GST Audit Limit: Common Reasons for Notices & Responses

GST Notices: Common Reasons and How to Respond in India

Posted on: 2 August 20252 August 2025 by: Aditya Narayanin: Indirect TaxLeave a reply

GST Notices: Common Reasons and How to Respond

The Goods and Services Tax (GST) regime in India, introduced in 2017, has streamlined indirect taxation but comes with strict compliance requirements. One critical aspect is the GST audit limit, which determines when businesses must undergo audits to ensure adherence to GST laws. However, many businesses receive GST notices due to non-compliance or discrepancies, often triggered during audits. This article explores the GST audit limit, common reasons for GST notices, and practical steps to respond effectively, tailored for Indian businesses, including service providers.

What is the GST Audit Limit?

The GST audit limit is the limit of annual turnover over which the registered taxpayer is required to get their accounts audited by Chartered Accountant (CA) or Cost Accountant (CMA). According to the Section 35(5) of the Central Goods and Services Tax (CGST) Act, 2017, the registered taxpayer was required to get their accounts audited by CA/CMA uniformly on an applicable threshold amount of more than ₹2 crore during the financial year of their business. The Finance Act, 2021 took effect from 1st August. The legislation process amended this threshold by removing the mandatory audit by CA/CMA for most registered taxpayers.

Taxpayers with an aggregate turnover above ₹5 crores are now required to file a self-certified reconciliation statement in Form GSTR-9C along with their annual return (GSTR-9). This change reduces compliance burdens but still requires businesses to maintain adequate records. For service providers, the GST audit threshold for all service providers is at the same ₹5 crore limit for GSTR-9C filing, with no separate limit.

Key Points on GST Audit Limit:

Aggregate Turnover: Aggregate turnover includes taxable supplies, exempt supplies, exports and inter-state supplies made under the same PAN, and it doesn’t include GST taxes.
Financial Year: All financial years are from April 1 to March 31., except for FY 2017-18 (which is from July 1, 2017 to March 31, 2018, as per government press release dated July 3, 2019)
Due date: GSTR-9 & GSTR-9C must be filed by December 31 in the next financial year. (FY 2023-24 GSTR9 & GSTR-9C will be filed on or before December 31, 2024).

Turnover Threshold	Requirement	Applicability
Up to ₹2 crore	File GSTR-9 (optional for some)	All registered taxpayers
Above ₹2 crore	File GSTR-9 (mandatory)	All registered taxpayers
Above ₹5 crore	File self-certified GSTR-9C	Regular taxpayers, including service providers

Table: GST Audit and Return Filing Requirements (2025)

Source: CBIC Notifications

Common Reasons for GST Notices

GST notices are formal documents from tax authorities to notify taxpayers of inconsistencies, non-compliance or inform taxpayers they wish to verify certain aspects of the taxpayer’s goods and services tax (GST) compliance. Knowing why GST notices are issued will help businesses prepare for an audit and assist them in avoiding costly penalties. Here we list the most common reasons for GST notices based on recent information and trends.

1.Discrepancies in GST Returns

Discrepancies between GSTR-1 (outward supplies) and GSTR-3B (summary return), or mismatches between GSTR-2A/2B (input tax credit) and GSTR-3B, are prevalent.

Example: Claim for more Input Tax Credit (ITC) than what was recorded in GSTR-2A.
Why it Occurs: Errors in the details of the invoices, suppliers filing the return late or incorrectly claiming ITC.

2. Non-Filing or Late Filing of Returns

When GSTR-1, GSTR-3B, or GSTR-9 are not filed within the deadline, notices can arise.
The businesses that come under the GST audit limit (more than ₹2 crore) will face scrutiny regarding GSTR-9 filing.
Penalty: ₹200 per day = ₹100 CGST + ₹100 SGST, maximum penalty for returning returns is ₹25,000.

3. Incorrect ITC Claims

Making ITC claims on blocked credits (i.e. personal expenditures, motor vehicles) or ineligible invoices.
Authorities analyze data relating to ITC mismatches. A focus area of 2025 audits.

4. Turnover Misreporting

Underreporting turnover to avoid GST audit / registration limit (₹40 lakh for goods, ₹20 lakh for services in normal states).
Overreporting taxable exempt supplies to reduce tax liability.

5. Non-Compliance with E-Invoicing or E-Way Bills

Businesses with turnover above ₹20 crore (as of 2025) must generate e-invoices.
Missing or incorrect e-way bills for goods movement can lead to notices.

6. Departmental Audits Under Section 65

Audits under Section 65 of the CGST Act are initiated by tax authorities for high-risk cases, regardless of turnover.
Notices are issued via Form GST ADT-01, with a 15-day response window.

Section 65 audits are conducted by tax authorities on high-risk cases, regardless of turnover.

Tax authorities will issue a Notice through Form GST ADT-01 and provide you with 15 days to respond

How to Respond to GST Notices

Receiving a GST notice can be daunting, but a structured response ensures compliance and minimizes penalties. Follow these steps:

1. Understand the Notice

Read the notice carefully and identify the issue (i.e., ITC mismatch, late filing).
Make a note of the reference number, date, and due date to reply (generally 15-30 days).
Log-in to the GST portal and check the details of the notice under “View Notices and Orders.“

2. Gather Relevant Documents

Collect invoices, GSTR-1/3B/2A/2B returns, e-way bills, and audited financials.
If the business exceeds ₹5 crore for the GST audit, also prepare GSTR-9C.
Use the GST software or a CA to assist in reconciling the discrepancies.

3. Draft a Clear Response

Respond to the particular concern in the notice.
Attach your evidence (i.e., corrected invoices, proof showing taxes were paid.)
If applicable, please use Form GST ADT-02 where departmental audit replies are needed.

4. File the Response Online

Log in to the GST portal (www.gst.gov.in) to submit the response under “Services > User Services > View Notices and Orders”.
Be sure to submit the response timely to avoid other action.

5. Seek Professional Help

Consult a CA or GST practitioner for complicated notices, particularly proposals for service providers under any GST audit limit, for service providers.
An experienced professional can negotiate with authorities or represent you in hearings.

6. Follow Up

Track the status of your response on the GST portal.
Address any additional queries promptly to close the case.

Pro tip: If you use any GST compliance software, consider using it to automate return filing and reconcile ITC filed with your return, so that you can reduce your risks of notices.

Preventive Measures to Avoid GST Notices

Proactive compliance is key to avoiding GST notices. Here’s how businesses can stay ahead:

Regular Reconciliation: Compare GSTR-1, GSTR-3B, and GSTR-2A/2B on a monthly basis to identify differences early on;
Filing on Time: Comply with return deadlines; GSTR-3B must be filed by the 20th of the subsequent month;
Claim ITC: Claims for ITC must incorporate supplier compliance;
E-invoicing Compliance: E-invoices for supply must be generated if turnover exceeds ₹20 crores.
Prepare for an Audit: You must ensure that you have your sales/purchase invoices, stock registers (inventory statement) and e-waybills since these are acceptable records required for an audit based on the requirements of the law unless exempt.
Educate: Help your accounting team understand all recent changes to GST law or taxation in general (especially for service providers).

Latest Trends in GST Audits (2025)

Based on recent CBIC notifications and industry insights, GST audits in 2025 focus on:

Data Analytics: Government authorities use artificial intelligence to identify mismatches in input tax credit (ITC) claims and discrepancies in turnover.
Risk-Based Audits: High-risk businesses (e.g., frequent refund claims, large ITC claims) are prioritized in exams.
Self-Certification: GSTR-9C self-certification for turnovers greater than ₹5 crore reduces reliance on CAs but requires accuracy.
Service Providers: Service providers are faced with increased scrutiny because of the intangible nature of the transactions and the ITC claims

Explore our insightful article on the GST Return Filing Process for a comprehensive guide.

Conclusion

Understanding the GST audit limit and responding to GST notices effectively is crucial for Indian businesses. With the threshold for GSTR-9C filing set at ₹5 crore, both goods and service providers must maintain robust records and comply with GST laws. By addressing common notice triggers like ITC mismatches and late filings, and adopting preventive measures, businesses can minimize risks. For complex cases, professional assistance ensures compliance and peace of mind. Stay proactive, leverage technology, and keep updated with GST regulations to thrive in India’s tax landscape.

GST on E-Commerce: What Sellers and Buyers Should Know

Posted on: 28 July 202528 July 2025 by: Aditya Narayanin: Indirect TaxLeave a reply

GST on E-Commerce: Key Insights for Sellers & Buyers

The e-commerce industry in India is thriving due to the availability of internet access, smartphone penetration, and digital payment systems. Since all major e-commerce industry platforms, such as Amazon, Flipkart, and Swiggy are currently dominating the market, Goods and Services Tax (GST) has played an integral role for both sellers and buyers and e-commerce transactions must include GST. On the one hand, the GST has created an organized method of taxing e-commerce transactions, on the other e-commerce transactions carry distinct compliance requirements. The purpose of this article is to highlight the reasons to know about GST on e-commerce business, its implications and how sellers and consumers can learn how to deal with it.

Understanding GST on E-Commerce

Goods and Services Tax (GST), which was introduced in India in 2017 comes under a destination-based tax on a supply of goods and services. For e-commerce, GST can apply to online transactions. This encompasses sales of physical goods, digital goods, and services. Most duties and rights of GST taxpayers are prescribed differently for e-commerce sellers than those will traditional sellers or suppliers, specifically the registration requirement and e-commerce operators need to comply with Tax Collection at Source (TCS). Although GST rights and duties do not generally differ for customers it is especially important for them to understand how GST may affect pricing and their rights to claim Input Tax Credit (ITC) if applicable.

