Goods and Services Tax: Is It Good To Go For Voluntary Registration?
Even businesses that have no requirement to register under the Goods and Services Tax can choose to voluntarily register themselves under the new tax regime. Every provision under the tax that applies to registered entities shall be applicable to those who voluntarily register too.
Voluntary Registration Under The Goods And Services Tax – Who Is It For?
The following businesses are mandated to register under the Goods and Services Tax:
- Businesses that engage in inter-state selling
- Businesses that engage in online sales
- Businesses whose turnover exceeds Rs.20 lakh
Businesses that earn an annual turnover under Rs.20 lakh have the option to register under the Goods and Services Tax on a voluntary basis. A composition levy can be opted for by businesses that earn turnovers between Rs.20 lakh and Rs.1 crore. However, there are certain disadvantages of going for composition levy, like the inability to avail input tax credit or to collect tax from customers. SMEs can therefore just register under the tax as regular dealers rather than as composition dealers.
For instance, a grocery seller who earns a turnover between Rs.12 lakh and Rs.15 lakh has no need to register under the Goods and Services Tax. But, if this seller also supplies groceries to a restaurant in his neighbourhood, and the restaurant has been registered under the new tax regime (since its turnover is more than Rs.20 lakh), the receiver of the supplies (the restaurant) can avail input tax credit. Since the restaurant will need a registered vendor who can pass on the input tax credit, the seller can choose to register under the Goods and Services Tax on a voluntary basis so that the input tax credit is passed on to the buyer of his supplies.
Advantages Of Registering Voluntarily Under The Goods And Services Tax
The following are the advantages of registering voluntarily under the Goods and Services Tax:
- Passing on input tax credit: Taxable invoices can be issued by businesses that are legally recognised under GST. As a result, buyers can avail input tax credit when they make purchases from such businesses. In turn, the customer base of the business can expand, and eventually, it becomes more competitive.
- Inter-state sales can be made more freely: Inter-state sales can be made more freely by businesses once they have registered under the new regime. Therefore, the prospective market widens, especially for small and medium-sized businesses. Such businesses can also choose to engage in online sales via e-commerce platforms, thereby widening their customer base.
- Availing input tax credit: Persons who have registered voluntarily under the Goods and Services Tax have the option to avail input tax credit on the purchases they make as well as input services such as consultation fees, legal fees, etc., which will ultimately result in enhancing their profitability and business margin.
- Better standing: Renting premises, availing loans from banks and other such business areas will become easier for businesses that are registered under the Goods and Services Tax due to a good compliance rating.
- Good rating: Businesses that are registered under the Goods and Services Tax will be compliant as well as scalable. Moreover, the compliance rating that is maintained under the new regime shall be beneficial to the business as it can attract more customers.
Disadvantages of Registering Voluntarily Under The Goods And Services Tax
The following are the disadvantages of registering voluntarily under the Goods and Services Tax:
- Technology: Among the main concerns that small businesses face under the new tax regime is the lack of technology. Most of the small businesses handle their accounts manually, but GST makes it compulsory for them to go online for payments and returns in excess of Rs.10,000.
- Tax liability: Registering under the Goods and Services Tax will mean that suppliers will have to deposit and collect taxes, which becomes an extra responsibility for them. Doing so not only increases the cost from the buyer’s point of view, but similar suppliers who have not completed their GST registration will be leveraged too.
- Filing of multiple returns: Three returns are expected to be filed every quarter by businesses who have registered themselves under GST. GSTR-1, GSTR-2, and GSTR-3 include information related to all the sales and purchases made by the businesses along with the final tax liability after input tax credit has been set off. Filing these returns late, or not filing them at all, will mean that the buyer cannot avail input tax credit from you. Moreover, you will also have to pay penalties, late fees and interest. Your compliance rating shall also be adversely affected as a result.
- Compliance: Businesses that are registered under the Goods and Services Tax will be required to comply with each and every provision of the rules and regulations that govern the Goods and Services Tax. Considering the number of provisions, compliance could be difficult for some businesses.
- Loss of customers: Businesses that register themselves under the Goods and Services Tax are mandated to collect the tax from their customers. As such, dealers who have not registered themselves under the new tax regime can offer similar products as registered businesses at lower prices, which means that their customer base can increase and registered businesses can lose out.
Permanence of Voluntary Registration
Businesses that register under the Goods and Services Tax on their own accord can cancel their registration after a year has passed. Cancellations can also be done in case a business that has registered itself voluntarily does not start operations of said business within 6 months from the date on which it was registered. The cancellation in such a scenario shall be done by an authorised officer, or if the concerned individual makes a request for cancellation. In case the individual dies, his legal heir can file an application for cancellation.