Can I Charge 0% GST When My Turnover is Less Than 20 Lakhs?

Yes, businesses with an annual turnover of less than ₹20 lakhs are exempt from GST registration, which means they are not required to charge GST on their goods or services. However, there are specific conditions and implications associated with this exemption that business owners need to understand to make informed decisions. Here’s a detailed guide on whether you can charge 0% GST when your turnover is below ₹20 lakhs:

1. Understanding the GST Exemption Threshold

The Goods and Services Tax (GST) law in India provides a basic exemption limit for small businesses:

• For service providers, the exemption limit is ₹20 lakhs per annum.

• For businesses in the northeastern states and special category states, the limit is ₹10 lakhs.

• For businesses involved in the supply of goods, the threshold is ₹40 lakhs.

If your turnover is below these limits, you are not required to register under GST, and consequently, you are not obliged to charge GST on your sales.

2. Voluntary Registration Under GST

Even if your turnover is below ₹20 lakhs, you have the option to voluntarily register for GST. Voluntary registration might be beneficial in certain situations, such as:

• Input Tax Credit (ITC): By registering, you can claim the input tax credit on your purchases, which can reduce your overall tax liability.

• Interstate Sales: If your business involves interstate sales, GST registration becomes mandatory regardless of turnover. Voluntary registration allows you to legally conduct such sales.

• Enhancing Business Credibility: Being GST registered can boost your business’s credibility with customers and suppliers, especially for B2B transactions where businesses prefer dealing with GST-compliant suppliers.

3. Implications of Not Registering for GST

If your turnover is less than ₹20 lakhs and you choose not to register for GST, you cannot charge GST on your invoices. This is perfectly legal and expected from non-registered entities. However, there are several implications:

• Cannot Claim ITC: Without GST registration, you cannot claim input tax credit on your purchases, which might increase your costs.

• Ineligible for Interstate Sales: You cannot conduct interstate sales legally without GST registration, restricting your market.

• Limited to Certain Clients: Some businesses, especially large companies, prefer dealing with registered suppliers to avail of input tax credits, which could limit your customer base.

4. Conditions When You Must Register Regardless of Turnover

Certain conditions make GST registration mandatory irrespective of your turnover:

• Interstate Sales: If you are supplying goods or services across state lines.

• E-commerce Operators: If you sell through online platforms like Amazon, Flipkart, or other marketplaces.

• Reverse Charge Mechanism: If you are liable to pay tax under the reverse charge mechanism.

• Casual Taxable Persons: If you occasionally supply goods or services in a taxable territory where you do not have a fixed place of business.

5. Charging 0% GST: When Is It Allowed?

While businesses below the threshold do not need to charge GST, charging 0% GST is different and only applies to specific cases:

• Zero-Rated Supplies: These include exports and supplies to SEZ units where GST is charged at 0% but ITC can still be claimed.

• Exempted Goods/Services: Some goods and services are naturally exempt from GST, meaning they are taxed at 0%. Examples include certain educational services, healthcare, and unprocessed agricultural products.

However, businesses below the threshold without GST registration cannot label their sales as “0% GST.” They simply do not charge GST at all, as they are outside the GST framework.

6. Benefits of Not Charging GST for Small Businesses

For businesses with turnovers below the threshold, not charging GST can be advantageous:

• Competitive Pricing: Without GST, your product prices are lower, making them more attractive, especially to individual consumers who cannot claim input tax credits.

• Simplified Compliance: Without the need to register, file returns, or maintain GST-related documentation, compliance is simpler and less costly.

• Less Administrative Burden: You avoid the complex rules of input tax credit reconciliation, tax payments, and filing monthly, quarterly, or annual returns.

7. Potential Drawbacks of Not Charging GST

Despite the advantages, there are downsides to not charging GST:

• Higher Costs: Since you cannot claim ITC, any GST paid on your business purchases becomes a cost, which can erode your profit margins.

• Perceived Lower Credibility: B2B clients might perceive your business as less credible compared to GST-registered suppliers, potentially affecting sales.

• Restrictions on Expansion: Unregistered businesses are restricted to intrastate sales, which can limit growth opportunities, especially if your market has demand outside your home state.

8. Decision-Making: Should You Register Voluntarily?

The decision to register voluntarily depends on your business needs:

• If your client base primarily comprises other businesses that prefer dealing with registered suppliers, voluntary registration can be beneficial.

• If your business operates mainly in the consumer market and your turnover remains consistently below the threshold, staying unregistered might be the better option to keep pricing competitive.

Conclusion

You can legally operate without charging GST if your turnover is less than ₹20 lakhs, provided you do not fall under specific mandatory registration categories. This offers simplified compliance and lower operational costs, but it also restricts certain business activities like interstate sales. Evaluate the pros and cons based on your business model, client requirements, and growth plans to make an informed decision on whether to remain unregistered or opt for voluntary registration under GST.

Thank you for giving your valuable time for reading this write up, if still, you have any queries regarding GST registration, GST cancellation, IEC registration then please connect to our team at [email protected] or call us at 9988424211 and we will be happy to help you to provide you reach the global market.