GST Compliance for E-Commerce Sellers

Mandatory GST Registration

E-commerce sellers, regardless of their turnover, must register for GST. This is different from regular businesses which have a threshold of ₹40 lakh for goods or ₹20 lakh for services (or ₹10 lakh for special category states) before they need to register. The purpose of mandatory registration is so that assets that are purchased for resale can be conducted in compliance with GST laws and so that it becomes possible for sellers to claim input tax credits (ITC) for these purchases. Sellers must display their GST Identification Number (GSTIN) on their website and invoicing for transparency purposes.

Tax Collection at Source (TCS)

E-commerce operators, such as Amazon and Flipcart, are required to deduct 1% TCS (0.5% CGST + 0.5% SGST or 1% IGST) on net taxable value for sales made on behalf of third-party sellers. This TCS is deducted from the payments made to sellers and must be deposited with the government within the 10th of the following month. Sellers may claim the TCS as credit while filing their GST returns. Thus, there is no additional tax burden.

Filing GST Returns

Sellers must file GSTR-1 (outward supplies) by the 11th of the next month and GSTR-3B (summary of supplies and ITC) by the 20th. Small businesses with a turnover below ₹5 crore could also be eligible for a quarterly GSTR-1 filing through the Quarterly Return Monthly Payment (QRMP) scheme. One of the most important aspects of GST is the accurate filing of returns in compliance with stipulated timelines to avoid hefty penalties for late filing of returns.

No Composition Scheme for E-Commerce

Unlike small businesses, e-commerce sellers cannot avail of the GST Composition Scheme, which represents a simplified compliance method and provides lower tax rates. This presents an even higher compliance burden for small and medium-sized sellers, as they must file monthly returns and keep records in a detailed manner.

GST on E-Commerce Transactions: Key Considerations

Place of Supply Rules

GST is a destination based tax, which means it is applied in the jurisdiction where goods or services are consumed. For instance, if a buyer in Mumbai orders a good from a seller in Chennai via e-commerce, the place of supply is Mumbai; which governs whether CGST and SGST or IGST is applicable. CGST and SGST are applicable in intra-state transactions and IGST is applicable in inter-state transactions.

Types of GST Rates

GST takes into account the product or service, and the rates can vary considerably, generally from 5% to 28%. Goods classified as essential, like groceries, usually attract the lower GST rate while luxury goods fall into the higher slab. Sellers need to classify their products correctly, and classify them correctly under the Harmonized System of Nomenclature (HSN) to apply the proper rate. Misclassifying them can lead to issues with the tax amount they owe or even penalties altogether.

Also read our insightful article on History of HSN Code: Meaning, Significance, and Impact in India

Section 9(5) Services

Under Section 9(5) of the CGST Act, Certain services provided by e-commerce operators (such as Swiggy, Uber, etc.) are to be paid on behalf of the supplier by the operator. Services for restaurants, house keeping services and passenger transportation services are examples of services subject to this. Since January 2022, Zomato is liable to pay 5% GST on restaurant supplies as a service provider, even if the supplier is an un-registered entity.

Impact of GST on E-Commerce Sellers

GST presents both opportunities and challenges for e-commerce sellers. While it has simplified taxation and eliminated multiples taxes, sellers can access a nationwide market with uniform tax rates, and they can reduce their tax burden on inputs through ITCs to increase their profits, there are some challenges e-commerce sellers face today:

Increased Compliance: There are now mandatory registrations, with return deadlines, and short deadlines to make their TCS deductions which create additional administrative burdens for sellers; especially those with small businesses

Taxes on Expenses: GST is charged for commissions, logistics and advertising. In turn this reduces the seller’s profit margins.

Complex Refund Process: Sellers can now spend large amounts of time preparing and asking for GST refunds which negatively impacts their cash flow.

Sellers may therefore find good value in adopting an automated GST software that can send returns and integrate via an API with accounting packages so that all information is maintained in a good electronic record.

What Buyers Should Know About GST on E-Commerce

GST in Pricing

When buyers make product purchases on e-commerce sites, they see GST included in the price. Knowing the tax portion of a product price enables buyers to make informed purchases. A product of ₹1,000 that has an 18% GST rate has a tax portion of ₹180. A buyer registered under GST can claim ITC on qualifying purchases which lowers the actual cost of purchases.

Invoice Transparency

E-Commerce platforms need to provide GST-compliant GST invoices with GSTIN, HSN code and tax breakup. Buyers need to check these details to ensure compliance and claim Input Tax Credit (ITC) if applicable. Proper invoicing is essential for all transactions to settle disputes properly in the event of returns or refunds.

Impact on Product Pricing

The implementation of GST makes pricing more transparent by establishing the same tax rate in every state. Nevertheless, certain products are facing high GST rates (e.g., electronics are at 18%) which can result in higher prices compared to pre-GST days where the same product could have different taxes in different states. It is important for buyers to compare prices across multiple platforms to get the most competitive deal.

Challenges and Solutions in GST Compliance

Common Challenges

Registration complications: Getting started with GST registration might be tricky because it has a bunch of paperwork and compliance know-how.
TDS/TCS . Reconciliation: A lot of sellers will have TCS withheld by the suppliers and struggle to reconcile these TCS deductions and even try to claim credits.
Multiple State: E-commerce businesses selling goods or services across multiple states have to register in each state and further complicate compliance.

Practical Solutions

Use GST Software: Please use GST software to file returns and manage invoices easily.

Hire Experts: Hire professionals who are tax experts to help you manage complex GST provisions.
Stay Updated: Regularly check updates from the GST Council so that you can comply with new regulations, for example, changes from the 53rd GST Council meeting.

Conclusion

GST on e-commerce has revolutionized the online marketplace in India by creating transparency and consistency in the tax regime. For sellers e-commerce sellers mandatory registration, a TCS (tax collection at source) and filing taxable return are important compliance requirements. Buyers are facilitated to know where they stand with their pricing and ITC eligibility as a consumer. Despite challenges and compliance burdens, automating processes and educating yourself remains paramount in achieving seamless compliance. As the e-commerce industry continues to grow, understanding GST will help realize e-commerce’s true growth potential.

Rule 88B of CGST Rules: Interest on Delayed Payment of GST

Posted on: 20 July 202520 July 2025 by: Aditya Narayanin: Indirect TaxLeave a reply

Understanding Rule 88B of CGST Rules: Interest on Delayed Payment of GST

The Goods and Services Tax (GST), introduced in India on July 1, 2017, consolidated all forms of indirect taxes in a single basket. However, it did emerge with an inherent degree of recording complexity, mandatory compliance, and taxable income reporting; as can be seen with aspects such as interest prescribed for delays in payment. Rule 88B of the Central Goods and Services Tax (CGST) Rules, 2017 outlines information about prescribed interest payable with respect to an unpaid GST payment or wrong usage of Input Tax Credit (ITC). Rule 88B applies retrospectively from July 1, 2017, and forms part of the mandatory notification of the financial consequences of incorrect compliance, such that taxpayers are fully aware of what is legally required of them. If you are a business, understanding and being able to apply Rule 88B is very important, to avoid any possible punishment and remain compliant with the law.

In this article, we will consider the contents of Rule 88B, how to calculate the interest including the methods of calculation and prescribed exemptions. We will also provide helpful hints and guidance relating to how to be compliant in practice to ultimately help businesses navigate GST in India.

What is Rule 88B of CGST Rules?

Rule 88B, implemented in Notification No. 14/2022-Central Tax dated July 5, 2022, describes the process for computing interest on late GST payments and wrong utilizations of input tax credits (ITC). It will be read along with Section 50 of the CGST Act, 2017 which addresses interest liability. The intent of the Rule is to make interest compensatory rather than punitive and to look at real cash delays and wrong use of ITC.

The Rule applies to all taxable persons registered under GST including those applying to CGST, SGST or UTGST. In total, the Rule is designed to apply to three cases: (1) late filing of returns, (2) delayed payment of tax, or (3) wrong utilization of ITC to facilitate identification of interest to be claimed.

Key Provisions of Rule 88B

1.Interest on Late Filing of GST Returns (Rule 88B(1))

When the taxpayer files his GSTR-3B return after the due date but before any action has been taken under Sections 73, 74 or 74A, the interest is paid only on the amount paid through the Electronic Cash Ledger (ECL). There is no interest payable on the amount paid by credit against Input Tax Credit (ITC) or on any amounts already credited to the ECL up until the due date irrespective of when the return is actually filed. As per the Section 50(1), the interest rate is 18%.

Example: The company has a GST liability of ₹10 lakh for April 2025 – due on May 20, 2025. On the due date, the company had ₹5 lakh of cash in its ECL but filed the GSTR-3B return on July 3, 2025 (44 days late). The appropriate interest is calculated as follows: Interest = (₹5,00,000 x 18% x 44/365) = ₹10,849.32.

2.Interest on Delayed Tax Payments (Rule 88B(2))

Additionally, in cases of delayed tax payment due to non-payment or underpayment of tax, the actual unpaid tax amount will be charged interest for the entire unpaid amount from the date of due date until the date of payment. Interest is charged at 18 percent per annum, whether the payment is done by ECL or by ITC.

Example: If a taxpayer determines not to pay ₹2 lakh of GST by the due date and makes payment 30 days later, the amount of interest is:

Interest = (₹2,00,000 × 18% × 30/365) = ₹2,958.90.

