GST For SMEs: A Guide To Filing Taxes Easily And Saving Time And Money

Understanding GST and its peculiarities can present a valuable opportunity for SMEs not just for compliance, but also for optimisation and growth

While GST is a national tax, some states, including Delhi, might have additional compliance requirements.

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By Swetha Kochar

The Goods and Services Tax (GST) has been a pathbreaker for the Indian economy, streamlining the Indian tax system. However, for Small and Medium Enterprises (SMEs), ensuring GST compliance can seem to be challenging. Yet, understanding GST and its peculiarities can present a valuable opportunity for SMEs not just for compliance, but also for optimisation and growth. It is vital thus, to understand the basics of GST and then, the strategies that can help the SMEs significantly.

How does GST work?

GST, an indirect tax levied on the supply of goods and services in India, has replaced multiple central and state-level taxes. Creating a seamless national market, it has simplified the tax structure. It is crucial to understand the core elements of GST.

GST Rate Structure: As per the government regulations, Goods and Services are categorised under different tax slabs (e.g., 0 per cent, 5 per cent, 12 per cent, 18 per cent, 28 per cent). The tax is levied at each stage of the supply chain, with Input Tax Credit (ITC). ITC allows businesses to claim credit for taxes paid on purchases. This effectively reduces the tax burden on the final consumer.

GST Registration: Any business with an annual turnover of more than Rs 40 lakhs for Supply of goods (20 lakh in certain states) or Rs 20 lakhs for Supply of Services (10 lakh in certain states) must register for GST. With registration, businesses can collect the GST from customers and claim ITC on purchases.

GST Returns: Businesses need to file returns electronically at regular intervals, mentioning their sales, purchases, tax liability, and ITC claimed.

Compliance Strategies for SMEs: A Roadmap for Success

To avoid penalties and interest charges, it is imperative for SMEs to ensure GST compliance. Some of the key strategies need to be taken into account.

Error-free Record Keeping: It is essential for any business to maintain accurate records of finances such as sales, purchases, invoices, etc. It is this data that helps in filing returns and claiming ITC efficiently. Accounting services can prove to be of great utility for the record-keeping.

Timely Filing of Returns: It is essential to file returns on time if a business does not want penalties to be accrued. While failing to file on time can attract penalties, planning reminders in advance or accounting software notifications can ensure timely filing.

Understanding ITC Eligibility: It is very important for a business to understand that not all taxes paid on purchases are eligible for ITC. It is thus advisable to understand the rules for claiming ITC to maximise tax benefits.

GST Training: Understanding the basics and procedures of GST for a business is indispensable. It is always better for a business to equip its staff with it, which can be ensured by attending workshops or online courses offered by professionals.

Professional Help: It is not an obsolete practice to consider outsourcing GST compliance tasks to a chartered accountant or a GST practitioner. This can be particularly beneficial for complex transactions and limited internal resources. 

Reducing Tax Burden With GST

The presence of GST in the financial landscape doesn’t only compel a business to understand compliance, it comes with optimisation opportunities too that can give an added advantage to SMEs. While compliance is essential, SMEs can also leverage GST to optimise their tax burden:

Input Tax Credit (ITC): By purchasing from GST-registered suppliers, a business can efficiently utilise ITC. This not only reduces our overall tax liability but also fosters stronger relationships with reliable vendors.

Composition Scheme - A Viable Option: Businesses with a turnover below Rs 1.5 crore can easily opt for the composition scheme. This scheme offers a simpler compliance process with a fixed tax rate, reducing administrative burdens significantly. However, it is important to understand the limitations associated with claiming ITC and interstate transactions before opting for this scheme.

Inventory Management: If inventory levels are optimised, it can help in minimising the amount of tax paid on the unsold stock. This frees up working capital and streamlines cash flow management.

Strategic Purchasing: Planning purchases to coincide with periods of high sales allows for better utilisation of ITC. This approach optimises tax benefits and improves profitability.

Focus on Taxable Supplies: A business can prioritise sales that attract lower tax rates to improve profitability. Analyse your product or service mix and identify areas for potential growth within lower tax brackets.

As additional information, it must be considered that certain goods and services might have different tax rates applicable in the national capital, Delhi, as compared to other states. Also, a business needs to understand State-Specific Compliance Requirements. While GST is a national tax, some states, including Delhi, might have additional compliance requirements.

Understanding GST and implementing effective compliance strategies are crucial for SMEs in today’s Indian market. However, by leveraging optimisation opportunities, SMEs can not only ensure compliance but also gain a competitive edge. Remember, seeking professional guidance and staying updated on GST regulations can significantly benefit your business.

The author is the Founder and Partner At PKC Management Consulting.

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