The cost of ESOPs and their distributions can significantly impact a startup’s financials. This section explores how ESOPs are valued and distributed, along with their potential costs for both the company and employees.
The post 54th GST Council Meeting in 2024: Highlights, Updates, Latest News and Press Release appeared first on Razorpay Learn.
]]>Highlights from 54th GST Council Meeting
As per the Press Information Bureau, here are the following key highlights from the 54th GST Council meeting on 09th September 2024.
Exemption for R&D Educational Institutions
GST Council recommended exempting the supply of research and development services by government entities or research associations, universities, colleges, or other institutions notified under section 35 of the Income Tax Act when using government or private grants.
Reduced GST Rates on Cancer Drugs
The Council recommended reducing GST rates on certain cancer drugs, including Trastuzumab Deruxtecan, Osimertinib, and Durvalumab, from 12% to 5%.
B2C E-Invoicing Pilot
GST Council has recommended implementation of e-invoicing for B2C transactions in a phased manner to prevent cases of false invoicing. This will allow customers to verify their invoices before reporting them while filing GST Returns. Until now, e-invoicing was applicable to B2B transactions for a registered person with a turnover of over Rs.5 crore
Enhancements to the New Invoice Management System
Post the introduction of Invoice Management System, the GST Council proposed other enhancements to the current GST return filing mechanism, such as a Reverse Charge Mechanism (RCM) ledger and an Input Tax Credit Reclaim ledger.
Status Report on Rate Rationalisation and Real Estate
The status reports were duly submitted by the Group of Ministers (GoM) formed on rate rationalisation and real estate, respectively, on the basis of which further discussions regarding the above two subjects will be held in upcoming council meetings.
No Changes to GST On Online Gaming
No changes were announced to GST on Online Gaming. Therefore, as decided in the 50th GST Council meeting held in October 2023, 28% of the GST stands applicable to casinos, games, and race courses.
The status was due to be reviewed after six months of the implementation. The current revenue from Online Gaming had increased by 412% in 6 months to Rs. 6,909 crores from Rs.1,349 crores before the notification was issued, whereas the revenue in case of casinos was increased by 30%, i.e., from Rs.164 crores to Rs. 214 crores.
GoM on Life and Health Insurance
The GST Council recommended the formation of a Group of Ministers (GoM) to study GST related to life and health insurance, which is an extension of the GoM on Rate Rationalisation. The newly formed GoM is required to submit the report by the end of October 2024. Therefore, the GST Council maintained the status quo by keeping the GST rate at 18% on life and health insurance and deferring it to the next meeting. The next GST Council Meeting will happen in November 2024.
Committee of Secretaries for IGST
A Committee of Secretaries under the chairmanship of the additional secretary revenue will be formed to explain and decide on the future of IGST and how to proceed with the same. Given a negative balance in IGST, retrieval process of the excess IGST passed on to some states will be studied. This report has to be submitted by the end of October 2024.
GoM on Compensation Cess
Finance Minister Nirmala Sitharaman stated that the total cess collected amounted to ₹8,66,706 crore. Additionally, she announced the formation of a Group of Ministers (GoM) to investigate and recommend a path forward for the compensation cess, which is scheduled to expire in March 2026. The GoM will study the feasibility of extending the cess or explore alternative funding mechanisms to support states impacted by the GST transition.
GST Rate Changes/Clarifications from 54th GST Council Meeting
| Goods/Service | HSN/SAC Code | Current Rate | Recommended Rate | Remarks |
| Cancer drugs like Trastuzumab Deruxtecan, Osimertinib and Durvalumab | 9804 | 12% | 5% | To make the cancer treatment more affordable |
| Namkeens and Extruded/Expanded Savoury food products | 19059030 | 18% | 12% | The change will be applied prospectively |
| Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways | 8415 | 28% | ||
| Car and Motor cycle seats | 9401 | 18% | 28% | The change will be applied prospectively |
| Transport of passengers by helicopters | 9964 | 18% | 5% |
54th GST Council Meeting Press Release Download
Download the 54th GST Council meeting press release issued by press information bureau after the conclusion of the meeting and press conference on 09th September 2024.
GST Rate Changes and Clarifications on Goods
1. GST on Namkeens and Extruded/Expanded Savoury Food Products
In the 54th GST Council meeting, the GST rate on namkeens, extruded, and expanded savory food items like bhujia was prospectively reduced from 18% to 12% except un-fried/un-cooked snack pellets).
2. GST Rate on Cancer Drugs
To make cancer treatment more affordable, the GST Council previously exempted the life-saving drug Dinutuximab (Qarziba), valued at Rs. 36 lakh, from GST. In their 54th meeting, the Council further reduced the GST rate on cancer drugs likeTrastuzumab Deruxtecan, Osimertinib, and Durvalumab from 12% to 5%.
3. RCM on Metal Scrap
A Reverse Charge Mechanism (RCM) will be introduced for the supply of metal scrap from unregistered suppliers to registered persons. The supplier must register when they exceed the threshold limit. The recipient, liable under RCM, will pay the tax even if the supplier is below the threshold. Additionally, a 2% Tax Deducted at Source (TDS) will apply to B2B supplies of metal scrap by registered persons.
Related Read: GST Rates on Steel and Iron Metal Scraps
4. GST on RMPU Air Conditioning Machines for Railways
Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways will be classified under Harmonized System (HS) code 8415, subject to a 28% GST rate.
Related Read: GST Rate on Air Conditioners (AC)
5. GST Rate on Car and Motorcycle Seats
The GST rate on car seats under HS code 9401 will be increased from 18% to 28%. This uniform rate of 28% will apply prospectively to car seats of motor cars, aligning with the 28% GST rate for motorcycle seats.
GST Rate Changes and Clarifications on Services
1. GST on Life and Health Insurance Premiums
At present, the GST rate on life and health insurance premiums is 18%. During the 54th GST Council meeting, it was expected that the 18% GST rate would either be exempted or reduced to 5%.
The 54th GST Council recommended the formation of a Group of Ministers (GoM) to comprehensively address GST-related issues concerning life and health insurance. The GoM members include Bihar, Uttar Pradesh, West Bengal, Karnataka, Kerala, Rajasthan, Andhra Pradesh, Meghalaya, Goa, Telangana, Tamil Nadu, Punjab, and Gujarat. The GoM is expected to submit its report by the end of October 2024.
2. GST on Transport of Passengers by Helicopters
The council has implemented a 5% GST rate on the transportation of passengers by helicopters on a seat-sharing basis and to retroactively regularize GST for past periods. Additionally, it’s clarified that chartering a helicopter will continue to be subject to an 18% GST rate.
3. GST on Flying Training Courses
In the 54th GST Council meeting, it was decided to issue a circular clarifying that approved flying training courses conducted by DGCA-approved Flying Training Organizations (FTOs) are exempt from GST.
4. GST on Supply of Research and Development Services
In August 2024, seven Indian educational institutions faced GST notices from the DGGI demanding ₹220 crore in unpaid taxes. Meanwhile, the 54th GST Council meeting exempted university R&D grants from GST.
5. GST on Payment Aggregators
Currently, payment aggregators enjoy a GST exemption for transactions under ₹2,000. This exemption was implemented in 2017 to encourage digital payments for smaller merchant transactions. The 54th GST Council meeting considered imposing an 18% GST on payment aggregators for income from transactions below ₹2,000. However, the decision was deferred and referred to the Fitment Committee for further review.
6. GST on Preferential Location Charges (PLC)
Preferential Location Charges (PLC) paid for construction services of residential, commercial, or industrial complexes before the issuance of a completion certificate are considered part of a composite supply. The main service in this case is the construction service, and PLC is naturally bundled with it. Therefore, PLC is eligible for the same GST treatment as the construction service.
7. GST on Affiliation services
Affiliation services provided by educational boards like CBSE are subject to GST. However, affiliation services offered by State/Central educational boards, educational councils, or similar entities to government schools will be exempt from GST prospectively. Past tax liabilities for the period between 01.07.2017 and 17.06.2021 will be regularized on an ‘as is where is’ basis.
A circular will be issued to clarify that affiliation services provided by universities to their constituent colleges are not covered under the exemptions granted to educational institutions in Notification No. 12/2017-CT(R) dated 28.06.2017. Therefore, these affiliation services are subject to an 18% GST rate.
8. GST on Import of service by branch Office
The GST Council recommended exempting the import of services by a foreign airline company’s establishment in India from a related person or any of its establishments outside India, when such imports are made without consideration. Additionally, the Council recommended regularizing past tax liabilities on an ‘as is where is’ basis.
9. RCM on Renting of commercial property
To prevent revenue leakage, the GST Council recommended bringing the renting of commercial property by unregistered persons to registered persons under the Reverse Charge Mechanism (RCM)
10. Ancillary/intermediate services are provided by GTA
To clarify that when ancillary/intermediate services like loading, unloading, packing, unpacking, transshipment, or temporary warehousing are provided by a Goods Transport Agency (GTA) during the transportation of goods by road and the GTA also issues a consignment note, these services will be considered part of a composite supply. However, if these services are not provided in the context of transportation and are invoiced separately, they will not be treated as part of the composite supply of transportation.
Related Read: Goods Transport Agency Under GST
54th GST Council Meeting in 2024: New Measures
B2C E-invoicing
- The GST Council recommended a pilot rollout of B2C e-invoicing, building on the successful implementation of B2B e-invoicing.
- The Council highlighted potential benefits for retail, such as increased efficiency, environmental friendliness, and cost savings.
- Retail customers would have the opportunity to verify invoice reporting in GST returns.
- The pilot will be voluntary and implemented in selected sectors and states.
Invoice Management System and New Ledgers
- The Council noted enhancements to the GST return architecture, including an RCM ledger, an Input Tax Credit Reclaim ledger, and an Invoice Management System (IMS).
- Taxpayers will have until October 31, 2024, to declare their opening balances for these ledgers.
- IMS will enable taxpayers to accept, reject, or hold invoices for input tax credit purposes.
- This optional feature aims to reduce input tax credit errors and improve reconciliation, potentially leading to fewer notices due to ITC mismatches in returns.
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]]>GST for food and restaurant services has replaced the old VAT (Value Added Tax) and Service Tax . However, the service charge you pay at a restaurant is not the same as GST; it’s separate.
When it comes to alcoholic drinks, alcoholic liquor is liable to be taxed @ 18% GST. However, GST on alcohol is not charged. State-level VAT in charged on Alcohol.
For example, if you’re at a restaurant that serves both food and alcohol, you’ll pay GST on the food and non-alcoholic drinks, while VAT will be applied to the alcoholic beverages. For everyday food purchases, the GST rates range from 0% to 18%, depending on what you’re buying.
Restaurant Bills Before GST Implementation
Components of the Restaurant Bill Under VAT:
Before the implementation of GST, restaurant bills included multiple components:
VAT: Applied to the food portion of the bill.
Service Tax: Tax on the services provided by the restaurant.
Service Charge: Additional charge by the restaurant, not a tax.
Under the VAT system, different items on the menu were taxed at different rates, complicating the billing process. GST rates on food aimed to standardise this by replacing multiple taxes with a single tax rate applicable to the entire bill.
What were the Original GST Rules for Restaurants?
Restaurants fell under three different rate slabs, when the GST was first launched in July 2017.
With no air conditioning, the GST on restaurants was charged at 12%.
With AC or a liquor license, GST on restaurants was 18%.
For restaurants within five-star hotels, the GST rate was set at 28%
At that time, all Indian restaurants in India could take advantage of the input tax credit. It is applicable when you paid GST while buying supplies for your restaurant, you could subtract that amount from your tax bill.
GST Rate on Food, Restaurant Services, Beverage Services, and Accommodation
Under GST, Restaurants fall under the 5% GST rate, with no option to claim input tax credit (ITC) or the 18% GST rate, with ITC claims.
GST rate is decided depending on the location of the restaurant. For example, a higher GST rate would be applicable for restaurants located within hotels where the room tariff exceeds a specific amount.
The GST rate on restaurant food services is determined based on the type of establishment and other factors.
Type of Service |
GST Rate |
| GST on standalone restaurants, including takeaway (Non-AC) | 5% with No Input Tax Credit |
| GST on standalone restaurants, including takeaway (AC) | 5% with No Input Tax Credit |
| GST on restaurants within hotels (room tariff < Rs. 7500) | 5% with No Input Tax Credit |
| GST on restaurants within hotels (room tariff ≥ Rs. 7500) | 18% with Input Tax Credit |
| GST on outdoor catering services | 18% with Input Tax Credit |
| GST on Quick Service Restaurants (QSR) | 5% with No Input Tax Credit |
| Meals/food services provided by Indian Railways/IRCTC or their licensees both in trains or at platforms. | 5% with No Input Tax Credit |
| Any food/drink served at cafeteria/canteen/mess operating on a contract basis in the office, industrial unit, or by any school, college, etc on basis of a contractual agreement that is not event-based or occasional | 5% with No Input Tax Credit |
| Food services provided on a premise arranged for organizing function along with renting of such premises | 18% |
| Other Accommodation, food, and beverage services | 18% |
Understanding GST Rules for Restaurants
Restaurants in India fall under two broad categories for GST purposes:
Standalone Restaurants
Standalone restaurants, which are not located within hotels and do not provide accommodation services, are generally subject to a 5% GST rate on their services. However, they do not have the option to claim Input Tax Credit (ITC) on the GST paid for their inputs.