3. Interest on Wrongly Availed ITC (Rule 88B(3))

Interest on ITC that is available and used incorrectly, will accrue interest from its date of utilization until its reversal or payment date. ITC is considered “utilized” when the ECL balance falls below that of the amount wrongly billed. The rate of interest is 18% per year, but previous provisions under Section 50(3) indicated 24% for specific instances, subject to amendments.

Example: A taxpayer incorrectly avails of ₹1,56,000 of IGST ITC in July 2018, and subsequently utilized it until December 2021. Assume that throughout the period from August 2018 to December 2021, the taxpayer utilized this incorrectly available ITC by the amount of ₹11,000 and the ECL balance fell below ₹1,56,000 by the amount of ₹11,000 when calculating the interest, the ₹11,000 is the amount used from the date of utilization until reversal.

Scenarios Where Interest is Not Payable

Clause 88B of the provision provides relief in certain cases that lessen a taxpayer’s assessment:

Tax credit in the Electronic ledger (ECL) – If the tax amount is credited in the ECL before the due date but the taxpayer files their return after the due date, the amount of tax credit will not accrue interest on that amount for the period preceding the filing, assuming it was not used prior to the filing.
Unutilized ITC – No interest applies if ITC is wrongly availed by the taxpayer, and is unutilized, because the credit was not used by the taxpayer to offset their tax liabilities.
Pre-proceeding – If the taxpayer files the return late by the due date, an interest charge under the provision shall only apply to the cash portion of the taxpayer’s payment, assuming that no proceedings under Sections 73, 74 or 74A followed the misfiled return.

These provisions are in keeping with the GST Council’s intent to have the compliance or adherence become less onerous, in order to have more taxpayers voluntarily comply.

Also Read: For more insights on GST Return, Read our blog on GST Return Filing Process.

Recent Amendments and GST Council Recommendations

The 53rd GST Council Meeting on June 22, 2024, recommended amendments to Rule 88B to clarify interest computations. The key components of the changes include:

Interest relief for late filings: No interest is charged on amounts available in the ECL on the due date even if the amount is debited later, preserving the compensatory nature of interest.
Inclusion of section 74A: During the discussion related to interest, the GST Council also added section 74A (cases of fraud or misrepresentation) to rule 88B so that when a taxpayer files returns post the initiation of proceedings u/s 74A, the interest is computed on the entire tax liability.

The updates effective Nov 1, 2024, suggest the government is serious about reducing litigation and providing taxpayers with a fair and predictable compliance framework.

Practical Tips for GST Compliance Under Rule 88B

Businesses should work to address their interest liability risks as follows in order to mitigate their risk of becoming liable for interest for non-timely filing and GST payments and indirect taxes, as mentioned in Rule 89(b):

Timely deposits of ECL: Include a sufficient amount of ECL to fund your ECL liability before the due date to avoid accruing interest on late filings.
Ensure eligible ITC claims: Confirm ITC is eligible before claims, avoiding undo availment and accruing interest later.
Timely reconciliation: Reconcile your GSTR-2B and GSTR-3B HDR and variances as early as possible according to statutory timelines, avoiding late payment penalties.
Use GST filing software: Use and rely on products for automated compliance filing taxes, and to adhere to interest.
Monitor deadlines: Monitor deadlines; for instance, GSTR-3B for each month ending on the 20th day of the subsequent month (for monthly filers).

Ultimately, there are steps you can take to be proactive and unwind their risk of having interest liabilities on compliance and taxes.

Judicial Interpretations and Controversies

Since its inception, Rule 88B has received scrutiny mainly in connection with its retrospective effect from July 1, 2017. In Refex Industries v. Assistant Commissioner, the Madras High Court had observed that no interest applies if sufficient credit is available in the credit ledger and added that Rule 88B had a compensatory effect. However, the retrospective restriction of interest relief for due dates and not for other delayed payments has raised objection as it restricts the relief and benefit for taxpayers. Taxpayers have sought clarification again on the fact that interest should only apply to the net cash liability and not the gross amount of liability, which led to the debate of interest apply because now ITC is available. The ongoing debate illustrates the need for clarity and certainty and less litigation.

Real-World Impact on Businesses

Rule 88B simplifies interest calculations for Indian businesses, particularly MSMEs, since refunds are based on actual cash delays. However, the following items remain obstacles:

Cash Flow Management: Smaller enterprises have limited cash flow and may have difficulty depositing cash in their ECL accounts timely.
ITC Reversal: Wrongfully availed ITCs — even made by mistake — could generate substantial interest liabilities as they are used.
Compliance Costs: Incurring expense for a professional or even for an app in order to ensure compliance is just adds to operational expense.

Despite this, if businesses familiarize themselves with Rule 88B and apply the exemption wherever possible, it can help ease the cash drain and allow them to focus on growing their business.

Conclusion

Rule 88B of the CGST Rules serves as a pillar of GST compliance, checking the never-ending rule of the accrual basis of interest calculated when payments are delayed or wrongfully claimed ITC. In a few specified situations, it caps the interest to only the cash component and provides relief for amounts that are previously deposited. Thus Rule 88B is designed to promote the aspects of compliance, yet balance relief to the taxpayer. Businesses simply need to be astute, make sure they deposit any money in a timely manner, and check credits utilized when determining potential interest liabilities. Given recent amendments and the court observations, Rule 88B promotes a transparent, compensatory tax system.

Also Read : What Is Input Tax Credit (ITC) and How to Claim It?

History of HSN Code: Meaning, Significance, and Impact in India

HSN Code Meaning: History & Importance in GST India

Posted on: 15 July 202518 July 2025 by: Aditya Narayanin: Indirect Tax1 Comment

History of HSN Code: Meaning, Significance, and Impact in India

What is the HSN Code Meaning?

The HSN code meaning refers to the Harmonized System of Nomenclature, which is an internationally accepted system of classifying goods. The World Customs Organization (WCO) implemented this in the 1980s, and to date, has assigned over 5,000 commodity group codes. In India, HSN codes help to eliminate misinformation around taxation with an efficient tax structure under the GST and facilitate trade with other countries by allowing for detailed consistency.

To understand what the full form HSN code is {Harmonized System of Nomenclature}, it is important to grasp its purpose. Not only was this implemented to categorize products in a conformed manner, but it allows for improved trade facilitation by now providing businesses with a structured tax form.

History of HSN Code: A Global Perspective

In the 1970s, the WCO developed the HSN system to standardize global trade. In 1983, the plan was formally adopted, and then it was implemented in 1988. The system organizes goods into 21 sections, 99 chapters, 1,244 headings, and 5,224 sub headings.

The HSN code is a six-digit number, but countries add additional digits for their own needs. The WCO updates the system once every 5 to 6 years to add new products, especially electronic devices, as well as remove obsolete items. More than 200 countries use HSN codes today, providing coverage for 98% of global trade.

HSN Code in India: Evolution and Adoption

India became a member of the WCO in 1971 and began implementing HSN codes for Customs and Central Excise purposes in 1986. India initially operated with six-digit codes, but later moved towards eight-digit ITC-HS codes to allow for precision ‘classification‘.

With the implementation of GST (Goods and Services Tax) in 2017, the HSN code was made mandatory as businesses had to classify their goods in their invoices and in their GST returns. The full form of HSN—Harmonized System of Nomenclature—was becoming prominent as businesses continued to align with GST compliance.

As an example, cement is classified under HSN code 2521, which legally determines the applicable GST rate. Businesses with turnovers more than ₹ 1.5 crore must use HSN codes in their filing.

Significance of HSN Codes in GST India

HSN codes play a vital role in GST and HSN code compliance. They ensure accurate tax calculation, reducing errors in invoicing and filings. The number of digits required depends on turnover:

No HSN code: Turnover < ₹1.5 crore (optional for B2C).
2-digit HSN code: Turnover ₹1.5 crore–₹5 crore.
4-digit HSN code: Turnover > ₹5 crore.
8-digit HSN code: Mandatory for imports/exports.

HSN codes also simplify HSN code search for businesses, as GST portals provide tools to find codes for specific products.

Impact of HSN Codes on Businesses

By implementing HSN codes, Indian businesses are able to simplify their operations. HSN codes bring transparency to the taxation process thereby removing the possibility of tax withholding (no more 10% charged). HSN codes work for all products alike in the same methodical systemic way. HSN codes give exporters/importers an eight-digit HSN code to make sure that everybody is on the same page when classifying products, which inevitably allow faster customs clearance in foreign countries. Similarly, businesses use HSN codes to track their inventory movement, sales analysis and internal inventory management. For example, an electronic goods retailer using HSN code 8517, can easily track his stock in all detailed category and produce necessary accounting attributes. The use of automated GST software also integrates HSN codes with GST process allowing businesses a faster and more efficient process while removing the potential human error.

How to Find HSN Codes in India

Finding the right HSN code is easy with online searches. The GST portal additionally provides an HSN code search option, where a business is able to input the details of the product and receive its HSN code. Other sites like ClearTax and IndiaFilings also provide HSN code lookup as a free service.

If you want to look up the HSN code for a laptop, simply search for “laptop“ on the GST portal, and you will receive HSN code 8471. It is wise to always look up the code to ensure compliance with GST.

Why HSN Codes Matter for Indian Businesses

The HSN Code meaning goes beyond taxation. It aids in trade efficiency by establishing a common language between customs authorities. When a universal code is used, there are fewer disputes and it speeds up international trade.

