- GST is a destination-based tax on the supply of goods and services, levied as CGST + SGST within a state and IGST between states.
- Registration depends on turnover thresholds and on the nature of your supplies — some businesses must register regardless of turnover.
- Input tax credit is the heart of GST: it is only available when conditions are met, so monthly reconciliation is essential.
How GST works
The Goods and Services Tax came into effect on 1 July 2017, subsuming a number of central and state levies such as excise duty, service tax and VAT. It is a multi-stage, destination-based tax: tax is collected at each stage of the supply chain, and each business claims credit for the GST it has paid on its inputs.
For a supply within a state (intra-state), tax is split equally between the Central GST (CGST) and State GST (SGST, or UTGST in Union Territories). For a supply between states (inter-state) and for imports, Integrated GST (IGST) applies. Whether a supply is intra- or inter-state depends on the place of supply rules, which differ for goods and services.
Do you need to register?
A business must register once its aggregate turnover in a financial year crosses the threshold limit prescribed for its category. Thresholds are different for suppliers of goods and of services, and lower thresholds apply in certain special category states.
Some persons must register irrespective of turnover, including:
- Persons making inter-state taxable supplies of goods (with limited exceptions)
- Persons liable to pay tax under reverse charge
- E-commerce operators and, in most cases, sellers supplying goods through them
- Casual taxable persons and non-resident taxable persons
- Input service distributors and persons required to deduct or collect tax at source under GST
Voluntary registration is also possible and is often useful where customers are registered businesses who want to claim input tax credit.
The main returns
Regular taxpayers have two core recurring returns:
| Return | What it contains | Usual frequency |
|---|---|---|
| GSTR-1 | Details of outward supplies (invoices, credit/debit notes) | Monthly, or quarterly under QRMP |
| GSTR-3B | Summary of liability, input tax credit claimed and tax paid | Monthly, or quarterly under QRMP |
| Annual return | Consolidated annual summary, with a reconciliation statement for larger taxpayers | Annually |
Smaller taxpayers can opt for the Quarterly Return Monthly Payment (QRMP) scheme, filing returns quarterly while paying tax monthly. Composition taxpayers follow a different, simpler set of returns.
Input tax credit: the rules that matter
Input tax credit (ITC) lets you set off the GST you pay on purchases against the GST you collect on sales. To claim it, broadly:
- You must hold a valid tax invoice or debit note
- You must have received the goods or services
- The supplier must have reported the invoice and the credit must be reflected in your auto-generated statement
- The supplier must have paid the tax to the government
- You must file your own returns
Certain items are specifically blocked — for example, many motor vehicle, food and personal-consumption expenses — and there are time limits for claiming credit. Regular reconciliation of your purchase register with the credit appearing on the portal is the single most effective control a business can have.
E-invoicing and e-way bills
Businesses above a notified turnover threshold must generate e-invoices through the government's Invoice Registration Portal for business-to-business supplies. E-way bills are required for movement of goods above a specified consignment value. Both systems feed data to the GST network, so consistency between invoices, e-way bills and returns is important.
Common mistakes to avoid
- Claiming credit that has not been reported by suppliers
- Incorrect classification (HSN/SAC) leading to wrong rates
- Misjudging place of supply, charging CGST+SGST instead of IGST or vice versa
- Missing reverse-charge liabilities on specified services
- Late filing, which attracts late fees and interest and can block e-way bill generation