This 5% GST rate applies to both food and beverages served by standalone restaurants.
Restaurants within Hotels
Restaurants that are part of hotels where the room tariff is Rs. 7,500 or more per day fall under a different GST category. These restaurants are subject to an 18% GST rate on their services, including food and beverages served. The key difference here is that they can claim Input Tax Credit (ITC) for the GST paid on their inputs, such as raw materials, services, and other supplies used in providing the restaurant services.
Note: GST rates are subject to periodic changes.
GST Rate on Food Items
Products |
GST Rate |
| GST on fresh, chilled, frozen vegetables | Nil |
| GST on dried vegetables that are packaged and labelled | 5% |
| GST on dried leguminous vegetables other than pre-packaged and labelled | Nil |
| GST on dried leguminous vegetables that are pre-packaged and labelled | 5% |
| GST on fresh/dried coconuts, grapes, apples, bananas, and pears, among others | Nil |
| GST on fruits like citrus fruits, grapes, pear, apples, bananas, papaya, melons, pears, mangoes, and berries, among others | Nil |
| GST on vegetables, fruits, nuts, and edible plant parts that are preserved using sugar | 12% |
| GST on fruits, nuts, and edible plant parts that are preserved and/or prepared using vinegar and/or acetic acid. | 12% |
| GST on rye other than pre-packaged and labelled | Nil |
| GST on rye, pre-packaged and labelled | 5% |
| GST on pasteurized milk (excluding UHT milk) fresh milk, and milk and cream (not concentrated nor contains added sugar or sweeteners) | Nil |
| GST on milk and cream that is concentrated or contains added sugar or sweeteners | 5% |
| GST on curd, buttermilk, and lassi, other than pre-packaged and pre-labelled | Nil |
| GST on curd, buttermilk, and lassi that is pre-packaged and pre-labelled | 5% |
| GST on yoghurt and cream, whether containing sugar/flavouring or not | 5% |
| GST on fresh or chilled meat and fish | Nil |
| GST on meat that is packaged and labelled | 5% |
| GST on pre-packaged and labelled cereal flours other than of wheat or meslin, rye, etc. | 5% |
| GST on chocolate and food preparations containing cocoa | 18% |
| GST on birds’ eggs in shells | Nil |
| GST on birds’ eggs which are not in a shell | 5% |
| GST on rice other than pre-packaged and labelled | Nil |
| GST on rice, pre-packaged and labelled | 5% |
| GST on wheat or meslin (i.e. maize flour) other than pre-packaged or labelled | Nil |
| GST on pre-packaged and labelled wheat or meslin | 5% |
Related Read: GST HSN Code List
Food Bill Pre and Post GST Era with Example
In the below example, the total amount payable to the tax authorities under the current regime sums up to Rs.950. However, under GST, net outflow from the pocket will be Rs.250, thanks to the reduced rates.
Particulars |
Billing under VAT regime |
Billing under GST regime |
| Total Bill | 5000 | 5000 |
| Output Tax | ||
| VAT @14.5% | 725 | |
| Service tax@6% | 300 | |
| GST @5% | 250 | |
| Total output tax liability | 1025 | 250 |
| Input credit | ||
| VAT ITC (no ITC on ST) | 75 | |
| GST ITC | – | |
| Final Output tax liability | ||
| VAT | 650 | |
| Service Tax | 300 | |
| GST | 250 |
Impact of GST on Food Items and Restaurants
The Goods and Services Tax (GST) has significantly impacted the Indian restaurant industry and the taxation of food items.
Decrease in Effective Tax
Before GST, customers had to deal with various taxes like VAT and Service Tax. With GST, these taxes were combined into a single rate, which led to a slight decrease in the overall cost of dining out. However, this reduction wasn’t very significant, and the service charge at restaurants stayed the same.
Input Tax Credit on Food and Restaurant Services
For restaurant owners, GST was expected to improve their cash flow by allowing them to get back the Input tax credit they paid on things like raw materials and rent. Initially, they couldn’t claim ITC. Although there have been changes since then, restaurants that charge 5% GST on their food services still can’t get these tax credits, unlike those charging 18% GST.
Exemption for Fresh and Frozen Food
As for food items, most fresh and frozen products, like vegetables and meat, are not taxed under GST. Only packaged foods with brand names are taxed. Currently, no food items are taxed more than 18%, and none fall into the highest tax bracket of 28%. So, there haven’t been any major price changes for food items due to GST..
Tax Slabs for Food Items
Food items and food services are categorized under various GST tax slabs, primarily 5% and 12%. This ensures that essential food items are not subjected to high taxation, with a maximum GST rate of 18% applicable to food services provided by restaurants.
Related Reads:
Frequently Asked Questions
How Much GST Tax on Food in Restaurant?
Restaurants without AC are charged at GST of 12%. Restaurants with AC or liquor licenses are charged at 18% GST while Restaurants within five-star hotels are charged at 28% GST
What is the rate of GST applicable on chocolate and cocoa products?
Chocolates and cocoa products have a GST rate of 18%.
Is there GST on takeaway food?
Yes, takeaway food does have GST. The rate can be either 5% or 18%, depending on where the restaurant is located.
What are the GST Rates on Catering Services?
GST rates on outdoor catering services is 18% (with ITC).
Is there a different GST rate for air-conditioned and non-air-conditioned restaurants?
No, there is no difference in GST rates for air-conditioned and non-air-conditioned restaurants under the current GST structure. Both are generally taxed at 5%.
Is GST applicable to packaged and processed food items?
Yes, GST on food items is applicable to packaged and processed food items, with rates generally ranging from 5% to 18%, depending on the type of product.
What is the GST rate on food served in trains?
The GST rate on food served in trains is 5%, irrespective of whether the food is cooked on board or supplied from outside.
What is the highest GST rate applicable on food items?
The highest rate of GST applicable in the food segment is 28%, which is applicable to certain goods such as caffeinated and carbonated beverages.
Are there any food items exempt from GST?
Yes, most fresh and frozen foods like vegetables, fresh fruits, meat, fish, etc. are exempt from GST.
Can restaurants claim input tax credit (ITC) on GST paid?
Restaurants can claim ITC if they charge 18% GST, but not if they charge 5% GST.
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]]>The post ESOP for Startups in India: Benefits, Legal Framework, Costs, and Taxation appeared first on Razorpay Learn.
]]>What is ESOP?
ESOPs, or Employee Stock Ownership Plans, are benefit plans that empower employees to become part owners of the company they work for by acquiring company stock. By aligning employees’ financial interests with those of the company’s shareholders, ESOPs foster a sense of ownership and motivation. As the company’s value grows and profits increase, employees can directly benefit through the appreciation of their stock holdings.
How Does ESOP Work in Startups?
1. Setting Up an ESOP Trust
- Stock Allocation: Startups typically set aside a specific percentage of their stock for an ESOP.
- Trust Formation: An ESOP trust is created to hold these allocated shares.
- Employee Participation: Employees become eligible to participate in the ESOP based on their role and tenure.
2. Acquiring Shares
- Vesting Schedule: Employees don’t receive shares immediately. Instead, they acquire them over time based on a vesting schedule.
- Gradual Ownership: This schedule ensures that employees are incentivized to stay with the company and contribute to its long-term growth.
3. Benefitting from Share Growth
- Value Appreciation: As the startup’s value increases, so does the worth of shares in the ESOP trust.
- Employee Gains: Employees who hold shares benefit financially from this appreciation.
4. Aligning Interests
- Mutual Success: ESOPs create a strong alignment between employee interests and the company’s success.
- Motivation: This alignment fosters a sense of ownership and motivation among employees.
ESOPs Under Company Law
1. Eligibility for ESOPs
- Employees, Officers, and Directors: ESOPs can be offered to employees, officers, and directors of the company, its subsidiaries, or holding companies.
- Option to Subscribe: The option grants these individuals the right to subscribe to company shares at a predetermined price in the future.
2. Applicability to Companies
- Private Limited Companies: Companies registered as private limited can implement ESOPs by adhering to the Companies Act, 2013, and its rules.
- Listed Companies: For companies with listed equity shares, ESOPs must be issued in compliance with SEBI regulations.
3. ESOP Features
- Discounted Share Price: The option to buy shares at a future date is typically offered at a price lower than anticipated market rates.
- Conversion to Shares: The option can be converted into shares on a specified date by paying the predetermined price.
- Salary Deduction: Employees may opt for a portion of the share price to be deducted from their salary, as outlined in the ESOP agreement.
4. Implementation Process
- Feasibility Study: Companies should conduct a feasibility study to assess the financial viability of implementing ESOPs.
- Shareholder Approval: If the feasibility study is positive, the company should draft an ESOP scheme and obtain approval from its shareholders.
- Letter of Grant: Approved ESOPs are granted to employees through a Letter of Grant, which outlines the terms and conditions of the options.
- Vesting Period: Employees must wait for the vesting period to end before converting their options into shares and becoming company shareholders.
Legal Documents Required for Startup ESOPs
Startups will need the following suite of legal documents to ensure everything runs smoothly and legally:
1. Stock Option Agreements
This contract between the company and the employees grants the right to purchase shares at a set price.
2. Vesting Schedules
These documents outline the timeline for when employees earn their shares.
3. Plan Rules and Guidelines
This rulebook defines eligibility, exercise price, and the plan’s operation mechanics.
4. Board Resolutions
These are formal approvals by the board of directors to implement the ESOP.
5. Employee Communication Materials
These are clear and concise guides that explain how the ESOP works and what it means for employees.
Quick Tips for Opting for ESOPs
When considering ESOPs as part of your compensation package, it’s crucial to approach the offer with a strategic mindset, especially when dealing with startups and listed companies.
Here’s a consolidated guide to help you navigate these offers:
Evaluate the Start-Up Risk
1. Understand the Company’s Growth Potential
Start-up ESOPs can be risky since their value heavily depends on the company’s success. Consider the company’s growth trajectory and market position before agreeing to the offer.
2. Vesting Period and Lock-In
Start-ups often implement a 3-4 year vesting period with a lock-in period of 12-18 months. This means you can’t sell the shares for this duration after they’re allotted. Make sure you’re comfortable with these timelines.
Ensure Proper Documentation
1. Accurate Share Valuation
Verify that the share value is computed correctly. Understanding the basis for valuation is crucial, as it impacts your potential gains.
2. Exit Mechanisms
Look for a clearly defined exit strategy, such as promoter buyback options. This ensures that you can cash out your shares even if the start-up does not go public.
Listed Company Considerations
1. Favorable Vesting and Lock-In Terms
For listed companies, aim for a lower vesting period and avoid lock-in periods if possible. This provides more flexibility in managing your shares.
2. Thorough Review of Terms
Obtain the ESOP scheme brochure and scrutinize the terms, especially around the exercise price and Fair Market Value (FMV) calculation. This will help you understand the financial implications of exercising your options.
3. TDS Deductions
Check whether Tax Deducted at Source (TDS) is accounted for, as this affects your net gains.
Strategic Actions and Negotiations
1. Negotiate Key Terms
If you’re a key employee, leverage your position to negotiate better terms, such as lower exercise prices and faster vesting schedules.
Set Expiry Reminders: Always set reminders for ESOP expiry dates to ensure you don’t miss the window to exercise your options.
2. Consult a Financial Planner
Discuss the ESOP agreement with a financial advisor to understand the best strategies for exercising or selling your shares.
Cost of ESOPs and Distributions
Costs of Implementing an ESOP
1. Administrative Costs
Establishing an ESOP incurs various legal and administrative expenses. These include drafting the plan document, ensuring compliance with regulations, and managing records, which can be substantial for any business.
2. Valuation Costs
Assessing a fair market value for the company’s stock is crucial, especially for young startups. This often requires hiring valuation experts and payroll software for startups, leading to significant costs, vital for ESOP integrity.
3. Potential Dilution
Introducing an ESOP means shares are distributed to employees, which can dilute existing ownership. For instance, if an ESOP is allocated 10% of the company’s stock, a founder’s previous 50% stake could be reduced to 45%.
Distributions From the ESOP
1. Tax Implications
The distribution of ESOP shares can have tax consequences for both the company and its employees, which vary based on jurisdiction and specific tax laws.
2. Cash Flow Considerations
While distributing shares from an ESOP doesn’t directly deplete cash reserves, offering a share repurchase option can affect the company’s liquidity, especially if many employees opt to sell their shares back to the company.
Understanding ESOP Taxation for Employees
Taxability of ESOPs
1. Perquisite Tax
The difference between the fair market value of the shares on the date of exercise and the exercise price paid by the employee is generally taxable as a perquisite in the hands of the employee. However, there may be specific exemptions or deductions available depending on the circumstances and the applicable tax laws.
2. Taxable Event
While it’s true that employees are typically taxed when they exercise their ESOP options, the exact timing and method of taxation can vary depending on the company’s policies and applicable tax laws.
Calculation of Taxable Value
1. Perquisite Value
The company is responsible for calculating the perquisite value of the ESOP and deducting the tax from the employee’s salary. The information on tax deducted from ESOPs is usually mentioned in Form 16.
2. Fair Market Value
The fair market value of the shares on the date of exercise is a crucial factor in determining the taxable perquisite. This value should be determined using a reliable valuation method.
3. Exercise Price
The exercise price paid by the employee is subtracted from the fair market value to calculate the taxable perquisite.