The HSN Code also assists the government in collecting trade stats to develop better economic policy. For the consumer, correct usage of HSN code ensures fair pricing, as businesses are charging the appropriate GST rate.

Challenges and Tips for Using HSN Codes

Although HSN codes help bring clarity to taxation, businesses run into problems with identifying the correct codes for complex products, and they risk incurring GST penalties by using obsolete or incorrect codes.

Here are a few compliance tips for registering HSN codes:

Use the HSN code search function on the GST portal to verify accuracy and completeness of codes.
Use the HSN code periodically, as the WCO updates the codes approximately every 5–6 years.
Consult a tax professional in the case of high-value or imported goods.

HSN Code vs. SAC Code: What’s the Difference?

HSN codes classify all the goods and Services Accounting Codes (SAC) classify all the services that are applicable under GST. For example, legal services are classified into SAC code 9982. However clothing is assigned an HSN code (in this case, it would use HSN code 61XX). HSN codes and SAC codes are different forms of classification system and apply taxes based on what is classified, but they apply to different categories of goods or services.

Understanding the full form of HSN code and SAC is important to help businesses appropriately distinguish goods from services and avoid tax compliance breach.

Future of HSN Codes in India

The HSN system will adapt to global changes in trade. The WCO’s periodic updates allow for relevancy for new products (to include AI devices or renewable energy) or marketplaces. In India, as GST processes become increasingly digitized, HSN codes will further converge with e-invoicing and automation.

Companies must keep abreast of GST and HSN code changes to remain compliant. GST software and government portals will assist companies in keeping regulatory abreast.

Conclusion

The HSN code, which stands for Harmonized System of Nomenclature, is more than just a title but shows it is a worldwide standard for goods classification. In India, the details of HSN codes are essential to GST compliance, international trade and business operation.started in 1986 and then rolled into service under GST in March of 2017, HSN codes have reshaped taxation and trade.

If one understands the meaning of HSN code and utilizes options like an HSN code searcher, they can be sure to compliance while enhancing and streamlining their operations. Understand how updates will affect using HSN codes for success in India‘s busy economy.

Understanding the Reverse Charge Mechanism in GST: A Comprehensive Guide

Reverse Charge Mechanism in GST: Key Insights & Rules

Posted on: 4 July 20258 July 2025 by: Aditya Narayanin: Indirect TaxLeave a reply

Understanding the Reverse Charge Mechanism in GST: A Comprehensive Guide

A reverse charge mechanism is a significant element for businesses in India that are handling GST (Goods and Services Tax). Ordinarily, in GST, Supplier collects the tax and pays to the Government. However, when reverse charge applies, the liability for the tax ordinarily performed by Supplier, is instead, the liability (obligation) of the recipient of goods or services. This article will explain what exactly is reverse charge mechanism in GST, when reverse charge applies, the applicable rules, and the examples as mentioned for Indian business owners or GST planning for business. With information and understanding of the reverse charge mechanism, present or future businesses (new start up business, a freelancer, or established company), whoever you are, will need to know the RCM concept to comply with GST.

What is Reverse Charge Mechanism in GST?

The reverse charge mechanism is a provision under the GST law where GST is payable to the Crown by the recipient instead of the supplier. In a normal transaction, the supplier collects GST from the buyer and pays it over to the tax office. With the reverse charge mechanism, the buyer is responsible for paying the tax directly to the tax office.

Reverse charge applies to specified goods, services, or circumstances set out in the GST Act. This is a way of ensuring tax compliance when the supplier is unregistered or the transaction involves specific circumstances, such as imports or services provided by unregistered dealers.

Why Was the Reverse Charge Mechanism Introduced?

The introduction of the reverse charge mechanism in GST serves as an effective way to streamline GST collection and compliance, particularly where collecting tax from the supplier would be difficult. The following list shows three key objectives:

Improve Compliance: The reverse charge mechanism would collect tax where the supplier is completely unregistered or registered outside of India (i.e., Imports).

Broadening the Tax Base: The reverse charge indirectly brings unregistered suppliers into the GST framework, since the recipient is required to bring the tax into account.

Deter Tax Evasion: The reverse charge provides liability to only the recipient, thus decreasing the risk of tax evasion on a transaction-by-transaction basis

For businesses, understanding what reverse charge mechanism is helps avoiding penalties and complying with GST legislation.

When is Reverse Charge Mechanism Applicable?

The reverse charge mechanism in GST applies in specific scenarios as per Sections 9(3) and 9(4) of the CGST Act, 2017. Below are the key cases:

1. Supply of Notified Goods and Services

The government notified certain goods and services for which the reverse charge is obligatory. Examples include:

Goods: Cashew nuts (whether shelled or peeled), Bidi wrapper leaves, Tobacco leaves.
Services: Legal services provided by an advocate, GTA services, Sponsorship services.

2. Supply from Unregistered Suppliers

If a registered person obtains goods or services via a transaction from an unregistered supplier, the receiver must pay the GST associated with that transaction via reverse charge. However, the section (Section 9(4)) must be noted – the section is generally suspended for most registered persons, except in the manner notified by the government.

3. Import of Service

If a registered person obtains services from a supplier located outside India (for example, consultancy services or software services), the receiver is required to pay the GST associated with that transaction via reverse charge since it is considered as import of service.

4. Other specific cases

Certain transactions, like where a registered person rents a motor vehicle to a body corporate or the transaction is for services provided by an insurance agent, are also required to use reverse charge.

How Does Reverse Charge Mechanism Work?

Now that you have an idea of the reverse charge mechanism in GST, you can understand the steps involved in reverse charge mechanism.

Identifying relevant RCM Transactions: The recipient identifies whether the transaction is RCM related (i.e., notified services or supplies from an unregistered dealer)
Making the Payment: The recipient calculates the GST (CGST, SGST, or IGST) amount and directly pays it to the government in the appropriate GST returns (GSTR-3B format).
Purchase of Goods/Service after Payment: If the recipient is eligible to claim Input Tax Credit (ITC) on the GST paid under RCM, as long as the goods or services are used in the furtherance of business.
Invoicing: For RCM payments, the supplier issues an invoice free of GST and the recipient issues a self-invoice for the purpose of RCM.

For example, if a company hires an advocate to provide legal services, the company (the recipient) pays GST under the RCM mechanism and should be entitled to claim Input Tax Credit (if eligible).

Key Rules for Reverse Charge Mechanism Under GST

The Reverse Charge Mechanism under GST has some specific compliance obligations as follows:

1.Self-invoicing:

In the case of supply from unregistered dealers, the recipient must self-invoice for GST purposes.

2.Time of Supply:

The time of supply under RCM rules determines when the tax liability arises. For the supply of goods, the time of supply is the earliest of:

The date of receipt of the goods.
The date of payment.
30 days from the date of the supplier‘s invoice.

3. For the supply of services the time of supply is the earliest of:

The date of payment.
60 days from the date of the supplier‘s invoice.

4. GST Registration:

Any business that is liable to pay tax under RCM must obtain GST registration, even if their turnover is below the threshold.

4. Record Keeping:

The recipient must keep adequate records when dealing with RCM transactions and report that in GSTR-1 and GSTR-3B.

Benefits of Reverse Charge Mechanism

The reverse charge mechanism provides advantages for businesses and government alike:

Better Compliance: Ensures tax is collected where the supplier is unregistered or non-compliant.
Convenience for Small Suppliers: Unregistered suppliers are relieved of GST compliance, providing an incentive for small businesses.
ITC eligibility: Registered businesses can claim ITC for tax they pay under RCM, thereby lowering their tax liability.
Transparency: RCM increases transparency in certain transactions, namely imports and notified services.

Understand Sponsorship Services under GST in our latest insightful blog.

Challenges of Reverse Charge Mechanism

The reverse charge mechanism in GST is, of course, an advantage; however, it does bring some challenges:

Increased compliance burden: The recipient pays GST (after thinking it is GST-exclusive), further adding to the administrative burden.
Cash-flow implications: The business pays GST to the supplier first and claims ITC later, affecting working capital.
Complexity in tracking transactions: It can be complicated to identify the transaction that is subject to RCM, and to keep records, especially for small businesses.

Practical Examples of Reverse Charge Mechanism

Let’s take a look at the reverse charge mechanism in the real world.

Legal Services: Suppose a company engages the services of an advocate to give legal advice. While the advocate does not charge GST, the company pays GST under RCM and files it in GSTR-3B.
Goods Transport Agency (GTA): A business avails the services of a GTA to provide transportation of goods. The GTA issues an invoice without GST, and the business pays GST under RCM.
Import of Services: A startup engages the services of a foreign consultant for marketing services. The startup pays IGST under RCM because of the import of service.

As you can see, RCM can apply to any business, big or small, from a startup to a multinational company.

Recent Updates on Reverse Charge Mechanism (July 2025)

As of July 2025, the government has not taken any significant decisions on RCM provisions, but businesses still need to keep abreast of notification from the government. For example, RCM on supplies from unregistered dealers (Section 9(4)) continues to be suspended, meaning that many business operators are relieved of compliance requirements. However, recently added provisions brought some services, such as renting motor vehicles to corporates under RCM, which had implications for industries such as logistics.

Keep up to date on GST changes by reading this Growthify Blog on GST changes.

