What is GST?
Goods and Services Tax (GST) is an indirect tax that replaced multiple central and state taxes (excise duty, VAT, service tax, CST, and others) on 1 July 2017. It is a destination-based, multi-stage tax collected at every point of sale. For consumers, GST is included in the price they pay. For businesses, GST collected on sales (output tax) is offset against GST paid on purchases (input tax credit).
Do You Need GST Registration?
GST registration is mandatory if your aggregate turnover exceeds the threshold limit:
- Services: ₹20 lakh (₹10 lakh for special category states like NE states, J&K, Himachal, Uttarakhand)
- Goods: ₹40 lakh (₹20 lakh for special category states)
- Inter-state supply: Mandatory registration regardless of turnover
- E-commerce sellers: Mandatory registration regardless of turnover
Voluntary registration is allowed even if you are below the threshold — this is useful if you want to claim input tax credit on business purchases or if your clients require GST invoices.
GST Rate Structure
India has a four-tier GST rate structure:
| Rate | Applies To |
|---|---|
| 5% | Essential items — packaged food, economy hotel rooms, transport services, small restaurants |
| 12% | Processed food, business class flights, work contracts, IT services |
| 18% | Most services, software, consultancy, restaurant meals in AC restaurants, electronics, capital goods |
| 28% | Luxury and demerit goods — cars, cement, tobacco, aerated drinks, white goods |
Composition Scheme — For Small Businesses
If your annual turnover is below ₹1.5 crore (₹75 lakh for service providers), you can opt for the Composition Scheme. Instead of charging GST on every invoice and filing monthly returns, you pay a flat percentage of your turnover as tax:
- Manufacturers: 1% of turnover
- Traders: 1% of turnover
- Restaurants: 5% of turnover
- Service providers: 6% of turnover
Trade-off: You cannot claim input tax credit, you cannot make inter-state supplies, and your invoices must clearly state "Composition taxable person." It is best for businesses that sell mostly to end consumers (not other businesses).
Input Tax Credit (ITC) — How It Works
ITC is the mechanism that prevents cascading taxes. If you buy raw materials worth ₹1,00,000 + 18% GST (₹18,000), and sell the finished product for ₹2,00,000 + 18% GST (₹36,000), you pay only the difference: ₹36,000 − ₹18,000 = ₹18,000 to the government.
To claim ITC, you need: a valid GST invoice from a registered supplier, the goods or services must be used for business purposes, the supplier must have filed their GSTR-1, and the ITC must appear in your GSTR-2B. Use the ITC Calculator to estimate your eligible credit.
GST Filing Calendar
- GSTR-1 (outward supplies): 11th of every month (or quarterly for QRMP scheme)
- GSTR-3B (summary + tax payment): 20th of every month (or quarterly)
- GSTR-9 (annual return): 31st December of the following year
- CMP-08 (composition scheme): 18th of the month following each quarter
Common GST Mistakes for Small Businesses
- Not registering when crossing threshold: Penalty is 10% of tax due or ₹10,000, whichever is higher
- Late filing: Late fee of ₹50/day (₹20/day for nil returns) plus 18% annual interest on outstanding tax. Use the GST Late Fee Calculator to estimate your penalty.
- Wrong GST rate on invoices: Charging 12% instead of 18% means you owe the difference to the government
- Not reconciling ITC: Claiming ITC that does not appear in GSTR-2B can trigger notices
- Mixing inclusive and exclusive pricing: Always clarify whether your quoted price includes GST or not. Use the GST Calculator to compute both ways.
Key Takeaway
GST compliance is not optional once you cross the threshold. Set up proper invoicing, file returns on time, and reconcile your ITC monthly. For most freelancers and small businesses, the QRMP scheme (quarterly filing) simplifies compliance significantly. When in doubt about rates or calculations, use the GST Calculator and Invoice + GST Calculator to verify your numbers before invoicing.