Capital Gains Tax
1. Short-Term vs. Long-Term
When employees sell their ESOP shares at a higher price, the capital gains are generally taxed as either short-term or long-term capital gains, depending on the holding period.
2. Tax Rates
The tax rate for capital gains varies depending on the type of capital gain and the employee’s income tax bracket.
Example of ESOP Calculation
Consider a company valued at ₹50 lakh with 100,000 shares outstanding. If an employee is granted an ESOP for 1,000 shares, their ownership percentage would be 1% of the company.
1. Calculation of ESOP
- Value of ESOP grant = (Total company value / Total number of shares) * Number of shares granted
- Value of ESOP grant = (₹50 lakh / 100,000 shares) * 1,000 shares
- Value of ESOP grant = ₹500
2. Factors Influencing ESPO Calculation and Allocation
- Company Valuation: The company’s total value is crucial as it determines the worth of each share.
- Employee Investment: An employee’s level of investment in the company, either through purchase or as a reward for service, can affect their ESOP allocation.
- Vesting Schedule: The timeframe over which employees earn the right to their ESOP shares encourages long-term commitment.
- Allocation Method: Shares can be allocated equally to all employees or based on performance metrics.
Benefits of ESOP for Startups
1. Talent Acquisition & Retention:
-
Competitive Advantage: ESOPs offer a unique selling proposition in competitive markets, attracting top talent who seek long-term ownership and rewards.
- Retention Incentive: Employees are more likely to stay with a company where they have a vested interest, reducing turnover costs and ensuring continuity.
2. Alignment of Interests
- Shared Vision: ESOPs create a shared sense of ownership and purpose, fostering a unified vision among employees and founders.
- Long-Term Commitment: Employees are more likely to make decisions that benefit the company’s long-term growth when they have a stake in its success.
3. Motivation & Engagement
- Enhanced Productivity: Employees with a stake in the company’s performance are often more motivated to work hard and contribute to its success.
- Innovation and Efficiency: ESOPs can drive innovation and efficiency as employees feel empowered to take risks and experiment with new ideas.
4. Culture Building
- Team Spirit: ESOPs foster a sense of camaraderie and teamwork, creating a positive and supportive work environment.
- Shared Values: Employees are more likely to embrace the company’s values and mission when they feel like they are part of a larger community.
5. Tax Benefits
- Deferred Tax: ESOPs can offer tax advantages through deferred taxation on employee contributions and company profits.
- Retirement Savings: ESOPs can serve as a retirement savings vehicle for employees.
6. Exit Strategy
- Liquidity Event: ESOPs can provide an exit strategy for employees when the company is sold or goes public.
Financial Gains: Employees can benefit financially from the appreciation of their shares when the company is valued.
Benefits of ESOP for Employees
Financial Benefits
1. Ownership Stake
ESOPs allow employees to become part owners of the company, giving them a direct financial stake in its success.
2. Capital Appreciation
As the company’s value grows, employees can benefit from the appreciation of their shares, potentially leading to significant financial gains.
3. Retirement Savings
ESOPs can serve as a retirement savings vehicle, providing a source of income in retirement.
4. Tax Advantages
ESOPs may offer tax advantages, such as deferred taxation on employee contributions and company profits.
Non-Financial Benefits
1. Enhanced Engagement
ESOPs can increase employee engagement and motivation, as employees feel more invested in the company’s success.
Improved Job Satisfaction: Owning a stake in the company can lead to greater job satisfaction and a sense of purpose.
2. Career Development
ESOPs can provide opportunities for career development and advancement, as employees are more likely to be invested in the company’s long-term growth.
3. Sense of Ownership
Being a part owner of the company can foster a sense of ownership and pride among employees.
Disadvantages of ESOPs for Startups
ESOPs can be a double-edged sword for startups. Let’s understand how.
1. Complexity and Administrative Burden
- Legal, Financial, and Tax Implications: ESOPs can be complex to understand and administer, involving various legal, financial, and tax considerations.
- Time-Consuming: Startups may find it challenging to allocate resources to manage ESOPs, especially if they lack expertise in these areas.
- Administrative Costs: Setting up and managing an ESOP can be expensive, involving legal fees, administrative costs, and valuation expenses.
2. Dilution of Ownership
- Founder Dilution: As employees acquire shares through ESOPs, founders may experience dilution of their ownership stake.
- Decision-Making Power: Dilution can affect decision-making power, as founders may have less control over the company’s direction.
- Profit Sharing: Founders may need to share profits with a larger group of stakeholders, potentially reducing their personal financial rewards.
3. Financial Challenges
- Cash Flow Constraints: ESOPs can be financially demanding for startups, especially during the setup and operation phases.
- Cost of Equity Capital: ESOPs can increase the number of outstanding shares, diluting existing shareholders’ ownership and potentially increasing the cost of equity capital.
- Debt Financing: ESOPs may make it more difficult to raise new debt, as lenders may be concerned about the company’s financial health and ownership structure.
4. Vesting and Share Value Fluctuations:
- Vesting Requirements: Employees may lose a significant portion of their ESOPs if they resign or are fired before the vesting period ends.
- Share Value Risk: The value of shares can fluctuate based on the company’s performance, which can make it difficult for employees to plan for retirement.
- Timing of Exit: Employees may need to time their exit carefully to maximize the value of their ESOPs.
What Will Happen to ESOPs When the Company Is Listed?
1. IPO & Liquidity
An IPO marks a company’s entry into the public markets. It allows the sale of shares to the public, creating liquidity for all shareholders, including employees holding ESOPs.
2. Vesting Matters
For employees, the benefit from an IPO is contingent on vesting. Only fully vested ESOP shares will reap IPO rewards. The vesting schedule in the ESOP plan is key.
3. Exercising Options (if applicable)
Employees with stock options must act to gain. They must exercise their options, buying shares at the set strike price. Only then can they sell them on the public market.
4. Potential for Gains
Post-exercise, the profit potential emerges. Employees can sell their vested shares on the stock exchange. The market price may far exceed the strike price, amplifying gains.
Conclusion
Incorporating ESOPs into employee compensation packages can significantly enhance team morale, productivity, and retention. Employees who feel invested in a company’s success are more likely to exhibit a strong sense of pride and loyalty. ESOPs offer employees a higher stake in the company, making them valuable tools for retaining top talent.
Frequently Asked Questions
1. Who is not eligible for ESOP?
Individuals not eligible for ESOPs include part-time employees, consultants, advisors, mentors, and independent directors. Additionally, promoters or those holding more than 10% of the company’s equity shares are excluded from ESOP eligibility.
2. Is an ESOP good for employees?
ESOPs provide employees with a stake in the company. They align employees’ interests with the company’s objective, leading to financial gains. ESOPs can motivate and retain talent, providing a sense of ownership and additional income through dividends or stock appreciation.
3. What are the rules for ESOP in startups?
Startups can offer ESOPs to employees under the Companies Act 2013, requiring approval by a 75% shareholder majority. ESOPs must be at a predetermined value, and the benefit difference is taxable as perquisite under the Income Tax Act 1961.
4. Which Indian startups offer ESOPs?
Flipkart, PhonePe, Udaan, CRED, Spinny, and Zerodha are some startups known for offering ESOPs.
5. How long do ESOPs last?
In India, ESOPs typically have a vesting period of 1 to 4 years. The employer sets the specific duration, which must comply with SEBI guidelines, which mandate a minimum vesting period of one year. Post-vesting, employees can exercise their options within the exercise period.
6. What is the Importance of Legal Compliance and Role of Documents?
Legal compliance and documents are crucial for ESOPs as compliance prevents legal issues, document protects interests and ensures clarity. This transparency further builds trust, retention, and conflict resolution.
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]]>GST registration is the process of obtaining a unique identification number for a business liable to pay Goods and Services Tax (GST). As per GST law, The firms with an annual turnover of more than Rs. 40 lakh (or Rs. 20 lakh for some special category states) must register as normal taxable entities.
For certain businesses, registration under GST is mandatory. If the organisation carries on business without registering under GST, it is an offence under GST and heavy penalties will apply. GST registration is usually completed within 6 working days.
GST registration is a process by which a taxpayer gets himself registered under GST. Once a business is successfully registered, a unique registration number is assigned to it known as the Goods and Services Tax Identification Number (GSTIN). You can also Verify GST number of any taxpayer to know the complete details.
Please note: If you are operating from more than one state, then you will have to take separate registration for each state you are operating from.
What is Minimum GST Registration Turnover Limit?
The turnover limits for GST registration differ for normal and special category states. The following table summarises the turnover limits for different types of supplies and states:
Type of Supply |
Normal Category States |
Special Category States |
| Goods | Rs 40 lakhs | Rs 20 lakhs |
| Services | Rs 20 lakhs | Rs 10 lakhs |
| Both Goods and Services | Rs. 20 lakhs | Rs 10 lakhs |
The special category states under GST Rules
- Arunachal Pradesh
- Assam
- Jammu and Kashmir
- Ladakh
- Manipur
- Meghalaya
- Mizoram
- Nagaland
- Sikkim
- Tripura
- Uttarakhand
- Himachal Pradesh
Who Should Obtain Registration Under GST?
- Casual taxable person / Input Service Distributor (ISD)
- Businesses with turnover above the threshold limit of Rs.40 lakh or Rs.20 lakh or Rs.10 lakh as the case may be
- Agents of a supplier & Input service distributor
- Non-resident taxable person
- Inter-state supplier of goods and services
- Supplier of goods through an e-commerce portal
- Any service provider
- e-commerce aggregator
- Liable to pay tax under the reverse charge mechanism
- TDS/TCS deductor
- Online data access or retrieval service provider
- Individuals who registered under Pre-GST law (i.e., VAT, Service Tax etc)
GST Registration Process
Below is the Procedure For Registration Under GST
One can apply for GST registration in Form REG-01 on the GST portal. The GST registration process involves seventeen steps. These steps include submitting various business details, scanned documents, and filling out form REG-01 on the GST portal.
Follow steps outlined in our articles “How to Get GSTIN Number?” or “How to Register for GST Online?“
Once you have completed the GST registration process, a GST officer will review your application and, upon approval, issues a GST registration certificate containing your GSTIN.
What are the Documents Required for GST Registration?
- Permanent Account Number (PAN) of the applicant
- Copy of the Aadhaar card
- Proof of business registration or incorporation certificate
- Identity and address proof of promoters/directors with a photograph
- Bank account statement/cancelled cheque
- Authorisation letter/board resolution for authorised signatory
- Digital signature
Read More: Documents Required for GST Registration
GST Registration Fees
As per GST law, no fees is required for obtaining GST registration through GST portal independently. That means you can register your business under GST for free without paying any charges to the government.
However, If any GST professional helps you with registration that will incur fees. If you’re comfortable using the GST portal and understand the required documents, you can register yourself (DIY).
Penalty for Not Obtaining GST Registration
Failing to register under GST can attract severe penalties and consequences.
Some penalties are:
-
A penalty of Rs. 10,000 or 10% of the tax due, whichever is higher, for not registering despite being liable to do so.
-
A penalty of Rs. 10,000 or the tax amount, whichever is higher, for collecting GST but not depositing it to the government within three months.
How to Check GST Registration Status?
After Applying for GST Registration you will receive an Application Reference Number (ARN). A GST registration application is processed after 15 days of submission. However, you can check the GST registration status online on the GST portal.
Related Read: Find GST Number Search By PAN
GST Registration FAQs
Who is eligible for GST Registration?
Under Goods And Services Tax (GST), businesses whose turnover exceeds the threshold limit of Rs.40 lakh or Rs.20 lakh or Rs.10 lakh based on the criteria, must register as a normal taxable person. It is called GST registration.
What is registration under GST act?
Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input tax credit for the taxes on his inward supplies.
The registration under gst is compulsory whose turnover is?
Registration under GST is mandatory for all businesses whose annual turnover exceeds Rs 40 lakhs in a financial year. This threshold is Rs 20 lakhs for special category states such as Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
How many days for GST registration?
The complete GST registration procedure, including receiving the GST number, takes 7 to 10 working days.
Is GST Registration Mandatory?
Yes, obtaining GST registration is mandatory once your turnover exceeds the specified threshold limits. If you are a supplier of goods with an annual turnover exceeding Rs 40 lakh. In the services sector, businesses with turnover of more than Rs. 20 Lakhs should mandatorily register for GST.
Do I need to submit applications for multiple GST registrations?
If a business operates in more than one state, the taxpayer should obtain a separate GST registration for each state. For instance, If an services company sells in Gujarat and Maharashtra, he has to apply for separate GST registration in Gujarat and Maharashtra.
Can I get multiple GST registrations within a state?
Any business can apply for any number of GST registrations within a state. The procedure of allocating multiple GST registrations only for different business verticals within a state has been removed.
What is a GST identification number or GSTIN?
Each taxpayer is allotted a PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN) in every state that they operate in. It is obtained as a part of the GST registration process. Once the GST registration application is verified and passed by the GST officer, a unique GSTIN is obtained.
How long Should I wait to register under GST?
Any person must get a GST registration within 30 days from the date when they become liable to obtain GST registration and pay GST.
What happens after obtaining the GST registration?
After obtaining the GST registration successfully, the taxpayer will get a GST registration certificate in Form GST REG-06 and a valid GST Identification Number. One will be eligible to avail input tax credit, raise GST-compliant invoices and can file GST returns monthly or quarterly.