Tips for Businesses to Manage RCM Compliance

To manage the requirements of Reverse Charge Mechanism under GST, businesses could consider the following methods:

Make use of Accounting Software: Certified software like Tally or Zoho Books can automate RCM calculations and reporting.
Regular Audits: Have regular GST audits every 3 to 6 months to ensure you account for all RCM transactions.
Stay updated: Keep a watch on CBIC notifications for up-to-date information on goods and services applicable to RCM.
Training: Train your finance department on RCM rules, to be aware of how to avoid mistakes in compliance.

Conclusion

In GST, reverse charge is an essential part of India‘s tax system, to ensure compliance for certain transactions, and ensure a wider tax base. Understanding what a reverse charge mechanism can help businesses comply with its rules, claim ITC, mitigate penalty risk. RCM (reverse charge mechanism) may complicate things but having appropriate systems and knowledge will allow you to comply easily. Organisations must stay alert, take advantage of technology, and visit Growthify‘s content on GST compliance!

If you’re interested in learning more about how to make your startup scalable and tax-compliant, follow Growthify‘s LinkedIn page, and check out our blogs to see how!

Sponsorship Services Under GST: A Comprehensive Guide

Posted on: 27 June 202527 June 2025 by: Aditya Narayanin: Indirect Tax2 Comments

Sponsorship Services Under GST: A Comprehensive Guide

Sponsorship services are an important part of promoting brands, events, and products within India. With the introduction of Goods and Services Tax (GST), the tax treatment of these services has significantly changed. This article discusses sponsorship services under GST by looking into the provisions surrounding these services, tax rates, exemption and compliance. Regardless of if you are the sponsor, or the recipient, it is important to be aware of GST on sponsorship services for uninterrupted tax management and compliance.

What Are Sponsorship Services?

Sponsorship services are based on a contract where a sponsor provides financial or material support to an event, individual, or organization, in exchange for promotional rights and reciprocal benefits as a result. The promotional rights and reciprocal benefits can include naming rights, logo visibility, or guaranteed booking. Under GST, sponsorship is considered a taxable supply of service and is not the same as donations and gifts under GST, because there are no reciprocal benefits that are considered as part of that supply.

To reach the right GST classification, the Service Accounting Code (SAC) for sponsorship services under GST is 998397, for classification purposes and reporting purposes in GST.

All businesses that provide sponsorship services and those that receive sponsorship services must understand the constraints imposed by the GST regulations for their tax and advisory worth, as well as to receive all of the appropriate input tax credit (ITC) benefits.

GST Applicability on Sponsorship Services

Sponsorship services are usually taxed at 18% GST and are taxable services. The supplier/recipient’s relationship and method used to send the payment to the sponsor determines the tax liability as either Reverse Charge Mechanism (RCM) or Forward Charge Mechanism (FCM). The new verbiage by the GST Council has now made the supplier responsibilities clearer as of January 16, 2025.

Reverse Charge Mechanism (RCM)

Forward Charge Mechanism (FCM)

Through recent amendments made by Notification No. 07/2025 – Central Tax (Rate), sponsorship services supplied by one body corporate to another body corporate or partnership firm have been brought within the FCM. The implication of this is that the supplier (body corporate) is required to charge and remit GST, which reduces the compliance burden for corporate sponsors－easier for them. The change is effective from January 16, 2025 and is accordingly the streamlining of recipients’ compliance obligations.

GST Rates for Sponsorship Services

The GST consumption tax on sponsorship services is generally 18%. This applies to most events, including sporting events, corporate events or commercial events. However, a reduced GST rate of 12% may apply for sponsorships for cultural or artistic events, such as music concerts, and an exhibition of art, but will depend on the situation involved. Businesses must verify which GST rate is applicable based on the event type for enrolled consumers who may apply the tax.

Some sponsorships, specifically sponsorship for the events above, and other events listed in Notification No. 12/2017-Central Tax (Rate) will be exempt from the GST consumption tax. To be more oblique, these GST exempt sponsorships include events organized by national sports federations, and the Indian Olympic Association, and potentially include events that are organized under the auspices of programmes such as the Panchayat Yuva Kreeda Aur Khel Abhiyaan.

If you want to dive deeper and become more acquainted with GST compliance, review this blog about GST registration. It can provide insight into the registration process for sponsors, businesses that are involved in sponsorship for compliance.

Input Tax Credit (ITC) on Sponsorship Services

Business can avails ITC on GST liable under RCM for sponsorship services if the said service is allowed to be an output supply for business purposes or toward taxable supply, per Section 16 of the CGST Act, 2017. Tax invoices or debit notes, along with proper documentation are very important to avail ITC. If a supplier is unregistered, the recipient must self-invoice so that they can avail ITC.
There is also the aspect of ITC reversal for sponsorship services supporting exempt supplies. In the example of sponsoring an exempt sporting event, there would have to be ITC reversal for the sponsorship expenses as this may have an impact on tax liability when considering the entire tax landscape.

Exemptions and Special Cases

Some sponsorships for activities or events may not attract GST. For instance, sponsorships for sporting events held by recognized bodies like the Association of Indian Universities or Paralympic Committee of India, exempt from GST. Similarly, contributions, donations, or gifts to charitable institutions without specific promotional benefits are not covered under GST as per CBIC Circular No. 116/35/2019-GST.
For example, if an acknowledgement of the donation (e.g., “Donated by Mr. Sharma”) does not result in a commercial element, then it is not taxable. However, if the acknowledgement provides a commercial benefit (e.g., “Sponsored by Sharma Enterprises”), then it is a sponsorship service and subject to GST.

Compliance Requirements for Sponsorship Services

Businesses dealing with GST on sponsorship services must adhere to strict compliance guidelines:

GST Registration: If a business exceeds the turnover threshold (₹40 lakh for goods, ₹20 lakh for services or lower in special category states), it is required to register under GST. Voluntary registration is also acceptable if they want to claim ITC.
Invoicing: Suppliers registered under FCM must issue a GST compliant invoice. Recipients registered under RCM have to prepare a self-invoice if the supplier is unregistered.
GST Return Filing: The obligation to report accurately in GSTR-1, GSTR-3B, and to reconcile with GSTR-2A/2B. Annual returns (GSTR-9) will capture all sponsorship transactions.
TDS Compliance: Under section 194C of the Income Tax Act, any amount paid by the purchaser sponsor to the supplier for sponsorship services may be liable for a deduction of TDS @ 10% if the purchase/sponsor exceeds the specified limit.

To streamline your GST filing process, check out this guide on GST return filing for practical tips.

Recent GST Council Amendments

The 55th GST Council Meeting (December 21, 2024) introduced key changes to sponsorship services under GST. The shift to FCM for body corporates simplifies tax collection but increases compliance responsibilities for suppliers, such as event organizers. Recipients must ensure GST is correctly paid and reflected in GSTR-2B to claim ITC. These changes aim to align India’s sponsorship tax regime with international standards and reduce compliance complexities.

Key changes relating to sponsorship services under GST were discussed and approved at the 55th GST Council Meeting (December 21, 2024). The transition to the FCM in cases where body corporates receive sponsorship services makes tax collection more straightforward but complicates compliance obligations for suppliers, i.e., event organizers. Recipients must also make sure GST is paid correctly and the amount is reflected in GSTR-2B before claiming input tax credit (ITC). These changes are designed to align India’s sponsorship tax regime with those of comparable countries and to reduce compliance requirements for stakeholders.

Practical Tips for Businesses

Stay Informed: Keep informed of GST Council announcements and CBIC notifications for all updates to sponsorship taxability.

Examine Contracts: Make sure that your sponsorship contracts differentiate between sponsorship and advertisement to avoid potential misapplication.
Leverage Technology: Use GST-compliant accounting programs to streamline the process of calculating and filing taxes.
Complete Impact Assessment: Determine the impact that any changes to RCM/FCM will have on your finances and pricing.

Conclusion

Understanding what is involved in administering sponsorship services under GST can be challenging due to the complexity of RCM, FCM obligations, tax rate and exemptions, compliance obligations, etc. With the recent changes to allow FCM for body corporates as well as exemptions for unique occasions, it would be prudent for businesses to be proactive and plan their activities to ensure compliance and/or maximise their ITC benefits. Sponsors and recipients can better deal with their tax duties by keeping proper records, using software solutions for ease and more integrated reporting, and keeping up to date with GST updates and revisions.
If you would like to learn more about GST compliance and growing your business, head over to GrowthInfy for expert resources and guides.

GST Composition Scheme: Benefits for Small Businesses in India

Posted on: 19 June 202519 June 2025 by: Aditya Narayanin: Indirect Tax1 Comment

GST Composition Scheme: Benefits for Small Businesses in India

By merging several taxes into a single structure, the Goods and Services Tax (GST) transformed the tax regime in India. For small businesses, the compliance burden of GST can be significant, typically because they do not have the employees to help with the compliance. The GST Composition Scheme is a simplified method of compliance intended to lessen the compliance burden of small taxpayers and ease the burden of tax compliance overall. This article will cover the interpretation, eligibility of turnover limits, and rules of the GST Composition Scheme for small businesses, and is a must-read for small business operators in India.

What is the GST Composition Scheme?

The GST Composition Scheme is a simplified tax structure according to the GST Act of 2017 for small businesses with sales turnovers below a certain threshold. Under this scheme, eligible businesses do not pay GST as a transactional tax rate of 5% to 28% for each individual sale. Instead, businesses will only pay a fixed percentage of their turnover, with rates ranging from 1% to 6% depending on the type of business activity. The GST Composition Scheme minimizes regulatory paperwork, simplifies tax calculations, and increases liquidity for businesses, particularly Micro, Small, and Medium Enterprises (MSMEs).

