Should you voluntarily register For GST?

Any business can opt for voluntary registration under the Goods and Service Tax regime. They can do so even when their turnover is below Rs 20 lakhs (Rs 10 lakhs for NE States). Every provision contained in the GST Act which applies to a normal taxpayer would apply to the individual who has registered voluntarily and they will have to comply with all the provisions.

Let us look at this with the help of an example. We know that the turnover threshold for normal taxpayers is Rs 20 lakhs. This means that a spare parts dealer having a turnover of Rs 13-15 lakh is not required to register under the GST regime. 

However, this dealeris providing input materials to a large workshop nearby which has a turnover exceeding Rs 20 lakh, who is a registered taxpayer. In such a situation, the spare parts dealer may register voluntarily. The workshop will prefer to deal with suppliers who are registered, so there is no additional burden of compliance for purchasing from an unregistered dealer and there is easy flow of inputs credit on tax paid on purchases.

Benefits of Voluntary Registration under GST regime

Many small businesses are willing to register themselves under the GST regime voluntarily. The composition scheme has certain shortcomings which experts believe will be eased by voluntary registration. Below are the benefits that voluntary registration is expected to bring:

Benefits to your buyers –By registering under GST you will be able to issue tax invoices to your customers. Your customers, consecutively, will be able to take input credit on the purchases they make from you. This would help to grow your customer base and give you access to a large market of buyers.

Benefits of input tax credit– Taxpayers who are registered voluntarily can claim input tax credit on their inputs, i.e. purchases and services used by them. This will help improveyour business margin and overall profitability.

Lesser restrictions for inter-state transactions – Individuals who are registered under the GST regime would be able to make inter-state sales with lesser restrictions. Hence, it would broaden the market for the Small and Medium-sized enterprises (SMEs). Such SMEs could also set up online shops by selling their products on e-commerce platforms.

Compliance and Ratings–GSTN will provide compliance rating for all its registrants. This will be based on timely filing of return and payment of tax, fewer reconciliations etc. When your business is compliant, more businesses will prefer to buy from you and deal with you.So, registering voluntarily is likely to give you additional business.

Demerits of Voluntary Registration under the GST regime

Businesses registering voluntarily under the GST regime will need additional resources for working capital liquidity and will have to set aside resources for compliance.

Number of returns to be filed – Businesses registered under the GST regime will have to file 3 returns on a monthly basis. The returns which need to be filed are GSTR-1, GSTR-2, GSTR-3 which will also include details with respect to all the sales, purchases, and the ultimate tax liability after claiming ITC (Input Tax Credit). In case of failure in filing these returns, the ITC (input tax credit) to your buyer will be denied and penalty may apply. Your compliance will go up significantly.

Tax liability – After registering under the GST regime, a supplier would have an added obligation to collect and deposit the taxes to the credit of the Government.

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Multiple registration depending on business activity – Under this new law, every individual would be required to seek registration in every state where his/her business activity is carried on. Goods and Service Tax is a destination-based tax, and returns are required to be filed in each state where registration has been made. In simple words, a small dealer supplying to 5 statesmay have to register in all 5 states to make sure input tax credit is available. Additional registrations would mean more number of GST returns and higher cost of compliance for the business.

Assessment and penal provisions – After registering under the GST regime, a business would be legally bound by the penal provisions under the GST law. Any failure in compliance may attract a penalty.

The final word

While there are some demerits of the voluntary registration scheme, the benefits are manifold and can help SMEs in improving their client base. Based on the above businesses must evaluate whether they stand to benefit from registering. A simple and basic model of compliance and return filing may serve these SMEs well.

The writer is Archit Gupta, Founder & CEO ClearTax.com.