes to goods and services at different levels, a proprietor in most cases have to face double payment of tax which was seeking to additional cost to business. But with GST, complete record is being maintained of all taxes paid, charged and received. Thus to a great extent it removed the cascading effect for business sector.

Common National Market : GST has provisioned free movement of goods to both inner corporations and outer states. It has created a single nationalized market for SMEs and MSMEs which was earlier restricted with a single identity number.

Simple tax Regime: For an MSME, it is difficult to maintain accurate record of all taxes paid at different levels and to get them to adjustment as per government requirement. But with GST, even a small transaction gets imputed with a specified GST rate provided and too without much effort of multiple tax calculations.

Lower Threshold Limit: For MSMEs, it is beneficial to opt for GST as the threshold limit have been defined as Rs 20 Lakh which was earlier stated Rs 10 lakh for registration in VAT spacing the registration gap. Further composition scheme is also there for MSMEs.

Conclusion

It would not be wrong to say that various sectors with association of single tax regime have looked on for immense growth .While the law, defines supreme powers to the MSME sector, it also urges the industry to work in a tax discipline. MSMEs as economy boosters have to go in hand with GST not only considering it as a tax base but considering as a unified way to transact with round border business entities.