The scheme should allow businesses that qualify for it to focus on developing their businesses and avoid worrying about complex tax rules! There are limitations of the GST Composition Scheme to consider, such as Input Tax Credit restrictions and interstate sales.

Eligibility for the GST Composition Scheme

There are some criteria that a business must satisfy in order to access the GST Composition Scheme :

Turnover limit : The aggregate turnover in the financial year preceding the current year must be below ₹1.5 crores (for the purpose of composition, manufacturers and traders are treated the same) for manufacturers and traders or ₹50 lakh for service providers. In special category states (e.g., Arunachal Pradesh, Manipur, Sikkim), the limit is ₹75 lakh (like any vendor supplying goods).
Type of business: Manufacturers and traders and restaurants (that do not serve alcohol) are eligible. Service providers are also able to join, with the restriction that they cannot offer any immediately specified services, and a turnover of ₹50 lakh.
Business owned by the same PAN: Aggregate turnover of all that a person does that is hosted under the same Permanent Account Number (PAN) will be considered under eligibility.

A business that engages in interstate supplies, that sells through e-commerce (with tax collected at source), or engages in the supply of certain goods, like ice cream, gutkha, pan masala, tobacco or similar manufacturing activities, is not eligible.

Key Benefits of the GST Composition Scheme

1. Lower Tax Rates

The GST Composition Scheme offers significantly lower tax rates compared to the regular GST regime. Traders pay 1%, manufacturers 2%, and restaurants 5% of their turnover. Service providers pay 6% on their turnover. These fixed rates reduce the tax burden, allowing businesses to retain more funds for operations.

Compared to standard regime GST rates, the tax levies under GST composition scheme are much lower. A trader pays 1%, a manufacturer pays 2%, and a restaurant pays 5% of their annual turnover. Service providers pay 6% of their annual turnover. These fixed government rates are designed to minimize tax, allowing businesses to keep more money internally.

2. Simplified Compliance

Under the regular GST scheme, businesses file multiple monthly returns, which can be time-consuming for small enterprises. The Composition Scheme requires only one quarterly return (GSTR-4) and one annual return (GSTR-9A), reducing paperwork and compliance costs.

Businesses registered under the regular GST regime file months returns, which can be burdensome for small businesses. Under the GST Composition Scheme, businesses file only one quarterly return (GSTR-4) and one annual return (GSTR-9A) which reduces compliance and reporting costs.

3. Reduced Record-Keeping

Small businesses often lack dedicated accounting teams. The GST Composition Scheme eliminates the need for detailed tax invoices and complex record-keeping. Businesses issue a Bill of Supply instead of a tax invoice, simplifying documentation.

Most small businesses do not have their own accounting departments. The GST Composition Scheme allows businesses to forego the need for tax invoices and keep simplified and less detailed records. Instead of issuing a tax invoice, businesses issue a Bill of Supply, again less stressful and simpler documentation effort.

4. Improved Liquidity

Lower tax rates and simplified compliance free up cash flow, enabling small businesses to invest in growth, inventory, or marketing. This enhanced liquidity is a lifeline for MSMEs operating on thin margins.

Since businesses are paying lower GST and complying with simpler recordkeeping requirements, cash flow savings can be utilized towards growth, inventory, or marketing. The enhanced liquidity is a lifebuoy for cash-strapped countable for MSMEs operating on razor-thin margins.

5. Competitive Pricing

Since composition dealers cannot charge GST on their invoices, they often offer goods at lower prices, attracting price-sensitive customers. This can provide a competitive edge in local markets.

If a composition dealer cannot charge GST to customers on their invoices, the composition dealer almost always sells the goods at a lower price to customers. Some customers would like the lowest price available. That gives the composition dealer competitiveness in some areas from which to trade locally.

GST Composition Scheme Turnover Limit

The GST Composition Scheme turnover limit is a critical factor for eligibility:

Manufacturers and Traders: Up to ₹1.5 crore in the preceding financial year. For special category states, the limit is ₹75 lakh.
Service Providers: Up to ₹50 lakh in the previous financial year.
New Businesses: For newly registered businesses, the turnover should not exceed ₹1.5 crore (or ₹50 lakh for service providers) in the current financial year.

If a business exceeds these limits, it must transition to the regular GST regime, adhering to standard tax rates and compliance requirements. The turnover is calculated on an all-India basis for businesses under the same PAN.

GST Composition Scheme Rules

The GST Composition Scheme clarifies the rules that govern compliance and the implementation of the Scheme:

No Input Tax Credit (ITC): Composition dealers are not eligible for input tax credits on purchases. The lack of ITC means the businesses that depend on inputs that GST, will be paying extra to procure some of their inputs;
Intra-State Supplies Only: Composition dealers are on track and strictly limited, they cannot engage in interstate sales, and they do not have the liberty of selling their goods outside of their state.
Bill of Supply: Composition dealers are required to issue a Bill of Supply, instead of a tax invoice. The Bill of Supply must indicate: “Composition Taxable Person, Not Eligible to Collect Tax on Supplies.”
Quarterly Payments: Payment of taxes made quarterly and is due by the 18th of the month that follows the quarter. This helps businesses manage cash flow better than the monthly payment requirement of the regular GST process;
Single PAN Registration: All businesses associated with the same PAN are required to enter the scheme or take the Regular GST option as a whole;

Failure to comply with these rules, such as late filing of GSTR-4, can result in penalties, including a fine of ₹50 per day up to ₹2,000 or cancellation of registration.

Limitations of the GST Composition Scheme

Small business owners must weigh these limitations against the benefits before opting for the scheme.

There are trade-offs for using the GST Composition Scheme even though it offers many benefits. Trade-offs include:

No ITC :You cannot claim credit for GST paid on inputs, which could result in higher expenses for your business if you purchase goods that are highly taxed.
Limited Market :The GST Composition Scheme prohibits interstate supplies which may limit sales potential for businesses that are going to expand.
Fixed Tax in Losses : Dealers will have to continue to pay a fixed tax whether there is a profit or loss based on turnover, with possibly damaging effects to cash flow.
Not for E-Commerce :If your business sells products using e-commerce platforms and have tax collection at source, you cannot use the GST Composition Scheme.

Small business owners must evaluate the restrictions on using the GST Composition Scheme against the benefits before using it.

How to Register for the GST Composition Scheme

Opting the GST Composition Scheme is simple and can be done online:

Go to the GST Portal (www.gst.gov.in).
Go to Services > Registration > Application to Opt for Composition Levy
Complete Form GST CMP-02 with the relevant business details and confirm eligibility.
Submit the application with a Digital Signature Certificate (DSC) if you are a company/LLP or use an Electronic Verification Code (EVC) if you are an ‘other’ taxpayer.
Once submitted successfully, you’ll be provided with a confirmation via email or to the mobile number provided when registering.
New businesses can opt into the scheme when registering for GST and can do this using Form GST REG-01. Existing taxpayers must submit Form GST CMP-02 prior to the start of the financial year.

Transitioning from Regular GST to Composition Scheme

Form GST CMP-02 prior to the beginning of the financial year. Businesses will file their GST returns quarterly and pay taxes using prescribed fixed tax rates. Businesses are required to clear their unrecovered ITC claims prior to the switch as there will be no ITC available under the scheme under the new scheme.

If a business has carried out a supply of goods and/or services that exceeds the registration threshold or they carry out certain other activities such as interstate supplies that are ineligible under the GST Composition Scheme they will need to revert back to the regular GST. This will require the business to complete the Form GST CMP-04 and comply with standard GST regulations.

Please check out this guide from Growthinfy on GST registration, ‘A guide to GST compliance‘, to make it easier for you to comply with the tax system.

Is the GST Composition Scheme Right for Your Business?

The GST Composition Scheme provides a big solution for small businesses with limited resources. The GST’s lower tax rates, eased compliance, and lesser record maintenance are well-suited for traders, manufacturers, and restaurants with a turnover below ₹1.5 crore. However, if you have high input costs or expect to grow your business outside of your local market, you will be left vexed with the lack of ITC and limited market in the Scheme.

Before deciding to register under the GST Composition Scheme, consider your business turnaround, growth objectives, and input costs. A GST practitioner or chartered accounts may help obtain a balanced review of your options.

Conclusion

For small businesses in India, the GST Composition Scheme helps simplify tax compliance as well as reduce the financial burden. Specifically, tax rates are lower, compliance costs are more manageable, and participants retain improved cash flow which allows MSMEs to think about growing the business rather than all the compliance submissions associated with taxes. However, MSMEs must also consider the limitations associated with the scheme, like no ITC and limitation on interstate sales. If small business owners familiarize themselves with the GST Composition Scheme’s rules and turnover limits, they can take advantage of this scheme to operational advantages and additional profitability!

GST Registration: Who Needs It and How to Apply

Posted on: 11 June 202518 July 2025 by: Aditya Narayanin: Indirect Tax2 Comments

GST Registration in India: 2025 Updated Guide

Goods and Services Tax (GST) in India is a comprehensive, destination-based indirect tax on goods and services. A person engaging in business is required to obtain registration under GST if he satisfies any permitted threshold limit or if the law provides for persons of a particular category to be registered for GST irrespective of threshold limits. The process of registration has been revamped recently by the Central Board of Indirect Taxes and Customs (CBIC) in order to reduce delay and promote transparency .

Who Needs to Register for GST?

