Published on:
December 26, 2022

GST Rules for Small Business

Let's brush up on what GST is before getting ahead on the GST Rules for small businesses.

Brief about GST

GST stands for 'Goods & Service Tax' and it is intended to be a comprehensive indirect tax levy on the manufacturing, sale, and consumption of goods and services at the national level. The Goods and Services Tax (GST) is essentially a tax on ultimate consumption. The goal of GST is to integrate all indirect tax levies, save customs (except SAD), into a single tax. Replacing several tax levies, overcoming the limits of the previous indirect tax system, and producing efficiency in tax administration.

As a result, GST is a broad-based and all-inclusive tax applied on products and services used in an economy. GST is charged at each level of the production distribution cycle, with relevant set-offs for tax submitted at prior stages. Read our article, to know in detail.

Small Business

Benefits after GST for Small Business

1. Simple Taxation Process & Higher Tax Exemptions

In earlier taxation structure, any firm with a turnover greater than Rs 5 Lakhs requires to register for VAT and pay the taxes (VAT) to the government on a regular basis. With the advent of GST in India, the ceiling increases to Rs 10 Lakhs. Businesses with a turnover of Rs 10 Lakhs to Rs 50 Lakhs will pay a reduced tax rate.

2. Improves Economic condition

GST will level the playing field for you in the market in the near future. This will allow you to compete with larger enterprises, develop your consumer base, and grow your small business. You also need to fill out and submit an online form to obtain a GST Identification Number (GSTIN) once for GST. If you wish to expand your firm, you don't have to register for VAT with each state separately. After the implementation of GST, it is easier to establish a firm in a new state and develop it subsequently.

3. Reduced cost of logistics

GST has restructured the central sales tax with IGST, CGST, and SGST. This means you no longer have to deal with check-post charges caused by inter-state transportation delays. This has minimized transportation expenses, enhanced interstate business, accelerate the transfer of commodities, and lower maintenance costs.

4. Elimination of Cascading taxes

Cascading tax create multiple taxes applied at each level of the supply chain and on interstate transfers of goods and services. As a result, cascading taxes operate as a hidden cost, increasing the overall production of products and services. GST follows the concept of the input tax credit, which eliminates the practice of double taxing.

5. Credit Acquisitions Increased

Following the adoption of GST, bank loans to MSMEs grew by 3.7 percent. GST is allowing company cycles to be more flexible and, as a result, lowering the cost of borrowing. Furthermore, the advantages of a formal economy and freedom from the financial system have created credit lines that you may use to expand your firm.

Tax exemptions under start-up program

1. 3 years tax holidays in block of 7 years

The startups formed between April 1, 2016, and March 31, 2021, were eligible for the scheme. Budget 2021 has extended eligibility until March 31, 2022. Such startups are entitled to a tax credit of 100 per cent on profits for three years in a row if their annual turnover does not exceed Rs.25 crores in any fiscal year. This will assist startups in meeting their working capital needs throughout their first years of operation.

2. Tax Exemption on Long-Term capital gains

A new section 54 EE states that Income Tax Act exempts qualifying startups from paying tax on long-term capital gains. But the long-term capital gain, or a portion of it, must be invested in a fund approved by the Central Government within six months after the asset's transfer.

The maximum amount that one can invest in the selected long-term asset is Rs 50 lakh. This sum must be invested in the designated fund for a period of three years. The exemption will terminate if the money is out before 3 years in the year the money is withdrawn.

Registering GST

3. Tax exemption on investments above the fair market value.

The government has waived the tax on investments in qualifying startups that exceed the fair market value. Such investments include those made by local angel investors, family members, or funds that do not recognize as venture capital funds. In addition, it excludes investments made by incubators that exceed fair market value.

4. Individual/HUF exemption of taxes on investment of long-term capital gain in equity shares of Eligible Startups u/s 54GB

Existing rules under Section 54GB exempt long-term capital gains on the sale of a residential property from taxation if such earnings are invested in SME as defined by the MSME Act of 2006. However, the new update allow an exemption for capital gains invested in qualifying start-ups.

If an individual or HUF sells a residential property and invests the capital gains in 50% or more equity shares of an eligible startup, the tax on long-term capital exempts as long there is no selling of shares and there is no transfer within 5 years of their purchase.

Startups must also use the funds invested to acquire assets and must not transfer any assets obtained within 5 years of the date of acquisition.

This exemption will increase investment in qualifying businesses while also encouraging their development and expansion.

5. Set off of carrying forward losses and capital gains allowed in case of a change in Shareholding pattern.

Losses in respect of qualifying start-ups may be carried forward. If all shareholders of such firm who holds voting shares on the final day of the year in which they incur a loss, continue to possess shares on the last day of the preceding year in which such loss is to be carried forward. In the case of such startups, the limitation of holding 51% of voting rights to be unaltered u/s 79 has been loosened.

Producer registration of GST and Tax filing

Under the new GST, filling has become automated. We can file GST registration online using the software or apps provided by Goods and Service Tax Network (GSTN) which will auto-populate the details on each GSTR form.

Follow our blog on GST Filing: Returns, Types & Due Dates to know the detail step and procedure to register for GST and file tax return.

How to make the process of invoicing easier for your small business?

We know the difficulty every starting small business faces, especially with invoicing & GST billing. The answer to this is Swipe. It is a free GST billing software, that helps you track your sales, purchases & estimates in real-time. With Swipe, you can easily manage your inventory, file GST returns, create & share professional invoices. Make your business hassle-free. You can also check out the Top 5 invoicing app for 2022.


Check out: GSTR 3B, GSTIN, GSTR-5.


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