GST Guide for Indian Small Businesses

1. What is GST?

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It replaced multiple indirect taxes like VAT, Service Tax, Excise Duty, and others, creating a unified tax structure across the country.

GST was implemented on 1st July 2017 under the 101st Constitutional Amendment Act. It follows a destination-based consumption tax principle — meaning tax is collected by the state where the goods or services are consumed, not where they are produced.

Key Principle: GST is a multi-stage, destination-based tax where the value addition at each stage is taxed, and the end consumer bears the final tax burden. Businesses can claim input tax credit (ITC) on taxes paid on purchases.

2. Types of GST

GST in India operates as a dual tax system — both the Central and State governments levy tax simultaneously on the same transaction.

Type	Full Form	When Applied	Collected By
CGST	Central GST	Intra-state supply (within same state)	Central Government
SGST	State GST	Intra-state supply (within same state)	State Government
IGST	Integrated GST	Inter-state supply (between different states)	Central Government (shared with destination state)
UTGST	Union Territory GST	Supply within Union Territories	Union Territory

How does it work in practice?

If your business is in Punjab and you sell to a customer in Punjab, it's an intra-state supply. The GST rate (say 18%) splits equally: 9% CGST + 9% SGST.

If your business is in Punjab and you sell to a customer in Maharashtra, it's an inter-state supply. The full 18% is charged as IGST.

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3. GST Registration

Who must register?

GST registration is mandatory if your aggregate turnover exceeds the threshold limits:

Category	Threshold (Normal States)	Threshold (Special Category States)
Supplier of Goods	₹40 Lakhs	₹20 Lakhs
Supplier of Services	₹20 Lakhs	₹10 Lakhs
Inter-state Supply	No threshold — mandatory	No threshold — mandatory

GSTIN — Your GST Identification Number

Upon registration, you receive a 15-digit GSTIN. Here's what each part means:

Example: 03AAFCO0321G1Z5

03 — State Code (Punjab)
AAFCO0321G — PAN of the business
1 — Entity number (for multiple registrations in same state)
Z — Default character
5 — Check digit

4. GST Tax Invoice — What Must It Contain?

Every registered person making a taxable supply must issue a tax invoice. Here are the mandatory fields as per Rule 46 of CGST Rules:

Name, address, and GSTIN of the supplier
Consecutive serial number (unique for each financial year)
Date of issue
Name, address, and GSTIN/UIN of the recipient (if registered)
HSN/SAC code of goods or services
Description of goods or services
Quantity and unit of measurement
Total value before tax
Taxable value after discounts
GST rate and amount (CGST, SGST/UTGST, or IGST)
Place of supply (for inter-state transactions)
Whether reverse charge applies
Signature of the supplier or authorized representative

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5. HSN and SAC Codes

HSN (Harmonized System of Nomenclature) codes classify goods, while SAC (Services Accounting Codes) classify services. These codes determine the applicable GST rate.

HSN Code Requirements on Invoice

Annual Turnover	HSN Digits Required
Up to ₹5 Crore	4-digit HSN code
Above ₹5 Crore	6-digit HSN code

Look up the correct HSN or SAC code for your goods and services using our HSN & SAC Code Finder — search from nearly 2,000 codes with GST rates.

6. GST Rates in India

Rate	Applicable On
0% (Exempt)	Essential goods: fresh milk, vegetables, grains, bread, salt, books, newspapers
0.25%	Rough diamonds, precious/semi-precious stones
3%	Gold, silver, platinum, gold jewellery
5%	Common use items: sugar, tea, coffee, spices, coal, footwear (below ₹500), transport services
12%	Processed food, mobile phones, sewing machines, business class air tickets
18%	Most goods and services: IT services, financial services, telecom, electronics, capital goods
28%	Luxury and demerit goods: cars, tobacco, pan masala, aerated drinks, cement

7. Input Tax Credit (ITC)

Input Tax Credit is the mechanism that prevents the cascading effect of tax (tax on tax). If you pay GST on purchases (inputs), you can claim credit for that amount against the GST you collect on sales (output).

Conditions for Claiming ITC:

You must have a valid tax invoice
You must have received the goods or services
The supplier must have filed their return and paid the tax
You must file your return claiming the ITC
Payment to supplier must be made within 180 days

Important: ITC cannot be claimed on certain items including food and beverages, health services, travel benefits for employees, motor vehicles (with exceptions), and goods used for personal consumption.

8. GST Returns — Filing Schedule

Return	Purpose	Due Date	Who Files
GSTR-1	Outward supply details (sales)	11th of next month	All regular taxpayers
GSTR-3B	Summary return with tax payment	20th of next month	All regular taxpayers
GSTR-9	Annual return	31st December	Turnover > ₹2 Crore
GSTR-4	Composition scheme return	30th April (annual)	Composition dealers
CMP-08	Quarterly statement	18th of month after quarter	Composition dealers

9. Reverse Charge Mechanism (RCM)

Under the Reverse Charge Mechanism, the liability to pay tax shifts from the supplier to the recipient. This applies in specific scenarios defined under Section 9(3) and 9(4) of CGST Act.

Services by a Goods Transport Agency (GTA)
Legal services by an advocate
Services by an author/music composer
Import of services
Purchase from unregistered dealers (specific notified goods/services)
Renting of motor vehicle by a body corporate

10. Composition Scheme

The Composition Scheme is a simplified tax scheme for small businesses with turnover up to ₹1.5 Crore (₹75 Lakhs for special category states).

Category	Composition Rate
Manufacturers	1% (0.5% CGST + 0.5% SGST)
Restaurants (not serving alcohol)	5% (2.5% CGST + 2.5% SGST)
Other suppliers	1% (0.5% CGST + 0.5% SGST)
Service providers (turnover up to ₹50 Lakhs)	6% (3% CGST + 3% SGST)

11. E-Way Bill

An e-Way Bill is mandatory for movement of goods with a consignment value exceeding ₹50,000.

Valid for distances based on km range (1 day for every 200 km)
Can be generated by supplier, recipient, or transporter
Not required for exempt goods, goods moved by non-motorized transport, or goods moved within 10 km from place of business

12. Penalties and Late Fees

Late filing of GSTR-3B: ₹50 per day (₹20 for nil return), capped at ₹10,000
Late filing of GSTR-1: ₹50 per day (₹20 for nil return), capped at ₹10,000
Interest on late tax payment: 18% per annum on the amount of tax due
Non-registration: Penalty of 100% of tax due or ₹10,000 (whichever is higher)

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Disclaimer

This guide is for informational purposes only and should not be considered as legal or tax advice. GST laws and rules are subject to frequent changes. Always consult a qualified Chartered Accountant or tax professional for advice specific to your business. While we strive to keep this information accurate and up-to-date, RaiseBill and Pardeep Jha & Associates do not guarantee the completeness or accuracy of the information provided.