Mandatory Registration

1.Registration Thresholds:₹40 lakh for goods (₹20 lakh for services) for most of the states. ₹10 lakh for special category states.

2. Interstate Suppliers: Businesses supplying goods or services across state boundaries, irrespective of turnover.

3. E-commerce Sellers and Aggregators: Any seller selling on platforms such as Amazon, Flipkart, or any other for that matter.

4. Casual & Non-Resident Taxable Persons: Temporary stall owners or foreign companies supplying in India.

5. Reverse Charge & TDS Diductors: Under reverse charge or deducting TDS have to register.

6. Voluntary Registration: The registration can be voluntarily done by any business, even if under the threshold, to avail certain benefits like input tax credit (ITC).

Benefits of GST Registration

Legal Recognition: Gives a unique 15-digit GSTIN, improving credibility in front of buyers and authorities.
Input Tax Credit (ITC): Enables the claiming back of GST input paid as inputs, thereby reducing the overall tax burden.
Interstate Business: Permits a flexible expansion and sales procedure across state boundaries.
Simplified Compliance: Merges a bunch of indirect taxes into one system, resulting in less administrative effort.
Enhanced Credibility: Builds a high level of trust among big corporates and government tenders.
Long Term Validity: A regular GST registration doesn’t expire (except casual/non-resident registrations, which expire 90 days from the date of registration or on the date of supply, whichever is earlier).

Documents Required for GST Registration (2025)

Common to All Types of Business:

PAN Card (Business/Individual)
Aadhaar Card (for identity check)
Bank Account Details (cancelled cheque, bank statement, or passbook extract)
Proof of Business Address (rent agreement, utility bill, or sale deed)
Passport Size Photograph of the applicant

Sole Proprietorship:

PAN and Aadhaar of the Proprietor.

Partnership Firm:

Partnership Deed, PAN of firm, Address proof, PAN/Aadhaar of partners.

LLP/Company:

Certificate of Incorporation, MOA & AOA, Board resolution, DSC

Non-Resident Taxable Person:

Foreign registration, passport copy, PAN/Aadhaar of Indian signatory

Special Cases (SEZ Units):

Letter of Approval/Permission from SEZ Authority.

Also Read our insightful blog on GST on sponsorship services.

Step-by-Step GST Registration Process (2025)

1.Visit the GST Portal:

Visit www.gst.gov.in, Services > Registration > New Registration.

Select Type of Registration:Select relevant types of taxpayer, like Normal, Composition, Casual, etc.
Enter Part A GST REG-01:

Here enter the following business legal name, PAN, e-mail, and mobile number.
Verify using OTP sent to mail and mobile.

Receive Temporary Reference Number (TRN): Note the TRN available for Part B.
Complete Part B:

Log in using the TRN.
Enter business details, promoter/partner information, authorized signatory details, principal place of business, and bank details (optional at this stage).
Enter HSN/SAC code for 5 goods and 5 services.

Upload Documents: Upload relevant documents (PDF/JPEG, max 1 MB per file, max two files).
Authenticate Aadhaar: Biometric-based authentication of Aadhaar can grant faster approval.
Verify and Submit: Validate and submit using DSC or EVC.
Receive ARN: Track the status of an application using ARN.
Get GSTIN: Receive the GSTIN and GST REG-06 certificate upon approval.

Processing Time, Fees, and Verification

Processing Time: Usually takes 2 to 6 working days where documents are correct and verified. Complex cases may even take up to 15 days.
Fees: There is no government fee for GST registration. However, professional bodies may charge for assisting clients.
Verification Process: Aadhaar authentication is mandated all over the country for faster approval. Physical verification happens only in cases where Aadhaar authentication has not been used or discrepancies crop up. Senior officer(Joint Commissioner) approval is mandatory for physical verification, which has to be documented with an intimation given beforehand.
Penalties: Failure to register when required to shall invite a penalty amounting to 10% of tax due or ₹10,000 whichever is higher.

Key Updates and Best Practices (2025)

Strict Document List Adherence: Officers must only request documents listed in FORM GST REG-01. Additional documents cannot be demanded without specific approval .
Enhanced Accountability: Physical verification now requires prior approval from a Joint Commissioner, reducing harassment and delays
Aadhaar Authentication: Biometric-based Aadhaar authentication is mandatory for most applicants, speeding up the process and reducing the need for physical verification .
Transparency and Timeliness: The CBIC has emphasized minimal queries and timely approvals to support genuine businesses .

Common Mistakes to Avoid

Incorrect PAN Details: Legal name must not differ from PAN.
Blurry/Invalid Documents: Clear, recent, and valid documents required.
Mismatch in Address: Address proof has to match the declared place of business.
Expired DSC: For companies/LLPs, the Digital Signature Certificate should be valid.
Delay in the OTP/TRN Verification: OTP and TRN are time-sensitive.
Ignoring Updates: Constantly update oneself with changes in GST rules and guidelines.
Incomplete HSN/SAC Codes: Rejection can occur if there is an inaccuracy in the code for goods/services.

FAQs

Is registration under GST compulsory for small businesses?

No, if the turnover is below the threshold. However, voluntary registration is allowed for claiming the input tax credit.

What is the validity period under GST?

The normal registration is permanent; registration for casual or non-resident suppliers is valid for 90 days or the period of supply.

Can details be amended post-registration?

Yes. Such amendments can be done using Form GST REG-14.

What if I am not registered when required to do so?

A penalty of 10% of tax due or Rs.10,000, whichever is higher.

Is it mandatory to provide bank details at the time of registration?

No, it is optional. In the case of providing bank details later, the same should be updated within 45 days post-registration by an amendment application.

How can I check the status of my application for registration?

Using ARN on the GST Portal (Services > Registration > Track Application Status).

E-Way Bill: Rules, Compliance, and Common Challenges

WHAT IS E-Way Bill SYSTEM?

Posted on: 3 June 202510 June 2025 by: Aditya Narayanin: Indirect TaxLeave a reply

E-Way Bill: Rules, Compliance, and Common Challenges

A key component of India’s Goods and Services Tax (GST) framework, the E-Way Bill was created to facilitate the flow of goods throughout the nation. Real-time tracking of goods in transit and the prevention of tax evasion are the two main goals of the e-way bill system.

This article offers a thorough overview of e-way bill regulations, compliance standards, and typical business difficulties. Knowing how the e-way bill portal operates is crucial for hassle-free operations, regardless of your role as a manufacturer, trader, or transporter.

What is an E-Way Bill?

For the transportation of goods valued at more than ₹50,000, an electronic document known as an E-Way Bill is necessary. It must travel with the goods and is created on the e-way bill portal (https://ewaybillgst.gov.in).

Applicability of E-Way Bill

When is an E-Way Bill Required?

Transportation of goods between states (interstate) or within a state (intra-state)
Over ₹50,000 is the value of the consignment (which could be for one invoice or several invoices in one vehicle).

Job work consignments or e-commerce transactions

Who Should Generate the E-Way Bill?

Those who have registered: When products are delivered by courier or in their own or rented car
Transport : If the e-way bill has not been created by the supplier
Unregistered individuals: When delivering to a registered individual

How to Generate E-Way Bill – Step-by-Step

You can generate an e way bill using:

E Way Bill Portal: ewaybillgst.gov.in
SMS facility
Mobile App
API Integration

Steps to Generate E-Way Bill on Portal:

Login to ewaybillgst.gov.in
Go to E-Way Bill > Generate New
Fill details like:
- GSTIN of supplier/recipient
- Invoice number & date
- Value of goods
- HSN code
- Transporter details (vehicle number, mode of transport)
Click “Submit” and a unique 12-digit EWB number will be generated.

Validity of E-Way Bill

Distance (in KM)	Validity
Up to 100 km	1 day
Every additional 100 km	+1 day

Note: For over-dimensional cargo (ODC), different rules apply.

E-Way Bill Compliance Rules

1. Carry E-Way Bill During Transit

The driver must carry the e way bill (physical copy or EWB number).

2. Part-B is Mandatory for Transport

Part-B (vehicle number) is required before goods are transported.

3. Updating Vehicle Number

If the vehicle changes en route, the EWB must be updated.

4. Cancellation

E-way bill can be cancelled within 24 hours of generation (if goods were not transported).

5. Consolidated E-Way Bill

If multiple consignments are being transported in one vehicle, a consolidated e way bill can be generated.

Penalties for Non-Compliance

₹10,000 or tax sought to be evaded—whichever is higher.
Goods and vehicle can be detained or seized.
Mandatory penalty for incorrect or expired EWB.

Common Challenges in E-Way Bill Compliance

1. Data Entry Errors

Incorrect GSTIN, HSN, or invoice value can invalidate the EWB.

2. Vehicle Number Update Delays

Frequent vehicle changes require real-time updates, which many businesses miss.

3. Connectivity Issues

Internet or server downtime on the e way bill portal can delay generation.

4. Non-Integration with ERP

Businesses not using API integration face delays due to manual entry.

5. Interpretation of Distance & Route

Misunderstanding actual distance can lead to early EWB expiry.

Best Practices for Smooth E-Way Bill Compliance

Use an API to connect billing or ERP software to the e-way bill system.
Develop warehouse and logistics teams
Audit EWB records on a regular basis and compare them to invoices.
For transactions with a high volume, use the bulk upload feature.
Remind people when their EWBs expire and renew.

Conclusion

An essential component of GST compliance in India is the e-way bill system. When used properly, it makes logistics easier and promotes transparency. Businesses can guarantee smooth transportation and stay out of trouble by knowing the regulations, making effective use of the e-way bill portal, and avoiding typical errors.

