It's been more than six years now since the Union government introduced the goods and services tax, or GST, but many businesses continue to grapple with its implementation, particularly because of the different rates of taxes and the number of compliances. But, for many small businesses, remedy is at hand: the composition scheme helps alleviate their hardships.
GST, introduced on 1 July 2017, is a form of indirect tax that is charged on sales and collected by businesses from a customer buying the service or goods. Income tax (or corporate tax), on the other hand, is paid by businesses on the net income or profit they make on the sales of such goods or services.
To be sure, any business that exceeds a certain annual turnover has to mandatorily register for GST apart from paying income tax. As per law, GST registration is mandatory after the turnover of a services business crosses 20 lakh and that of a goods manufacturer or vendor exceeds ₹40 lakh. A services business is one where nothing tangible is sold. In goods business (read as goods manufacturers and vendors), a tangible good is sold permanently.
Currently, GST rates for businesses are pegged at 5%, 12%, 18%, and 28%, depending on the nature of the business and other factors, but the most common rate at which the majority of businesses pay this tax is 18%, said Hanish S., chartered accountant, and partner, HSKA and Associates.
However, it's important that businesses determine the correct rate applicable to them. "It's a one-time exercise and the business should approach a chartered accountant at the outset to determine the right tax rate applicable to them. If you charge a rate lower than the actual rate applicable to you, the GST department can ask you to pay the shortfall, which will have to be paid out of your own pocket," said Annapurna Dubey, partner, GST Advisory, AA Dubey & Associates.
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