How much is the fees for GST registration?
“No fee” is required for registering your business under GST.
Who is not eligible for GST registration?
- Small businesses with annual turnover below the specified threshold limit (currently ₹20 lakhs for most states, ₹10 lakhs for special category states).
- Employees providing services as part of their employment.
- Agriculturists supplying produce from cultivation.
- Entities dealing in exempt goods or services exclusively.
- Individuals supplying goods and services which are not liable to tax under GST.
How many days does it take for GST registration?
GST registration usually takes between 2-6 working days.
Can i file for cancellation of GST registration?
The registration, which is granted under GST, can be cancelled only for a few specified reasons. The cancellation can either be initiated by the department on their own or the registered person can apply for cancellation of their registration. In case of the death of a registered individual, the legal heirs can apply for cancellation.
Is GST filed every month?
The frequency of GST filing depends on the type of taxpayer and the type of return. For example, regular taxpayers with an annual turnover of more than Rs.5 crore must file two monthly returns (GSTR-1 and GSTR-3B) and one annual return (GSTR-9).
How long is a GST registration valid?
The GST registration for regular taxpayers has no expiry and is valid until it is surrendered or cancelled.
Is a bank account mandatory for GST registration?
Yes, a bank account is mandatory for GST registration. As per rule 10A of the CGST Rules, 2017, the newly registered taxpayer has to furnish the banking details within 45 days from the date of registration approval or the due date of filing the first return, whichever is earlier.
Can I modify my GST registration details?
Yes, you can modify your GST registration details through the GST portal by submitting an amendment application.
What is the difference between voluntary and mandatory GST registration?
Voluntary registration is when a business opts to register under GST, while mandatory registration is required by law based on turnover and business activity.
What happens if my GST registration application is rejected?
If your GST registration application is rejected, you will be notified with the reasons for rejection, and you can reapply after addressing the issues.
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]]>The post How to Register for GST Online? A Guide to GST Registration Process Step by Step appeared first on Razorpay Learn.
]]>Similarly, any business that supplies goods exceeding Rs. 40 lakh (or Rs. 20 lakh if the business is located in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, and Uttarakhand) must also undergo GST registration.
Read More: GST Registration Rules and Benefits
Latest Updates on GST Registration Process Online
As per CGST notification no. 13/2024 notified from CBIC dated 10th July 2024
1. Biometric-based Aadhaar Authentication for GST registration, earlier implemented on a pilot basis in Gujarat and Puducherry, has now been extended to the whole of India.
As per CGST notification no. 12/2024 notified from CBIC dated 10th July 2024
2. In cases where applicants do not opt for Aadhaar Authentication, they must submit a photograph of the individual applicant or such individuals in relation to the applicant and get the original documents verified at one of the designated facilitation centres.
A Step-by-Step Guide to the GST Registration Process
New GST Registration procedure is easy and free. A taxpayer seeking a normal registration can visit the GST portal and fill the registration Form GST REG-01.
Registering for Goods and Services Tax (GST) online is a straightforward process that involves a few key steps.
Here’s a comprehensive, step-by-step guide to help you navigate through the GST registration process seamlessly.
STEP 1: Access the GST Portal
Go to the official GST Portal
STEP 2: Click on “Register Now”
Click on “Registration” under the “Services” tab and then click on “New registration”.
The application form is divided into 2 parts – Part A and Part B.
Part A
STEP 3: Select Taxpayer
Select the ‘Taxpayer’ as the type of taxpayer from the ‘I am a’ drop-down list.
STEP 4: Select State/UT and District
From the State/UT and District drop-down list, select the state and district for which registration is required.
STEP 5: Enter Business Name
In the Legal Name of the Business field, enter the legal name of the business/ entity as mentioned in the PAN database.
STEP 6: Enter PAN Number
In the Permanent Account Number (PAN) field, enter PAN of the business or PAN of the Proprietor.
STEP 7: Enter Email Address
In the email address field, enter the email address of the primary authorised signatory.
STEP 8: Enter Mobile Number
In the mobile number field, enter the valid mobile number of the primary authorised signatory.
STEP 9: Enter Captcha
Enter the captcha and click the ‘Proceed’ button.
STEP 10: Temporary Reference Number (TRN)
After completing the process, move to Part B. After verification, you will receive a Temporary Reference Number (TRN). The TRN will be sent to the registered email address and mobile number.
Part B
STEP 11: Log in Using TRN
Click on ‘Services’ > ‘Registration’ > ‘New Registration’ option and select the Temporary Reference Number (TRN) button to log in using the TRN.
STEP 12: Enter TRN Generated Captcha
In the TRN field, enter the TRN generated and the captcha text shown on the screen. Then, click on “Proceed”.
STEP 13: Enter OTP
Enter OTP sent on mobile or email in the verify OTP page. And, click on the ‘Proceed’ button.
STEP 14: My Saved Application
The My Saved Application page is displayed. Under the Action column, click the Edit icon.
STEP 15: Enter Business Details
On the top of the page, registration application form with 10 tabs open. Click on each tab to enter the details like business details, promoter/partner details, authorised signatory, principal & additional place of business, goods & services detail, state information, aadhaar authentication and verification.
STEP 16: Click On Save and Continue
Now click on ‘Save and continue’. Once the application is submitted, sign it digitally using DSC and click on ‘Proceed’
STEP 17: Receive an ARN
After submission, you will receive an Application Reference Number (ARN) via email or SMS to confirm your registration.
GST Registration Via Authentication of Aadhaar
Here’s a step-by-step guide for GST registration via authentication of Aadhaar
STEP 1: Access the GST Portal
Open your web browser and navigate to GST Portal
STEP 2: Initiate Registration Process
Click on the “REGISTER NOW” link on the GST portal homepage, or alternatively, navigate to Services > Registration > New Registration.
STEP 3: Choose Aadhaar Authentication Option
During the registration process, opt for Aadhaar authentication by selecting the Aadhaar Authentication Tab.
STEP 4: Indicate Preference
You’ll be prompted to indicate whether you wish to authenticate your Aadhaar or not. Choose either YES or NO based on your preference.
STEP 5: Authentication Link Generation
If you opt for YES, an authentication link will be sent to the to the registered mobile numbers and email addresses of the Promoters/Partners and Authorized Signatories.
STEP 6: Declaration and Aadhaar Entry
Upon clicking the authentication link, a declaration will appear on the screen. Enter your Aadhaar number and click on “validate”.
STEP 7: OTP Verification
After entering the Aadhaar number, an OTP will be sent to the email and registered mobile number. Enter the OTP in the provided box on the validation screen.
STEP 8: Confirmation
After OTP verification, a confirmation message will appear indicating successful authentication.
STEP 9: Ensure Updated Details:
It’s essential to ensure that your registered mobile numbers and email addresses are updated in Aadhaar for successful authentication.
STEP 10: Verification Process
If you choose NO for Aadhaar Authentication, the GST registration application will be forwarded to the jurisdictional tax authority. They will conduct further steps, including documentary and/or physical site verification, before approving the registration.
STEP 11: Approval Timeframe
If no action is taken by the Tax Authority within 21 days, the GST registration application will be considered approved.
Conclusion
A new GST registration process is crucial for businesses. With a clear understanding of the steps and the procedure involved, compliance becomes seamless. Stay informed, follow the guidelines, and ensure a smooth registration to enjoy the benefits of a transparent and legally compliant business operation.
FAQs
1. Is it mandatory to register for GST online, or can I register offline?
Although registration can be completed through both online and offline channels, the online method is typically favored due to its convenience and effectiveness. Nonetheless, offline registration alternatives exist for individuals who may lack internet access or encounter technical difficulties.
2. How much does GST registration cost?
There is no payable fee upon registering for GST
3. What are the 3 types of GST registration?
The three types of GST registration are:
- Regular taxpayer registration: This type of registration is for businesses whose turnover exceeds the threshold limit set by the GST Council.
- Composition scheme registration: This is for small businesses with a turnover below the threshold limit who opt for the composition scheme, which offers simplified compliance and a lower tax rate.
- GST registration as a casual taxpayer: This is for businesses or individuals who occasionally undertake transactions liable for GST but do not have a regular place of business in the taxable territory.
4. Can I register for GST online if my business operates in multiple states?
Yes, you can register for GST online even if your business operates in multiple states. The online registration process allows you to specify the states in which your business operates and complete the registration accordingly.
5. How long does it take to complete the GST registration process online?
Generally, The entire process of GST registration, including the issuance of the GST number, typically spans from 7 to 10 business days. The duration can vary depending on factors such as the completeness of information provided, verification processes, and workload at the GST authorities.
6. Do I need a digital signature for GST registration online?
Yes, According to GST regulations, all documentation submitted to the government, such as GST registration applications or files uploaded to the GST common portal, must bear digital signatures.
7. Can I track the status of my GST registration application online?
Yes, you can track the status of your GST registration application online using the Application Reference Number (ARN) provided upon submission. The GST portal allows you to check the status in real-time.
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]]>GSTIN is the abbreviation for Goods and Services Tax Identification Number. It is a 15-digit alphanumeric code assigned to every taxpayer registered under the GST regime. GSTIN is a unique identifier that helps the tax authorities track the tax transactions of different businesses nationwide.
GSTIN Number Example
For example, The GSTIN of Razorpay is 29AAGCR4375J1ZU, where
- 29 refers to the state code
- AAGCR4375J is the PAN of the company/business
- 1 is the entity code number of registrations on PAN in the state
- Z is the default letter
- U is the alphanumeric check code
Every business liable to register under the GST Act must obtain a GSTIN for each state or union territory from which it operates. This number is important for businesses as it enables them to file GST returns, claim input tax credits, issue GST invoices and comply with the GST rules and regulations.
Who Should Apply for GSTIN Number?
As per the GST laws, it is mandatory to register for a GSTIN if:
- Any business with an aggregate turnover over Rs. 40 lakh (for normal category states) or over Rs. 20 lakh (for special category states)
- Any individual has an annual income exceeding Rs. 20 lakh (for normal category states) or exceeding Rs. 10 lakh (for special category states)
- Any business entity or e-commerce company operating in India must have a GST Registration.
- In case some rules do not apply, the business can still register using Voluntary Registration to get GST claims.
Related Read: GST Rules in Detail.
How to Get GSTIN Number Online?
Online GST Registration process is as follows:
STEP 1: Visit the official GST portal and click on New Registration link under Services
Part – A Registration
STEP 2: Under the ‘I am a‘ drop-down menu, select your taxpayer status, such as Taxpayer
STEP 3: Select your respective state and district from the drop-down menus.
STEP 4: Enter the legal name of your as mentioned on the PAN and PAN Number (As mentioned in PAN)
STEP 5: Enter your email ID and mobile number for OTP verification. Ensure they are active and accessible, as they will be used for future communication.
STEP 6: Enter the OTP that was sent to the email ID and mobile number in the respective boxes and Click on ‘Proceed’.
STEP 7: After verification, you will receive a TRN, a Temporary Reference Number. Note it down and keep it safe, as it will be required for Part-B registration.
Part – B Registration
STEP 1: Visit the GST portal again and click on ‘New Registration‘ under ‘Services‘
STEP 2: Select ‘Temporary Reference Number (TRN)’. Enter TRN number generated during Part A registration and the captcha details. Click on ‘Proceed’ button.
STEP 3: You will receive an OTP on your email ID and registered mobile number. Enter the OTP and click on ‘Proceed‘.
STEP 4: The status of your application will be available on the next page. On the right side, there will be an Edit icon, click on it.
STEP 5: Now, Fill in the 10 sections on the screen, such as business details, promoter details, authorised signatory, principal place of business, additional place of business, goods and services, bank accounts, state-specific information, and verification.
STEP 6: UPLOAD the mandatory list of documents mentioned below
- Photographs
- Proof of identity
- Business address proof
- Bank details such as account number, bank name, bank branch, and IFSC code.
- Authorisation form
- The constitution of the taxpayer.
The size and format of the documents may vary depending on the taxpayer’s status and state.
STEP 7: Visit the ‘Verification‘ page and check the declaration, Then submit the application by choosing one of the submission methods: EVC, DSC, or e-Sign.
- By Electronic Verification Code (EVC). EVC is an Electronic Verification Code sent to the registered mobile number or email ID.
- In case companies are registering, the application must be submitted by using the Digital Signature Certificate (DSC). DSC is a Digital Signature Certificate that requires a USB token.
- e-Sign is an Aadhaar-based electronic signature that requires OTP verification. An OTP will be sent to the mobile number linked to the Aadhaar card.
STEP 8: Go to the verification page and check the declaration box. Make sure all the information you provide is correct and complete.
STEP 9: After successful verification, you will see a message on your screen and receive an email confirming your application. You will also get an ARN, which is an Application Reference Number.
STEP 10: Once completed, a success message will be shown on the screen. The Application Reference Number (ARN) will be sent to the registered mobile number and email ID
What is Application Reference Number (ARN)?
ARN It is a unique number that identifies your application and helps you track its GST Registration status.
Keep your ARN for future reference and compliance. It will be required for filing returns, paying taxes, and claiming refunds. Once you are allotted with this number you can always run a GST search by PAN.
Read More: GST Registration and their Eligibility Process
Documents Required to Get GSTIN Number
- PAN Card of the business or individual (Mandatory as the GSTIN number is based on the PAN card number)
- Aadhaar Card
- Proof of registration of the business or incorporation certificate
- Bank details for the account associated with the business or individual
- Passport Size Photograph
- Proof of business address
- Digital signature
In addition to the documents mentioned above, the GST council can ask for additional documents or details based on the requirement for the GST Number for Online Business. It takes 2-6 days for the GST registration process to be completed, within which the registered email or mobile number will get communication from the GST council on any additions required. After that, all documents and forms need to be submitted to the authority as per the deadline provided.
Related Read: How to Get a Business Pan Card?
What Are the Fees to get a GSTIN Number?
Getting a GSTIN number is free of cost for any eligible taxpayer who wants to register for GST. There is no fee or charge for applying online through the official GST portal.
However, there are some scenarios where a taxpayer may have to pay a penalty for not complying with the GST rules and regulations.
Some of these scenarios are:
- Failing to register for GST when required by law.
- Failing to submit GST returns on time or filing incorrect or incomplete returns.
- Failing to pay GST taxes or paying less than the due amount.
- Failing to issue GST invoices or issuing fake or wrong invoices.
- Failing to maintain proper records and accounts of GST transactions.
- Failing to cooperate with GST authorities during audits or inspections.
The penalty amount may vary depending on the nature and severity of the offence. You may have to pay a penalty of 10% of the tax amount due if you have paid a minimum of Rs. 10,000 or 100% if you have tried to evade tax completely. You can easily calculate the tax amount due using Razorpay’s GST Calculator.
How to Check GST Registration Status Online using ARN?
STEP 1: Visit GST official portal at https://www.gst.gov.in/
STEP 2: Click to ‘Services‘ > ‘Registration‘ > ‘Track Application Status‘.
STEP 3: Enter your ARN number and Captcha code. Next click on SEARCH button.
STEP 4: You will receive any of the following GST registration status on your screen
- Provisional status
- Pending for verification status
- Validation against error status
- Migrated status
- Cancelled status
How to Download the GST Registration Certificate?
The procedure to download the GST Registration Certificate is mentioned below:
STEP 1: Visit https://www.gst.gov.in/
STEP 2: Click on ‘Login‘.
STEP 3: On the next page, enter the username and password.
STEP 4: Click on ‘Login‘.
STEP 5: Next, click on ‘Services‘.
STEP 6: Click on ‘User Services‘.
STEP 7: Select ‘View/Download Certificates‘.
STEP 8: On the next page, click on ‘Download’. The certificate will have details of the tax transactions.
Advantages of GSTIN
- Registers your business entity as a supplier of goods or services, helping bring more credibility to your business among customers and partners
- Any individual or business having a GSTIN can file their GST on the portal and take input credit on their business purchases.
- With GST, there are no restrictions to interstate sales and operations all over India.
- Having a GSTIN for an e-commerce website or business will help enhance the seller’s reputation and the scope of the business.
- It simplifies the GST filing process since businesses can file their GST claims on the portal and get a good rating for compliance.
Conclusion
GSTIN is a unique 15-digit alphanumeric code that identifies every registered taxpayer under the Goods and Services Tax (GST) regime. GSTIN plays a vital role in the taxation system, as it enables the authorities to track the tax transactions and compliance of the businesses.
By applying for your GSTIN number, you can enjoy the advantages of GSTIN and simplify your tax compliance. If you have any concerns or hesitations about the application process, visit the official GST portal or contact the GST helpdesk for assistance.
The most important thing is to prepare the necessary documents in advance, as they will determine the success of your application. A well-prepared document set will expedite the application and approval process and help you get your GSTIN number without any hassle.
If you are discontinuing your business, you can proceed with the cancellation of GST registration.
Related Read: How to Download Aadhaar Card By Aadhaar Number, EID, Name And Date Of Birth, VID?
Frequently Asked Questions (FAQs)
1. How do I find my GST number?
You can locate your GST number by visiting the GST portal and logging in with your credentials. Alternatively, you can also use the portal to find the GST numbers of other registered taxpayers by entering their name, PAN or state.
2. How many days will it take to get a GST number?
After submitting the online application, it takes 3-6 working days to get a GST number. However, the processing time may vary depending on the tax authorities’ verification of documents and information.
3. Who is not eligible for GST registration?
The following persons are not eligible for GST registration:
- Persons who are making only exempt supplies are not liable for GST.
- Individuals who only provide goods or services that fall under the reverse charge mechanism, where the recipient is responsible for paying GST.
- Agriculturists who are engaged in the cultivation of land and supply of agricultural produce
4. Can I take 2 GST numbers in one state?
No, you cannot take 2 GST numbers in one state for the same PAN. However, you can obtain separate GST numbers for different business verticals within the same state, subject to certain conditions and approval by the tax authorities.
5. Can I sell different products with the same GST number?
Yes, you may sell various products with the same GST number if they fall under the same category of goods or services. You must mention the HSN or SAC code of each product or service in your invoice and GST returns.
6. Can I use GST for personal purchases?
No, you cannot use GST for personal purchases. GST applies to the goods or services supplied/provided during business. Personal purchases are not considered business transactions and are not subject to GST.
The post How to Get GSTIN Number Online? Steps to Apply and Create GSTIN Number appeared first on Razorpay Learn.
]]>The post GST Rates in 2024 – Check Full List of Goods and Service Tax Rates, Slabs & Revisions appeared first on Razorpay Learn.
]]>GST Rates in 2024 – GST Structure & Present Slabs of GST in India
The Central Board of Indirect Tax and Customs (CBIC) divides the present slabs of GST rates in India into five categories: 0%, 5%, 12%, 18%, and 28%. Additionally, some goods and services are subject to a cess, which is a surcharge levied over and above the GST rate. It is levied to compensate the states for any revenue loss due to the implementation of GST rules.
The primary GST slabs applicable to regular taxpayers are 0%, 5%, 12%, 18%, and 28%. There are also less commonly used rates, such as 3% and 0.25%. Additionally, taxable composition persons are required to pay General Service Tax at lower or nominal rates, ranging from 1.5% to 6% on their turnover.
Latest Read: All About 54th GST Council Meeting Highlights and Latest Updates
New GST Rates List in India for 2024
Between 2023 and 2024, GST tax rates changed for many products and services. Below are the details of these changes.
| Category | Old GST Rates |
New GST Rates
|
| Railways Goods and Parts under Chapter 86 | 12% | 18% |
| Pens | 12% | 18% |
| Metal Concentrates and Ores | 5% | 18% |
| Certain Renewable Energy Devices | 5% | 12% |
| Recorded media reproduction and print | 12% | 18% |
| Broadcasting, sound recordings, and licensing | 12% | 18% |
| Printed material | 12% | 18% |
| Packing containers and boxes | 12% | 18% |
| Scrap and polyurethanes | 5% | 18% |
As per Press Information Bureau , Below the GST rate recommendations made at the 53rd GST Council Meeting held in June 2024.
Items |
Old Rate |
New Rate |
| A uniform rate for all types of milk cans | – | 12% |
| A uniform IGST rate applies to imports of aircraft tool kits | – | 5% |
| Carton boxes and cases | 18% | 12% |
| All types of solar cookers | 5% | 12% |
| A uniform rate for all types of sprinklers | – | 12% |
| Indian Railways – Platform tickets | – | Exempt |
| Indian Railways – Facility of retiring rooms/waiting rooms | – | Exempt |
| Indian Railways – Cloak room services | – | Exempt |
| Indian Railways – Battery Operated car services | – | Exempt |
| Hostel accommodation service under certain conditions | – | Exempt |
Latest GST Rate Revision in 53rd GST Council Meeting
The 53rd GST Council meeting was held on 22nd June 2024. The meeting was chaired by Union Finance Minister Nirmala Sitharaman, who announced several recommendations to the existing GST list.
53rd GST Council Meeting Highlights
Below are the highlights of the 53rd GST Council Meeting held in June 2024
- A uniform GST rate of 12% is announced for all milk cans, regardless of the material such as steel, iron, or aluminium.
- A 12% GST rate applies to all solar cookers, whether they use a single or dual energy source.
- A 12% GST rate applies to all solar cookers, whether they use a single or dual energy source.
- A 12% GST rate is applied to all types of sprinklers, including fire and water sprinklers.
- A uniform rate of 5% IGST will be applied to the import of parts, components, testing equipment, tools, and toolkits for aircraft, regardless of their HS classification.
- The 53rd GST Council meeting has exempted certain GST rates on services offered by Indian Railways. These include the sale of platform tickets, access to retiring rooms/waiting rooms, cloakroom services, and battery-operated car services. Additionally, intra-railway transactions are now exempt.
- The GST rate is exempted for hostel accommodation services under certain conditions. Students and working professionals who reside in off-campus hostels for a continuous period of 90 days and pay a monthly rent of INR 20,000 per person are eligible for this exemption.
GST Rates Increased in 52nd GST Council Meeting
Items |
Old Rate |
New Rate |
| Scrap and polyurethanes | 5% | 18% |
| Printed material | 12% | 18% |
| Broadcasting, licensing, and sound recordings | 12% | 18% |
| Several renewable energy devices | 5% | 12% |
| Railways goods and parts under Chapter 86 | 12% | 18% |
| Metal concentrates and ores | 5% | 18% |
| Packing containers and boxes | 12% | 18% |
| Pens | 12% | 18% |
| Recorded media print and reproduction | 12% | 18% |
GST Rates Decreased in 52nd & 53rd GST Council Meeting
Items |
Old Rate |
New Rate |
| Carton boxes | 18% | 12% |
| Indian Railways (Platform tickets, retiring rooms/waiting rooms, cloak room services and battery-operated car services) | – | Nill |
| Hostel accommodation services for students and working professionals | – | Nill |
| Keytruda for cancer treatment | 12% | 5% |
| Vehicles equipped with retrofitting kits for disabled people | Applicability | 5% |
| IGST levied on goods sold at the Indo-Bangladesh border | Applicability | Nil |
GST Rates of Goods and Services Under Different Slabs
List of Goods with a 0% GST Rate
Example of Goods |
HSN Code |
GST Rate |
| Milk | 0401 | 0% |
| Egg | 0407 | 0% |
| Unpacked Rice | 1006 | 0% |
| Unpacked Curd | 0403 | 0% |
| Unpacked Lassi | 0403 | 0% |
| Unpacked Buttermilk | 0403 | 0% |
| Kajal | 3304 | 0% |
| Unpacked foodgrains | 1001 to 1106 | 0% |
| Unpacked paneer | 0406 | 0% |
| Gur (jaggery) | 1701 or 1702 | 0% |
| Unpacked Natural honey | 0409 | 0% |
| Fresh vegetables | 0701 to 714 | 0% |
| Fresh Fruits | 0803 to 0810 | 0% |
| Nuts | 0802 | 0% |
| Fresh and Chilled Meat of bovine animals | 0201 | 0% |
| Salt | 2501 | 0% |
| Unbranded atta (flour) | 1101 to 1106 | 0% |
| Prasad (offerings made to deities) | 2106 | 0% |
| Unroasted Coffee Beans | 0901 | 0% |
| Unprocessed Green Leaves of Tea | 0902 | 0% |
| Fresh Ginger | 0910 11 10 | 0% |
| Fresh Turmeric | 0910 30 10 | 0% |
List of Services with a 0% GST Rate
Example of Services |
HSN Code |
GST Rate |
| Educational Services | Heading 9992 or Heading 9963 | 0% |
| Services of General Insurance Business Provided Under Certain Schemes | Heading 9971 or Heading 9991 | 0% |
| Health Care Services | Heading 9993 | 0% |
| Services Provided by a Goods Transport Agency | Heading 9965 or Heading 9967 | 0% |
List of Goods with a 5% GST Rate
Example of Goods |
HSN Code |
GST Rate |
| Ultra High Temperature (UHT) milk | 0401 | 5% |
| Milk Food For Babies | 0402 | 5% |
| Yoghurt | 0403 | 5% |
| Pre-Packaged and Labelled Curd, Lassi, Buttermilk | 0403 | 5% |
| Skins and Parts of Birds like Feathers | 0505 | 5% |
| Beet Sugar, Cane Sugar, Jaggery | 1701, 1702, 1704 | 5% |
| Roasted Coffee Beans | 0901 | 5% |
| Processed Tea | 0902 | 5% |
| Packed Paneer | 0406 | 5% |
| Spices | 0906 to 0910 | 5% |
| Packed and Labelled Rice | 1006 | 5% |
| All Packed Cereals | 10 | 5% |
| Coal | 2701 | 5% |
| All Types of Edible Oils | 1507 to 1518 | 5% |
| Raisins | 0806 | 5% |
| Domestic LPG (liquefied petroleum gas) | 2711 12 00, 2711 13 00, 2711 19 00 | 5% |
| PDS kerosene (public distribution system kerosene) | 2710 | 5% |
| Cashew Nuts | 0801, 0802, 0813 | 5% |
| Fabric | 500, 5111 to 5113 & 5208 to 5212 | 5% |
| Products of coir | 5609 | 5% |
| Apparel and clothing accessories of sales value not exceeding INR 1000 | 61 or 6501 or 6505 | 5% |
| Glass Beads | 7018 | 5% |
| Charger or Charging Station for EV Operated Vehicles | 8504 | 5% |
| Fishery Products | 8902 | 5% |
List of Services with a 5% GST Rate
Example of Services |
HSN Code |
GST Rate |
| Housekeeping Services Like Plumbing, Carpentering, etc | Heading 9954 | 5% |
| Restaurant Services | Heading 9963 | 5% |
| Outdoor Catering Services | Heading 9963 | 5% |
| Printing of Newspapers, Books, etc… | Heading 9988 | 5% |
List of Goods with a 12% GST Rate
Example of Goods |
HSN Code |
GST Rate |
| Condensed milk | 0402 91 10, 0402 99 20 | 12% |
| Butter | 0405 | 12% |
| Cheese | 0406 | 12% |
| Nuts and Dried Dates | 0801, 0802, 0804 | 12% |
| Dried Citrus Fruit | 0805 | 12% |
| Fats of Bovine Animals | 1502 | 12% |
| Sausages | 1601 | 12% |
| Refined Sugar Cubes | 1701 91 , 1701 99 | 12% |
| Packed Paneer | 0406 | 12% |
| All Edibles Prepared or Preserved by by Vinegar or Acetic Acid | 2002 | 12% |
| Packed and Labelled Tender Coconut Water | 2009 89 90 | 12% |
| Diabetic foods | 2106 90 91 | 12% |
| Packed Drinking Water in 20 Litre Bottles | 2201 | 12% |
| Marble and Granite Blocks | 2515, 1210, 2516 | 12% |
| Rubber bands | 4016 | 12% |
| Hand bags and shopping bags, of cotton and Jute | 4202 22 20, 4202 22 30 | 12% |
| Idols of Wood, Stone and Non-Precious Metals | 44, 68, 83 | 12% |
| Tableware and Kitchenware of wood | 4419 | 12% |
| Footwear of Sale Value Not Exceeding Rs.1000 Per Pair | 64 | 12% |
| Building Bricks | 6904 10 00 | 12% |
List of Services with a 12% GST Rate
Example of Services |
HSN Code |
GST Rate |
| Construction of an apartment | Heading 9954 | 12% |
| Hotel accommodation | Heading 9963 | 12% |
| Transport of passengers by Air | Heading 9964 | 12% |
| Business Services for mining, petroleum crude or natural gas. | Heading 9983 | 12% |
List of Goods with a 18% GST Rate
Example of Goods |
HSN Code |
GST Rate |
| Malt | 1107 | 18% |
| Vegetable saps and extracts | 1302 | 18% |
| Glycerol | 1520 00 00 | 18% |
| Waxes | 1521 | 18% |
| Chemically Pure Lactose, Maltose, Glucose and Fructose | 1702 | 18% |
| Chocolate and Cocoa Products | 1804 to 1806 | 18% |
| Pastry Items | 1905 | 18% |
| Ice cream | 2105 00 00 | 18% |
| Non – Alcoholic Beverages | 2202 91 00, 2202 99 90 | 18% |
| Products Containing Nicotine | 2404 12 00 | 18% |
| Ores and Concentrates | 2601 to 2610 | 18% |
| Mineral or chemical fertilisers | 3102 to 3105 | 18% |
| Perfumes and toilet waters | 3303 | 18% |
List of Services with a 18% GST Rate
Example of Services |
HSN Code |
GST Rate |
| Construction Of Commercial Apartments | Heading 9954 | 18% |
| Services In Retail Trade | Heading 9962 | 18% |
| Services In Wholesale Trade | Heading 9961 | 18% |
| Rental Services Of Transport Vehicles | Heading 9966 | 18% |
| Postal And Courier Services | Heading 9968 | 18% |
| Electricity, Gas, Water And Other Distribution Services | Heading 9969 | 18% |
List of Goods with a 28% GST Rate
Example of Goods |
HSN Code |
GST Rate |
| Caffeinated Beverages | 2202 99 90 | 28% |
| Carbonated Beverages | 2202 | 28% |
| Tobacco or Tobacco Substitutes | 2402 | 28% |
| Cement | 2523 | 28% |
| Air-conditioning Machines | 8415 | 28% |
| Monitors and Projectors | 8528 | 28% |
| Motor Vehicles | 8701 to 8704 | 28% |
List of Services with a 28% GST Rate
Example of Services |
HSN Code |
GST Rate |
| Services Provided by a Casinos and Race Club | Heading 9954 | 28% |
| Gambling | Heading 9963 | 28% |
GST Rate Revisions in the GST Council Meetings
The following are the latest GST Council Meetings where the revised GST rates were announced.
GST Rate Revision in 50th GST Council Meeting
During this meeting, held on 11th July 2023, several key revisions were made to the existing GST rate list.
The detailed GST updates of the meeting are outlined below.
Items |
Old Rate |
New Rate |
| Cancer-Related Medicine | – | Exempt |
| Imitation Zari Thread | 12% | 5% |
| Food for Special Medical Purposes (FSMP) | – | Exempt |
| Unfried, Uncooked, and Extruded Snack Palettes | 18% | 5% |
| Medicines for Rare Diseases | – | Exempt |
| LD Slag | 18% | 5% |
| Beverages in Cinema Halls | 18% | 5% |
| Casinos & Horse Racing | 18% | 28% |
| Fish Soluble Paste | 18% | 5% |
Besides this, the council recommended reducing the late fee for delayed filing of GSTR-3B returns for small businesses with nil tax liability.
GST Rate Revision in 49th GST Council Meeting
The 49th meeting of the GST Council convened on 18th February 2023 in Delhi. During the meeting, it was announced that the states in India would receive clearance of compensation cess for June 2022, alongside introducing rate reductions for specific items.
Items |
Old Rate |
New Rate |
| Pencil Sharpener | 18% | 12% |
| Rab | 18% | 5% (if prepackaged else Nil) |
List of items that have become expensive and cheaper.
Costly Items |
Cheaper Items |
| Court-related services
Guthka Pan Masala Chewing Tobacco |
Liquid Jaggery
Data loggers Coal rejects Pencil sharpener Entrance exam fee organised by NTA |
GST Rate Revision in 48th GST Council Meeting
At the 48th Council meeting, eight of the fifteen agenda points were deliberated upon, covering topics such as data sharing. The remaining matters encompass revenue enhancement, the establishment of a GST appellate tribunal, and taxation on pan and Gutkha.
Notably, the GST rates have been reduced for the following items:
Items |
Old Rate |
New Rate |
| Mentha arvensis sale | No RCM | Under RCM |
| Cattle feed, including chuni or churi, khanda, chilka, pulse husks, and concentrates | 5% | Nil |
| Retailed to refineries ethyl alcohol | 18% | 5% |
The rate adjustments were influenced by various factors, including the need to stimulate economic growth, rationalise the tax structure, and address revenue considerations.
Cement, footwear, hotels, and textile and apparel are some sectors that have benefited from this meeting.
GST Rate Revision in 47th GST Council Meeting
On 13 July 2022, the Central Government issued nine notifications from 3/22 to 11/22. New GST rates took effect on 18 July 2022.
Let’s look at more details.
1. Items With Increased Prices
Due to the rate revisions mentioned below, certain items experienced price increases.
Items |
Old GST Rate |
New GST Rate |
| Tetra packs | 12% | 18% |
| Polished and cut diamonds | 0.25% | 1.50% |
| Tar | 5%, 18% | 18% |
2. Items With Decreased Prices
The key reductions announced in this meeting, that make the products cheaper are:
Items |
Old GST Rate |
New GST Rate |
| Importing Diethylcarbamazine (DEC) pills | 5% | Nil |
| Importation of specific defence products | Applicable rates | Nil |
| Ostomy Appliances | 12% | 5% |
| Orthopaedic appliances | 12% | 5% |
| Ropeway transportation of cargo and person | 18% | 5% |
| Renting cost of a truck or goods wagon, with fuel | 18% | 12% |
3. Elimination of GST Exemptions
The 47th GST Council Meeting also focused on eliminating certain GST exemptions. This move aimed to simplify the tax structure and promote uniformity.
Some exemptions that were removed include:
Items |
New Rate |
| Any type of printed map | 12% |
| Parts of goods of heading 8801 | 18% |
| Cheques, lose or in book form | 18% |
| Room rent (excluding ICU) is over ₹5,000 per patient per day. | 5% |
| Hotel stays up to ₹1,000 per day | 12% |
| Bio-medical waste treatment facilities | 12% |
4. Correction of Inverted Tax Structure
Another noteworthy aspect of the meeting was correcting the inverted tax structure in specific sectors or industries. The inverted tax structure occurs when the tax rate on inputs is higher than that on finished goods, leading to a blockage of input tax credit. The corrective measures taken during this meeting aim to streamline taxation and reduce compliance burdens.
Products |
Old rate |
New rate |
| Solar water heaters | 5% | 12% |
| Finished, composition, or composition leathers | 5% | 12% |
| Job for processing of hides, skins, leather, making of identical products, and clay brick manufacturing | 5% | 12% |
| Engagements and subcontracts involving earthwork undertaken with central, state, union territories, and local governmental bodies. | 5% | 12% |
| Air-based wet grinder, atta chakki, sorting, washing, or grading equipment for grain pulses and seeds | 5% | 18% |
| Ink for writing, drawing, and printing | 12% | 18% |
| Dairy machinery | 12% | 18% |
| Lights and fixture | 12% | 18% |
| Marking out instruments | 12% | 18% |
| Paper knives, pencil sharpeners, and cutting blades | 12% | 18% |
GST Rate Revision in 45th GST Council Meeting
The 45th GST council meeting was held on 17th September 2021 and the following decisions had been taken revolving around the GST rates.
Category |
Old Rate |
New Rate |
| Railway goods, locomotives, and parts | 12% | 18% |
| Pens | 12% | 18% |
| Metal concentrates and ores | 5% | 18% |
| Renewable energy devices | 5% | 12% |
| Printed material | 12% | 18% |
| Scrap and plastic waste | 5% | 18% |
GST Rate Revision in 44th GST Council Meeting
The 44th GST council meeting was held on 12th June 2021 and the following decisions had been taken regarding the GST rates effective up to 30th September 2021.
Category |
Old Rate |
New Rate |
| Hand sanitisers | 18% | 5% |
| Equipment to check body temperature | 18% | 5% |
| Ambulances | 28% | 12% |
| Testing kits | 12% | 5% |
GST Rate Revision in 43rd GST Council Meeting
- GST on the export of relief goods will be exempted and will stay in effect until 31 August 2021.
- GST on import of certain medicines are also placed under the exemption list.
- Any Covid-related relief item imported to donate to the government or any relief organization will be exempted from IGST till 31 August 2021.
- The Amnesty Scheme was announced by the finance minister to reduce late fee returns. Small taxpayers can file GST returns under this scheme.
GST Rate Revision in the 42nd GST Council Meeting
Here are the highlights of the meeting held on October 5, 2021.
- Small taxpayers with a turnover of less than ₹ 5 crore can now file quarterly GSTR-3B and GSTR-1 forms where the due date for GSTR-1 will be the 13th day of the month succeeding the quarter.
- The quarterly taxpayers have the option of paying 35% of the net tax liability of the previous quarter, using an auto-generated challan for the first two months of the quarter.
- For the auto-generation of GSTR-3B, a roadmap is prepared, where the details of the supplier’s GSTR-1 will help in auto-populating the ITC. Taxpayers will pay their GST through a simple challan.
- Taxpayers with a turnover of ₹ 5 crore and above will have to mention a 6-digit HSN code. A 4-digit HSN code is to be mentioned by taxpayers with a turnover of less than ₹ 5 crore.
- Bank accounts which have their PAN linked with Aadhaar will be able to receive refunds.
- ISRO, Antrix Corporation, and New Space India Limite (NSIL) will receive GST exemptions to encourage space launching services in India.
- Sanitisers that are non-alcoholic will continue to be taxed at 18% GST.
- The compensation cess collected to date amounts to ₹ 20,000 crore. This amount was disbursed to specific states in India by 5 October 2020.
GST Rate Revision in the 41st GST Council Meeting
The 41st GST Council meeting was chaired by the Union Finance Minister and was held on 27 August 2020. The new revision states the government will provide an additional 0.5% relaxation in states where the borrowing limit is under the FRBM Act. States can now borrow more due to the damage caused by the coronavirus outbreak.
HSN and SAC System in GST Tax Classification
The HSN & SAC codes are two coding systems that classify goods and services for taxation under the GST regime. HSN stands for Harmonised System of Nomenclature, and SAC means Service Accounting Code. These codes are essential for determining the correct applicable tax rate and facilitating international trade and compliance.
Classification of HSN System
The HSN system, created by the WCO and used by India in 1986, is a global way of naming and numbering traded goods for tax and trade purposes. It has 21 sections, 99 chapters, 1244 headings, and 5224 subheadings, each with a six-digit code. The code can have two more digits for domestic use.
The code structure is:
- First two digits: chapter number
- Next two digits: heading number
- Next two digits: subheading number
- Last two digits: further subheading number
The HSN system helps to:
- Classify goods consistently across regions
- Identify and describe goods easily
- Avoid disputes and lawsuits
- Simplify customs processes and documents
- Collect and analyse trade data
For example, the HSN code for rice is 1006, which means it is in section 2 (vegetables), chapter 10 (cereals), heading 06 (rice), and no further subheading. The code also shows the tax rate, which is 5% under GST.
Businesses and tax authorities must use the right HSN codes, as any mistake can cause:
- Wrong tax calculation
- Delayed or denied tax credit
- Penalty or interest for breaking the rules or hiding tax
- Trouble in filing returns and matching invoices
- Problems or seizure of goods at the customs
Classification of SAC System
The SAC system is a code-based classification of services under GST issued by the Central Board of Excise and Customs (CBEC) department. It is derived from the United Nations Central Product Classification (CPC). The SAC system has 99 sections, each identified by a two-digit code.
The structure of the SAC code is as follows:
- The first two digits denote the section number
- The next two digits denote the chapter number
- The subsequent two digits denote the heading number
- The final two digits denote the subheading number
The SAC system helps to standardise, simplify, reduce, enhance, streamline, and promote various aspects of service taxation. The SAC code also determines the tax rate for the service, which varies depending on the service category and location. Service providers and tax authorities should use the correct and updated SAC codes to avoid errors and mismatches.
Conclusion
The GST system is vital for consumers and businesses, making taxation easier by applying the same rates to goods and services. The GST has five different slabs, and some products may have extra cess. In 2024, the GST rates changed for some products, either increasing or decreasing them. These changes aimed to improve the tax system and boost the economy.
FAQs on GST Rates
1. How many slabs are in GST at present?
The GST rate list comprises four slabs, namely 0%, 5%, 12%, 18%, and 28%
2. What is the GST Rate on Gold in India?
The GST rate of gold in India is 3%.
3. What is the GST rate on Mobile Phones?
The GST rate on mobile phones is 18%.
4. Who decides GST Rates?
The Central Government decides the GST rates in the country.
5. What is the GST Rate on Laptops?
The GST rate on laptops is 18%.
6. What is the GST Rate on Cement?
The GST rate on cement is 28%.
7. What is The Highest Rate of GST?
The highest GST rate is 28%.
8. What are the 3 Types of GST?
The three types of GST are IGST, SGST, and CGST.
9. Is GST charged on Milk?
The GST on fresh and pasteurised milk is fully exempt under GST. Refer to GST on Milk and Dairy Products for complete list.
10. Who must pay the GST rate?
The supplier of the product is responsible for paying GST.
11. What is the GST Rate on Cars?
The GST rate on cars in India is 28%.
12. What is the GST Rate on TVs or Televisions?
The GST rate on TV or televisions in India is 18% to 28% based on the screen size
The post GST Rates in 2024 – Check Full List of Goods and Service Tax Rates, Slabs & Revisions appeared first on Razorpay Learn.
]]>The post MSME Definition: MSME Meaning & Latest Classification with Turnover Limit in 2024 appeared first on Razorpay Learn.
]]>MSME full form Micro, Small, and Medium Enterprises. As per the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the meaning of MSME includes Micro, Small and Medium enterprises. These enterprises are classified into two divisions.
Manufacturing enterprises
Manufacturing enterprises are engaged in the manufacturing or production of goods in any industry
Service enterprises
Services enterprises are engaged in providing or rendering services
Micro, Small and Medium Enterprise (MSME) Definition
The definition and criteria for classifying as Micro, Small, and Medium Enterprises (MSMEs) was revised by the Government of India in 2020, under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
What is Micro Enterprise?
A micro-enterprise is defined as an enterprise having an investment in plant and machinery or equipment less than one crore rupees, with a turnover that does not surpass five crore rupees. A micro-enterprise can be engaged in manufacturing, services, or trading activities.
What is Small Enterprise?
A small enterprise is defined as an enterprise having an investment in plant and machinery or equipment that is less than 10 crore rupees, and the turnover does not exceed 50 crore rupees. A small enterprise can also be involved in manufacturing, services, or trading activities.
What is Medium Enterprise?
A medium enterprise is defined as an enterprise having an investment in plant and machinery or equipment that is less than 50 crore rupees. The turnover does not go over two hundred and fifty crore rupees. A medium enterprise can likewise be engaged in manufacturing, services, or trading activities.
The investment and turnover figures were changed to larger values, thereby resulting in a larger number of medium-sized enterprises.
Related Read: What is an MSME Certificate & How can you download an MSME or Udyam Certificate Online?
UPDATED MSME Classification and Criteria in 2024
The new classification for MSME Registration is based on a composite criterion of investment and turnover instead of the previous investment criterion only.
Classification of MSME is based on Turnover and Investments as below:
|
Updated MSME Definition and Criteria in 2024 |
||
|
Type of enterprise |
Investment |
Turnover |
|
Micro |
Rs 1 crore |
Rs 5 crore |
|
Small |
Rs 10 crore |
Rs 50 crore |
|
Medium |
Rs 50 crore |
Rs 250 crore |
Investments will no longer characterise MSMEs.
Find out how to register your MSME online in India.
On 13th May 2020, Finance Minister Nirmala Sitharaman added the additional principle of turnover along with the investment.
In October 2019, Union Minister Nitin Gadkari had said that the revised definition of micro, small, and medium enterprises may grant a unified description for all things related to taxation, investment, and more.
The changed definition was to be implemented via an amendment that would further refine the business scenario for Indian enterprises. The Union Cabinet had approved the amendment to change the criteria to classify MSMEs from “investment in plant and machinery” to “annual turnover.”
The new classification aims to encourage MSMEs to grow and expand their business without losing the benefits and incentives provided by the government.
Related Read: What’s there for MSMEs in the Budget 2024?
Ministry of Micro, Small and Medium Enterprises
The ministry of MSME is the nodal ministry of the Government of India for promoting and developing the MSME sector, including Khadi, Village, and Coir Industries. The current leadership of the MSME ministry consists of Shri Narayan Tatu Rane and Shri Bhanu Pratap Singh Verma as the Minister of State.
Established under the MSME Development Act of 2006, the NBMSME acts as the government’s main advisory body for all matters concerning the MSME sector. The board comprises members from the central and state governments, industry associations, financial institutions, academic institutions, and other stakeholders.
The responsibilities of the NBMSME include the following:
-
To explore the factors affecting the promotion and development of MSMEs and to suggest remedial measures.
-
Review the policies and programs of the central and state governments concerning MSMEs and make recommendations for their improvement.
-
To advise the government on using funds and incentives for the MSME sector and to monitor their implementation.
-
To coordinate with other ministries, departments, and agencies on matters concerning MSMEs and to ensure convergence of MSME loan schemes and initiatives.
-
To facilitate the participation of MSMEs in international trade and to suggest measures for enhancing their competitiveness and market access.
The Ministry of MSME provides various services to the MSME sector through its attached offices, autonomous bodies, and public sector undertakings. Some of these services are:
Testing facilities
The ministry operates a network of testing centres and laboratories nationwide, where MSMEs can avail of quality testing, calibration, certification, and consultancy services for their products and processes.
Entrepreneurship development
The ministry conducts training programmes, workshops, seminars, and awareness campaigns to promote entrepreneurship among potential and existing entrepreneurs, especially women, youth, and marginalised groups.
Project profiling
The ministry prepares and disseminates project profiles and feasibility reports on various sectors and sub-sectors of MSMEs to assist entrepreneurs in setting up and running their enterprises.
Consultancy
The ministry provides consultancy services to MSMEs on various aspects, such as technology upgradation, marketing, finance, management, and legal issues, through its network of field offices and partner organizations.
Export assistance
The ministry facilitates the export of MSME products and services by providing information, guidance, incentives, and support to exporters and by participating in trade fairs and exhibitions, both domestic and international.
Environmental audits
The ministry conducts environmental audits and assessments of MSME units, to help them comply with the environmental norms and regulations, and to adopt eco-friendly practices and technologies.
Features of MSMEs
Here are some of the essential features of MSMEs
- MSMEs are known to provide reasonable assistance for improved access to the domestic as well as export markets for businesses
- MSMEs support product development, design innovation, intervention, and packaging elements of a business
- MSMEs support the upgrading of technology, infrastructure, and the modernization of this sector as a whole
- MSMEs provide employment opportunities and loans
- MSMEs provide credit limits or funding support to various banks in the country
Role of MSMEs in the Indian Economy
The MSME sector has proven to be a highly dynamic factor in the forecasting of the Indian economy. Since MSMEs produce and manufacture a variety of products for both domestic as well as international markets, they have helped promote the growth and development of various product segments and industries.
MSMEs have played an essential role in providing employment opportunities in underprivileged areas. They have helped in the industrialization of such areas with a low capital cost compared to the larger industries in cities. MSMEs have also contributed and played an essential role in the country’s development in different areas like the requirement of low investment, flexibility in operations, low rate of imports, and a high contribution to domestic production.
Why the MSME Definition was changed?
As Finance Minister Nirmala Sitharaman made the announcement about the change, she also addressed the reasons behind it. She said the new definition will bring about many benefits that will aid MSMEs to grow in size.
This was made under Atma-nirbhar Bharat Abhiyaan Economic Package to assuage India’s economic predicament amidst the pandemic.
Combined with all previous economic stimulus efforts, the total amount of the relief package comes to a whopping Rs. 20 lakh crore.
Read more: Highlights from Atma-nirbhar Bharat Abhiyaan Economic Package
Key announcements of Atma-nirbhar Bharat Abhiyaan
- Rs 3 lakh crore collateral free automatic loans for MSMEs
- Rs 50,000 crore equity infusion through MSME Fund of Funds
- Rs 20 crore subordinate debt for MSMEs
- Extension of registration and completion date of real estate projects under RERA
- Immediate pending refunds issuance to all non charitable trusts
- Extension of the due date for ITR for FY’19-20 to November 30, 2020
Old MSME definition based on investment, MSMED Act, 2006
|
Manufacturing Sector |
|
|
Enterprises |
Investment in plant and machinery |
|
Micro enterprises |
< or = Rs 25 lakh |
|
Small enterprises |
> Rs 25 lakh < Rs 5 crore |
|
Medium enterprises |
> Rs 5 crore < Rs 10 crore |
|
Services Sector |
|
|
Enterprises |
Investment in equipment |
|
Micro enterprises |
< or = Rs 10 lakh |
|
Small enterprises |
> Rs 10 lakh < Rs 2 crore |
|
Medium enterprises |
> Rs 2 crore < Rs 5 crore |
Headquartered in New Delhi, the Ministry of MSME is a branch of the Indian Government, which is the apex body for the formulation and administration of rules, and laws, pertaining to micro, small, and medium-sized enterprises in the country.
Having created 11 crore job opportunities in India while contributing to the GDP by 29%, we can say that MSMEs are the heart of the Indian economy. And the change in the definition will enable Indian enterprises to carry out their businesses better.
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Frequently Asked Questions (FAQs)
Who are MSME companies?
The Ministry of Micro, Small, and Medium Enterprises, a branch of the Government of India, is primarily used for laying the foundation and administration of rules, regulations, and laws relating to micro, small and medium enterprises in India.
What is meant by MSME?
MSME stands for Micro, Small, and Medium Enterprises. It was introduced by the Government of India in agreement with the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006. As per this act, MSMEs are the enterprises involved in the processing, production, and preservation of goods and commodities.
What is the MSME limit?
Investment limit for Micro Enterprises: Less than 1 crore INR Investment limit for Small Enterprises: 1-10 crore INR Investment limit for Medium Enterprises: 10-50 crore INR The turn-over limit for Micro Enterprises: Less than 5 crore INR The turn-over limit for Small Enterprises: 1-25 crore INR The turn-over limit for Medium Enterprises: 25-250 crore INR.
How can I avail MSME loan?
Individuals can easily avail of an MSME business loan by following the mentioned steps below Fill up the online application form for SME/MSME loan to apply. Submit all the relevant documents to complete the process (KYC documents, address proof, business ownership proof, and financial documentation) * Get money in any bank within 24 hours.
How do you benefit from MSME?
Here are the following benefits of registering MSME in India: You can avail of collateral-free bank loans You can easily acquire government tenders through the Udyam Registration Portal Protection against delayed payments SO Certification Charges Reimbursement
What are the types of MSMEs?
According to the provisions of the MSMED (Micro, Small & Medium Enterprises Development) Act of 2006, MSMEs are classified into two classes i.e. Manufacturing Enterprises and Service Enterprises. The enterprises are further categorized based on annual turnover and investment in equipment.
What is the UAM number?
UAM is a registration form that constitutes a self-declaration format under which the MSME will self-certify its existence, bank account details, promoter/owner’s identity details, and other information required. There’s no fee for filing the UAM number.
Who is eligible for MSME?
You are eligible for MSME if your business is a micro or small enterprise as per the MSME Act. This means your investment and turnover should be below certain limits.
What are the examples of MSME enterprises?
Some examples of MSME enterprises are:
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Handicrafts and pottery
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Food processing and agro-based industries
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Textiles and garments
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Leather and footwear
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Engineering and electronics
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Pharmaceuticals and biotechnology
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]]>The post Income Tax Refund Status For FY 2023-24: Check ITR Refund Status appeared first on Razorpay Learn.
]]>An income tax refund occurs when you’ve overpaid your tax liability. This typically happens when:
- TDS Deductions Exceed Tax Liability: Taxes deducted at source (TDS) on your income exceed your actual tax liability.
- Advance Tax Payments: You’ve paid more advance tax than required.
- Excess Tax Paid: You’ve overestimated your tax liability during self-assessment.
How the Refund is Calculated: When you file your income tax return, the tax department calculates your total income, deductions, and tax payable. If the amount you’ve already paid (TDS, advance tax) exceeds the calculated tax liability, a refund is generated.
Refund Payment Methods: Refunds are typically credited directly to the bank account linked to your income tax return. In some cases, a cheque may be issued.
Important Note: Ensuring accurate bank account details in your income tax return is crucial for smooth refund processing.
How to Check your ITR Status FY 2023-24 (AY 2024-25)?
To track the progress of your income tax refund, you can utilize two primary methods:
- Checking Refund Status on the Income Tax e-Filing Portal
- Checking Refund Status on the NSDL TIN Website
Method 1: Checking Refund Status on the Income Tax e-Filing Portal
Step 1: Visit the Income Tax e-Filing portal and log in to your account.
Step 2: From the top navbar, click on “Dashboard.”
Step 3: Select “View ITR Status.”
Step 4: Your ITR refund status will be displayed on the screen.
Method 2: Checking Refund Status on the NSDL TIN Website
Step 1: Visit the NSDL TIN Website: Access the NSDL TIN website (tin.tin.nsdl.com).
Step 2: Enter PAN and Assessment Year: Provide your PAN number, select the assessment year, and enter the captcha code.
Step 3: View Refund Status: Click ‘Proceed’ to view the status of your refund.
Processing Time for ITR Refunds
Typically, after e-verifying your income tax return, the Income Tax Department aims to process refunds within four to five weeks. However, this timeframe is an estimate and can vary depending on factors such as:
- Complexity of the Income Tax Return: Returns with numerous deductions, exemptions, or investments might require additional scrutiny.
- Verification Process: The income tax department may initiate verification procedures, causing delays.
- Pending Tax Demands: Outstanding tax liabilities can halt refund processing until resolved.
- Bank Account Details: Incorrect or outdated bank account information can hinder refund transfers.
It’s essential to be patient and allow sufficient time for the refund process to complete. If you haven’t received your refund within the expected timeframe, you can check the refund status or contact the income tax department for further assistance.
How to Request for Tax Refund Reissue
If your income tax refund shows processed but hasn’t been credited to your bank account, you can initiate a reissue request. Here’s how to do it:
- Access the Income Tax e-Filing Portal: Visit the official website (https://www.incometax.gov.in/iec/foportal/) and log in using your PAN, password, date of birth, and captcha code.
- Navigate to Refund Reissue Request: Once logged in, navigate to the ‘My Account’ section and then click on ‘Service Request.’
- Select Refund Reissue Option: Under ‘Request Type,’ choose ‘New Request,’ and then select ‘Refund Reissue’ under ‘Request Category.’
- Choose the Assessment Year: A screen will display acknowledgment numbers for each year you filed an income tax return. Click ‘Submit’ under the ‘Response’ section for the year where you wish to request a refund reissue.
- Provide Bank Details: Enter your bank account number, account type, IFSC code, and bank name. Ensure these details match the account linked to your income tax return.
- Submit Request: After verifying the information, click on ‘Submit’ to initiate the request.
- Track Reissue Status: The Income Tax Department will process your request and credit the refund amount to your bank account within a few days. You can track the status of your request using the e-filing portal.
Understanding Different Income Tax Refund Statuses
Understanding your income tax refund status can be confusing. Here’s a breakdown of common refund statuses and what they mean:
1. No E-filing has been done for Current AY
What does this mean? This indicates your income tax return for the current assessment year (AY) hasn’t been filed.
What to do? Double-check the AY you entered for checking the refund status. Remember, Financial Year (FY) 2022-23 corresponds to Assessment Year (AY) 2023-24. If you haven’t filed your return, do so as soon as possible.
2. Under Processing
What does this mean? The Income Tax Department is still processing your return.
What to do? Wait for a month before checking the status again.
3. Refund Issued
What does this mean? The Income Tax Department has processed your return and issued your refund. You should receive it via cheque or direct bank deposit.
4. Processed with No Demand No Refund
What does this mean? There are two possibilities:
- You filed with no refund due and no outstanding tax.
- The department denied your refund request due to mismatched TDS data or incomplete filing.
What to do?
- If you forgot deductions, file a revised return.
- If the department disagrees with your information, they’ll send you a notice (u/s 143(1)) explaining why. You can then rectify your return or seek expert help.
5. Refund Failure
What does this mean? The refund couldn’t be processed due to incorrect or non-pre-validated bank account details.
What to do?
- Log in to incometax.gov.in and update your bank details.
- Pre-validate your bank account and request a “Refund Reissue.”
6. Case Transferred to Assessing Officer
What does this mean? This could mean:
- The department needs further information regarding your return.
- You may have outstanding taxes that will offset your refund.
What to do?
- Contact your Jurisdictional Assessing Officer (AO) for clarification.
7. Demand Determined
What does this mean? Your refund request was rejected, and you owe taxes instead.
What to do?
- Review the department’s intimation to understand why the refund was denied.
- If your request was incorrect, pay the outstanding tax within the specified timeframe.
- If you believe the department made an error, rectify your return or seek expert help.
8. Rectification Processed Refund Determined
What does this mean? Your rectified return was accepted (fully or partially), and a refund has been calculated and credited.
9. Rectification Processed Demand Determined
What does this mean? Your rectified return was accepted (fully or partially), but you still owe outstanding taxes.
What to do? Review the intimation and pay the outstanding tax within 30 days.
10. Rectification Processed No Demand No Refund
What does this mean? Your rectified return was accepted (fully or partially), but you neither owe taxes nor receive a refund.
What to do? Review the intimation for clarification. Consider seeking expert help for further guidance.
Remember, this information is for general understanding. If you have specific questions or encounter issues, consult a tax professional.
Income Tax Refund Helpline
If you have any questions regarding your income tax refund, you can reach out to these resources:
Aaykar Sampark Kendra (ASK):
- This is the Income Tax Department’s general helpline for income tax queries, including refunds.
- Toll-free Number: 1800-180-1961
Email:
- You can also send a detailed email with your refund query to: refunds@incometax.gov.in
CPC Bangalore Refund Processing:
- For queries or modifications related to refunds processed by the Centralized Processing Center (CPC) in Bangalore, you can contact these numbers:
- Toll-free Number: 1800-425-2229
- Landline Number: 080-43456700
Payment-related Queries:
- For any questions regarding the payment of your refund, contact the SBI Contact Centre toll-free number: 1800-425-9760
FAQs
What happens if my bank account details change after filing the income tax return?
If your bank account details change after filing your income tax return, you need to update your bank information on the income tax e-filing portal. This can be done through the ‘Profile Settings’ section. Ensure the update is made before the refund is processed to avoid delays or issues.
What does it mean if my refund status shows as “processed but not credited”?
If your refund status shows as “processed but not credited,” it indicates that the income tax department has approved your refund, but it has not yet been transferred to your bank account. This could be due to various reasons, such as bank processing time or technical glitches. You should continue to monitor the status and contact your bank if the issue persists.
What documents are required for a refund reissue?
To request a refund reissue, you typically need to provide your PAN number, assessment year, bank account details, and any supporting documents that may be required by the income tax department. It’s advisable to keep a record of your initial refund request and any correspondence with the tax authorities.
Will I have to pay tax on the refund amount?
No, the refund amount is a repayment of excess tax paid by you and is not considered taxable income. Therefore, you will not have to pay any tax on the refund amount.
What is the difference between an income tax return and an income tax refund?
An income tax return is a document submitted to the income tax department declaring your income, deductions, and tax liability for a specific financial year. An income tax refund is the amount repaid to you by the income tax department if you have overpaid your taxes.
What is the time limit for claiming an income tax refund?
An income tax refund can only be claimed after the Income Tax Return (ITR) has been filed. The deadline for filing ITR and obtaining refunds for any Assessment Year (AY) is December 31.
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]]>The post What is UTGST (Union Territory Goods and Services Tax)? appeared first on Razorpay Learn.
]]>UTGST stands for Union Territory Goods and Services Tax, is the equivalent of SGST for Union Territories. While SGST is levied by state governments on intra-state transactions, UTGST is imposed by Union Territory governments on the supply of goods and services within their respective territories.
Related Read: What is SGST?
List of UTGST States
Here is a complete list of UTGST States in India:
Union Territory |
Code |
Abbreviation |
| Andaman and Nicobar Islands | 35 | ANI |
| Chandigarh | 4 | CHD |
| Dadra and Nagar Haveli and Daman and Diu | 26 | DNDD |
| Lakshadweep | 31 | LD |
| Delhi | 07 | DL |
| Puducherry | 34 | PY |
When is UTGST applicable?
UTGST applies when goods or services are supplied within a Union Territory (intra-UT). The output liabilities of a taxable person under the UTGST Act are often described as follows:
Supply Type |
Output tax Liability |
Section Applicable |
| Supplies made in a Union Territory without a governing body | UTGST and CGST (within the UT border) | As per Section 8(1) and 8(2) of the IGST Act |
| Supplies made between two Union Territories without a governing body | Integrated GST (Between two or more UT) | As per Section 7(1) and 7(3) of the IGST Act |
| Supplies arranged between a Union Territory without a governing body and a State or UT with the governing body. | Integrated GST | As per Section 7(1) and 7(3) of the IGST Act |
How to Calculate UTGST?
Calculating UTGST is straightforward.
Here’s a basic breakdown:
STEP 1: Determine the taxable value: This is the value of the goods or services sold.
STEP 2: Identify the UTGST rate: The UTGST rate is determined by the Central government and is usually the same as the SGST rate for the corresponding state.
STEP 3: Calculate the UTGST amount: Multiply the taxable value by the UTGST rate.
UTGST Formula
The formula for calculating UTGST is:
UTGST = (Value of Goods) x (UTGST Rate/100)
UTGST Examples
Consider a business in Karnataka, a state in India, selling goods worth ₹10,000. Under GST, the taxes applied are Central GST (CGST) and State GST (SGST). If the GST rate is 18%, it is split into 9% CGST and 9% SGST.
Therefore, the business would charge:
- CGST: ₹10,000 x 9% = ₹900
- SGST: ₹10,000 x 9% = ₹900
- Total GST: ₹900 (CGST) + ₹900 (SGST) = ₹1,800
Now, let’s look at a similar business in the Union Territory of Lakshadweep. Since Lakshadweep does not have its own legislature, instead of SGST, UTGST is applied. For the same goods worth ₹10,000 with an 18% GST rate, the breakdown would be:
- CGST: ₹10,000 x 9% = ₹900
- UTGST: ₹10,000 x 9% = ₹900
- Total GST: ₹900 (CGST) + ₹900 (UTGST) = ₹1,800
In both cases, the total GST amount is ₹1,800, but the type of state-level tax differs. In Karnataka, it is SGST, while in Lakshadweep, it is UTGST.
Exemption from UTGST
There are certain exemptions from UTGST, such as:
- The supply of goods and services to the Central Government, a state government, or a local authority
- The supply of goods and services that are exported outside India
- The supply of goods and services that are zero-rated or tax-free
Under Section 8 of the UTGST Act, the Central Government has the authority to grant exemptions from UTGST.
UTGST Slab Rates
The UTGST rates are 0%, 5%, 12%, 18% and 28%.
Here’s a detailed table explaining UTGST Rates
UTGST Slab Rate |
Examples of Goods and Services |
| 0% | Basic food items (e.g., rice, wheat), unprocessed agricultural products |
| 5% | Packaged food items, certain essential goods (e.g., tea, coffee) |
| 12% | Processed food items, some consumer goods (e.g., branded apparel, footwear) |
| 18% | Services (e.g., restaurant services, telecom services), most goods (e.g., electronic items, furniture) |
| 28% | Luxury items and sin goods (e.g., high-end cars, tobacco products) |
Read More About: GST Rate
Benefits of UTGST
1. Simplified Tax Structure
UTGST, along with CGST, creates a simpler tax framework within Union Territories. This reduces complexity and makes the tax process more straightforward for businesses.
2. Revenue Sharing with Central Government
UTGST ensures that Union Territories receive their share of tax revenue, leading to better resource allocation and development within these regions.
3. Consistency Across the Nation
The implementation of UTGST maintains a consistent tax system across India, helping businesses operate efficiently without dealing with varying tax regimes.
4. Supports Economic Integration
UTGST helps integrate Union Territories into the national economy by ensuring they are part of the unified tax system, promoting inclusive growth.
5. Less Burden on Consumers
By streamlining the tax process and avoiding multiple layers of taxation, UTGST helps reduce the overall tax burden on consumers in Union Territories, making goods and services more affordable.
FAQs
1. What is the full form of UTGST?
UTGST stands for Union Territory Goods and Services Tax. It is a component of the GST system in India that applies specifically to Union Territories without their own legislatures.
2. Who is liable to pay UTGST?
Businesses and individuals who supply goods or services within a Union Territory are liable to pay UTGST. This includes both sellers and service providers operating in these regions, who must collect UTGST from their customers and remit it to the government.
3. Who collects UTGST?
The Union Territory government collects the revenue generated from UTGST. UTGST replaces SGST in Union Territories.
4. How can I claim a refund under UTGST?
To claim a refund under UTGST, businesses need to submit a refund application via the GST portal, specifying the amount of UTGST they wish to recover. They must provide all necessary documentation, including tax invoices, proof of payment, and any other relevant records. The application will be reviewed by tax authorities, and once it is approved, the refund will be processed and credited to the business’s account.
5. How does the input tax credit work under UTGST?
Input tax credit (ITC) under UTGST works similarly to other GST components. Businesses can claim ITC for UTGST paid on inputs used in the course of their business. This allows them to offset UTGST on their purchases against the UTGST they collect on sales.
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