Growthinfy offers comprehensive support for GST compliance. Allow us to assist you in becoming more intelligent and staying compliant.

FAQs on E-Way Bill

Q1. Can I generate an E-Way Bill without GST registration?
No, only registered users can generate EWB except in the case of unregistered-to-registered supply.

Q2. Is EWB needed for job work?
Yes, job work transactions also require e way bill generation.

Q3. What if the goods are sent through public transport?
Even then, an EWB is mandatory, and the transporter details must be updated.

Unveil the Hidden Magic of Input Tax Credit (ITC) and Maximize Your GST Benefits

Posted on: 28 May 202510 June 2025 by: Aditya Narayanin: Indirect Tax2 Comments

What Is Input Tax Credit (ITC) and How to Claim It?

With the Input Tax Credit (ITC), companies in India can take advantage of an important attribute under the GST system. It grants companies credit for GST paid on purchases or expenses made for business purposes, thereby reducing their overall tax burden. For any company to maximize cash flow and ensure compliance with the act, it will be important that they understand what input tax credit is and how to ask for it under GST.

To make ITC a prime resource for companies in taking full advantage of GST tax planning, we will go through the concept of ITC, its advantages, eligibility requirements, procedure to claim, and recent developments.

What Is Input Tax Credit?

Input Tax Credit refers to the credit a registered taxpayer receives for the GST paid on inputs (goods or services purchased) that are used in the course of business. You can deduct this input tax from your output tax liability (i.e., the GST you collect from customers).

What Is Input Tax Credit under GST with Example?

Suppose you are a manufacturer:

1. GST on your sales (output tax) = ₹10,000
2. GST paid on purchases (input tax) = ₹6,000
3. Net GST payable to government = ₹10,000 – ₹6,000 = ₹4,000

Such adjustment of input tax against output tax is called Input Tax Credit under GST scenario.
Input Tax Credit is that credit which a registered taxpayer gets in respect of GST paid on purchase of inputs (goods or services) used in the course of business. This input tax may be adjusted against the output tax payable (GST charged from customers).

Who Can Claim Input Tax Credit?

To claim ITC, a person must:

Register for GST.
Have a legitimate tax invoice or debit note on hand.
Have received products or services
Verify that the supplier has submitted a GSTR-1 and paid GST to the government.
Properly file GSTR-3B.
Within 180 days of the invoice date, pay the supplier.
Not included in the composition scheme
Not deduct depreciation from capital goods’ tax component

What Can Be Claimed as Input Tax Credit?

ITC can be claimed on goods and services used only for business purposes. However, there are specific exclusions.

Ineligible ITC under GST (As per Section 17(5) of CGST Act):

Motor vehicles for personal use
Food and beverages, outdoor catering (unless obligatory under law)
Club memberships, health & fitness services
Construction of immovable property (except for plant and machinery)
Goods lost, stolen, written off, or given as gifts
Documents Required to Claim ITC

To claim ITC, maintain the following documents:

Tax invoice issued by supplier
Debit note (if applicable)
Bill of entry (in case of imports)
ISD invoice (for input service distribution)
Any document as prescribed under GST rules

How to Claim Input Tax Credit Under GST?

Claiming ITC is a step-by-step process that must be done with accuracy to avoid penalties.

Step-by-Step Process to Claim ITC:

Reconcile purchase register with GSTR-2B (auto-generated ITC statement)
Ensure supplier has filed GSTR-1 and invoice reflects in GSTR-2B
File your GSTR-3B return
Report the eligible ITC in Table 4A of GSTR-3B
Reverse any ineligible ITC in Table 4B
Match and validate using the Invoice Management System (IMS)

Note: From 1st January 2022, provisional ITC is no longer allowed. You can only claim credit for invoices that appear in your GSTR-2B.

Time Limit to Claim ITC

For example, if an invoice is dated 10th March 2025, you must claim ITC by 30th November 2025, or before you file the annual return for FY 2024-25.

ITC must be claimed by November 30 of the subsequent fiscal year, OR
the annual return filing date, whichever comes first.

For instance, you must claim ITC by November 30, 2024, or prior to filing the annual return for FY 2023–2024, if the invoice is dated March 10, 2024.

Reversal of Input Tax Credit

ITC must be reversed in specific situations:

Payment to supplier not made within 180 days
Goods/services used partly for personal use or exempt supplies
Credit notes issued post-supply
Capital goods used for both exempt and taxable supplies
ITC claimed but later found ineligible or mismatched
Such reversals must be reported in GSTR-3B and may attract interest.

ITC Reconciliation – Why It Matters?

ITC reconciliation ensures your GSTR-3B claims match with:

Your purchase register
The supplier’s GSTR-1 (via GSTR-2B)
The Invoice Management System (IMS)

Failure to reconcile accurately may result in GST notices, demand for excess claimed ITC, and potential penalties.

Automating ITC Claims – The Smart Way Forward

With GST compliance becoming more digitized, using automation tools like GST reconciliation software helps:

Match invoices across GSTR-2B, IMS, and purchase register
Identify mismatches and take corrective actions
Auto-calculate ITC reversals
Maintain audit trails and documentation
This reduces errors, ensures timely filing, and maximizes your eligible ITC.

Current Input Tax Credit Updates (per Union Budget 2025)

Section 34 Amendment: If the supplier issues a credit note, the ITC has to be reversed.
Section 38 Amendment: Invoice-level validation through IMS is now required after the term “auto-generated” was eliminated.
Section 128A Relief: Notification No. 21/2024 exempts certain non-fraudulent ITC claims from 2017–2020 from interest and penalties.

Conclusion

Every GST-registered business in India must comprehend what input tax credit (ITC) is and follow the proper procedure for claiming ITC under GST. In addition to lowering tax outflow, accurate compliance enhances cash flow overall. Using automation tools and keeping up with legal changes will guarantee that you’re always ahead of compliance challenges as the GST law becomes more data-driven and reconciliations more complicated.

FAQs

Q1. Is it possible to claim ITC on capital goods?
Yes, if they are used for business and not claimed as depreciation.

Q2. Can ITC be claimed on exempt supplies?
No, ITC is not allowed for inputs utilized for making exempt supplies.

Q3. What if my supplier fails to file GSTR-1?
You cannot claim ITC unless the supplier files GSTR-1 and it gets reflected in your
GSTR-2B.

Q4. Am I entitled to claim ITC under the composition scheme?
No, businesses under the composition scheme are not entitled to ITC

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GST Notices: Common Reasons and How to Respond

What is the GST Audit Limit?

Key Points on GST Audit Limit:

Common Reasons for GST Notices

1.Discrepancies in GST Returns

2. Non-Filing or Late Filing of Returns

3. Incorrect ITC Claims

4. Turnover Misreporting

5. Non-Compliance with E-Invoicing or E-Way Bills

6. Departmental Audits Under Section 65

How to Respond to GST Notices

1. Understand the Notice

2. Gather Relevant Documents

3. Draft a Clear Response

4. File the Response Online

5. Seek Professional Help

6. Follow Up

Preventive Measures to Avoid GST Notices

Latest Trends in GST Audits (2025)

Conclusion

GST on E-Commerce: Key Insights for Sellers & Buyers

Understanding GST on E-Commerce

GST Compliance for E-Commerce Sellers

Mandatory GST Registration

Tax Collection at Source (TCS)

Filing GST Returns

No Composition Scheme for E-Commerce

GST on E-Commerce Transactions: Key Considerations

Place of Supply Rules

Types of GST Rates

Section 9(5) Services

Impact of GST on E-Commerce Sellers

What Buyers Should Know About GST on E-Commerce

GST in Pricing

Invoice Transparency

Impact on Product Pricing

Challenges and Solutions in GST Compliance

Common Challenges

Practical Solutions

Conclusion

Understanding Rule 88B of CGST Rules: Interest on Delayed Payment of GST

What is Rule 88B of CGST Rules?

Key Provisions of Rule 88B

1.Interest on Late Filing of GST Returns (Rule 88B(1))

2.Interest on Delayed Tax Payments (Rule 88B(2))

3. Interest on Wrongly Availed ITC (Rule 88B(3))

Scenarios Where Interest is Not Payable

Recent Amendments and GST Council Recommendations

Practical Tips for GST Compliance Under Rule 88B

Judicial Interpretations and Controversies

Real-World Impact on Businesses

Conclusion

History of HSN Code: Meaning, Significance, and Impact in India

What is the HSN Code Meaning?

History of HSN Code: A Global Perspective

HSN Code in India: Evolution and Adoption

Significance of HSN Codes in GST India

Impact of HSN Codes on Businesses

How to Find HSN Codes in India

Why HSN Codes Matter for Indian Businesses

Challenges and Tips for Using HSN Codes

HSN Code vs. SAC Code: What’s the Difference?

Future of HSN Codes in India

Conclusion

Understanding the Reverse Charge Mechanism in GST: A Comprehensive Guide

What is Reverse Charge Mechanism in GST?

Why Was the Reverse Charge Mechanism Introduced?

When is Reverse Charge Mechanism Applicable?

2. Supply from Unregistered Suppliers

3. Import of Service

4. Other specific cases

How Does Reverse Charge Mechanism Work?

Key Rules for Reverse Charge Mechanism Under GST

1.Self-invoicing:

2.Time of Supply:

3. For the supply of services the time of supply is the earliest of:

4. GST Registration: