Exemption from Registration under GST: Thresholds & Compliance

Exemption from registration under GST for small service providers

Introduction:

In the context of the Goods and Services Tax (GST) regime in India, small service providers who supply their services through ecommerce platforms may be eligible for exemption from registration under the Central Goods and Services Tax (CGST) Act. This exemption applies to both interstate (supply of goods or services between two or more states) and intrastate (supply of goods or services within the same state) transactions.

The CGST Act provides certain thresholds below which businesses are not required to register for GST. As of my last update, small service providers with an aggregate turnover below the 20 lacs turnover are exempted from GST registration. This threshold is subject to change as per updates in the tax regulations, so it’s essential to refer to the latest provisions for accurate information.

For such small service providers operating through ecommerce platforms, they need to ensure that their aggregate turnover remains below the specified threshold to avail of this exemption. Aggregate turnover generally includes the total value of all taxable supplies, exempt supplies, exports of goods or services, and inter-state supplies but excludes taxes on the supply of goods or services.

However, it’s crucial for businesses to keep track of their turnover regularly, as crossing the threshold mandates GST registration. Failure to register when required can lead to penalties and legal consequences.

This exemption aims to alleviate the compliance burden on small businesses, particularly those operating in the digital economy through ecommerce platforms. By exempting them from GST registration, it simplifies their tax obligations and reduces administrative overhead, allowing them to focus on business operations and growth.

Notification for Exemption from Registration under CGST Act

The CG vide Notification No. 65/2017-Central Tax, G.S.R. 1421(E) dated 15-11-2017 as amended by Notification No. 6/2019-Central Tax, G.S.R. 66(E) dated 29-01-2019 specified the persons making supplies of services, other than supplies specified under sub-section (5) of Section 9 of the CGST Act through an electronic commerce operator who is required to collect tax at source under Section 52 of the CGST Act, and having an aggregate turnover, to be computed on all India basis, not exceeding an amount of ₹20 lakh in a financial year, as the category of persons exempted from obtaining registration under the CGST Act: Provided that the aggregate value of such supplies, to be computed on all India basis, should not exceed an amount of ₹10 lakh in case of “special category States” as specified in the first proviso to sub-section (1) of section 22 of the said Act, read with clause (iii) of the Explanation to the said section.

Based on the above notification, we are discussing the following topic for better understanding:

I. Liable to Registration under CGST Act

II. Exemption from Registration under CGST Act

III. Supply under CGST Act

IV. Definition of Service

V. Ecommerce operator

VI. Section 9(5) of CGST Act

VII. Conclusion

VIII. Suggestion & observation

Liable to Registration under CGST Act

Under the Goods and Services Tax (GST) Law, registration is a fundamental requirement for identifying taxpayers and ensuring tax compliance within the economy.

Here are the key points regarding GST registration:

Liability for Registration:

If a supplier makes a taxable supply of goods or services (or both) from their state or union territory, and their aggregate turnover in a financial year exceeds ₹20 lakhs, they are liable to be registered.

For suppliers making taxable supplies from special category states, the threshold limit is ₹10 lakhs. However, this threshold has been increased to ₹20 lakhs for seven specified category states.

Aggregate turnover includes all taxable supplies, exempt supplies, exports, and inter-state supplies made by a person with the same Permanent Account Number (PAN), excluding central tax, state tax, union territory tax, integrated tax, and cess.

Person who liable to Register under GST:

Under the CGST Act, certain individuals and entities are liable to register for Goods and Services Tax (GST). Let’s break it down:

a) Persons Required to Pay Tax Under Reverse Charge:

If a person is required to pay tax under reverse charge, they must register.

b) Casual Taxable Persons and Non-Resident Taxable Persons:

Casual taxable persons (e.g., those attending exhibitions or trade fairs) and non-resident taxable persons (e.g., foreign businesses) must register.

c) Persons Who Deduct Tax Under Section 51:

Individuals who are required to deduct tax at source (TDS) under section 51, whether or not separately registered, need to register.

d) Agents and Input Service Distributors:

Persons who make taxable supplies of goods or services on behalf of other taxable persons (as agents or otherwise) and input service distributor.

Other Scenarios Requiring GST Registration:

• Inter-state Suppliers: Businesses making inter-state supplies.
• Casual Taxable Persons: Individuals who occasionally engage in taxable activities.
• Non-Resident Taxable Persons: Foreign entities conducting business in India.
• Agents of a Supplier: Agents authorized to act on behalf of a supplier.
• Reverse Charge Mechanism: Individuals liable to pay tax under the reverse charge mechanism.
• Input Service Distributors: Entities distributing input tax credit.

When applying for GST registration, you’ll need to fill out specific forms based on your circumstances

a) GST REG-01: This is the Application for Registration form. It’s the initial step to register under GST. You’ll need to provide details about your business, such as the nature of your business, place of business, and other relevant information.

b) GST REG-26: If you’re an existing taxpayer migrating to GST, this form is used for Provisional Registration. It helps you transition smoothly to the new regime.

c) GST REG-27: For Enrollment of Existing Taxpayers, this form is essential. It ensures that taxpayers who were registered under the earlier indirect tax laws (such as Excise, VAT, or Service Tax) are correctly enrolled under GST.

d) GST REG-30: Use this form to provide information about the amount of stock (including inward supplies from unregistered persons) held by you on the date of opting into the Composition Scheme.

Exemptions from Registration under GST:

Section 23(1) of the CGST Act, 2017. This section outlines the provisions related to persons who are not liable to be registered under GST. Here are the key points:

Section 23(1)(a): Any person engaged exclusively in the business of supplying goods or services (or both) that are not liable to tax or are wholly exempt from tax under the CGST Act or the IGST Act does not require registration.

Items Not Covered Under GST:

• Some goods are explicitly not covered under GST. These include:
• Petrol, high-speed diesel, aviation turbine fuel, and crude oil: These fuels are not subject to GST.
• Electricity: Electricity supply is not within the scope of GST.
• Alcohol Used for Human Consumption: Alcoholic beverages meant for human consumption are not taxable under GST.
• Natural Gas: Natural gas is also excluded from GST

Example: Mr. X is exclusively involved in supplying alcohol for human consumption wholly non-taxable supply under CGST Act. Even if his turnover exceeds Rs 20 lakhs, he is not required to register under this provision.

This exemption applies to entities engaged solely in making exempt supplies, irrespective of their aggregate turnover exceeding Rs 20 lakhs.

Example: Section 23(1)(b): An agriculturist, to the extent of supply of produce from land cultivation, does not require registration. The term “agriculturist” refers to an individual or a Hindu Undivided Family (HUF) involved in land cultivation through their own labour, family labour, or hired labour under personal supervision.

Section 23(2): The government has the authority to grant exemptions to other categories of persons based on recommendations from the GST Council. Notifications have been issued to provide exemptions to specific groups, such as those providing services where the recipient is liable to pay GST under reverse charge mechanism.

Central Government, vide Notification No. 65/2017-Central Tax, G.S.R. 1421(E) dated 15-11-2017, as amended by Notification No. 6/2019-Central Tax, G.S.R. 66(E) dated 29-01-2019, specified the persons making supplies of services, other than supplies specified under sub-section (5) of Section 9 of the CGST Act, through an electronic commerce operator who is required to collect tax at source under Section 52 of the CGST Act. The aggregate turnover, to be computed on an all-India basis, must not exceed an amount of ₹20 lakh amount of ₹10 lakh in case of “special category States” (Arunachal Pradesh, Assam, Himachal Pradesh, Nagaland, Sikkim, Mizoram, Telangana) in a financial year for these persons to be exempted from obtaining registration under the CGST Act.

Example:

Explanation:

Scenario Recap:

Service Provider: Mr. X from Chennai

Service Recipient: Mr. Z in Bangalore

Service Value: ₹15,000

Mr. X’s Annual Turnover: ₹19,50,000

Service Supply Method: Through an e-commerce operator

Relevant Notification:

Notification No. 65/2017-Central Tax, G.S.R. 1421(E) dated 15-11-2017, as amended by Notification No. 6/2019-Central Tax, G.S.R. 66(E) dated 29-01-2019

Subject: Exemption from registration under the CGST Act for certain service providers.

Key Provisions of the Notification:

Applicability:

Persons making supplies of services (excluding those specified under sub-section (5) of Section 9 of the CGST Act) through an electronic commerce operator.

The e-commerce operator must be required to collect tax at source under Section 52 of the CGST Act.

Exemption Criteria:

The aggregate turnover on an all-India basis should not exceed ₹20 lakh in a financial year.

For “special category States,” this threshold is ₹10 lakh.

Special Note on Interstate Supply:

Typically, under the CGST Act, any person making an interstate supply of goods or services is required to register for GST, regardless of turnover.

However, this notification provides a relaxation for service providers (other than those specified under sub-section (5) of Section 9) supplying services through an e-commerce operator, allowing them to be exempt from registration if their turnover is below ₹20 lakh, even if they are making interstate supplies.

Applying the Notification to the Scenario:

Service Provider and Supply Method:

Mr. X, a service provider from Chennai, supplies services through an e-commerce operator. This matches the criteria specified in the notification for exemption.

Turnover Assessment:

Mr. X’s annual turnover is ₹19,50,000.

Since Mr. X is from Chennai (a general state, not a special category state), the relevant turnover threshold for exemption from registration is ₹20 lakh.

Interstate Supply Consideration:

Mr. X is making an interstate supply by providing services from Chennai to Bangalore.

Normally, this would require GST registration regardless of turnover. However, the notification provides an exemption from this requirement.

Conclusion:

Mr. X’s turnover of ₹19,50,000 is below the ₹20 lakh threshold for general states.

Despite making an interstate supply, Mr. X is exempt from obtaining registration under the CGST Act due to the specific relaxation provided by the notification.

Summary:

Based on the specified notification, Mr. X is not required to register under the CGST Act because:

He provides services through an e-commerce operator required to collect tax at source.

His aggregate turnover does not exceed the ₹20 lakh threshold for non-special category states.

Even though he is making an interstate supply, the notification exempts him from registration due to his turnover being below the threshold.

Supply of services through an Ecommerce operator

Supply under GST:

Under the Goods and Services Tax (GST) system, a taxable event is referred to as a supply. To be considered a supply by the government, an event must possess the following characteristics:

The supply should involve either goods or services.

It should be taxable.

The supply must be made by a taxable person.

The supply should occur within a taxable territory.

In more detail, Section 7 (1) of the CGST Act, 2017 defines the expression “supply” as follows:

All forms of supply of goods or services or both, including sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Import of services for a consideration, whether or not in the course or furtherance of business.

Activities specified in Schedule I, made or agreed to be made without a consideration.

Activities treated as supply of goods or services as referred to in Schedule II2.

It’s important to note that the definition of supply under GST encompasses a wide range of transactions related to goods and services, ensuring comprehensive coverage within the tax framework.

Definition of services:

A service is an intangible economic activity provided by one party (the service provider) to another party (the service recipient) in exchange for payment or other forms of compensation. Unlike tangible goods, services are not physical products but rather actions, performances, or benefits that enhance the well-being or meet the needs of the recipient. Services can encompass a wide range of activities and industries, including professional services (such as legal, accounting, and consulting services), hospitality, healthcare,education,transportation, entertainment, and more.

Definition of E-Commerce Operator:

An e-commerce operator is an entity that facilitates the buying and selling of goods or services through electronic platforms or online marketplaces. These operators typically provide an online platform or marketplace where sellers can list their products or services, and buyers can browse, select, and purchase items. E-commerce operators may offer various services and functionalities to facilitate transactions, including payment processing, order fulfilment, customer support, and dispute resolution.

Key characteristics of e-commerce operators include:

Online Platform: E-commerce operators operate digital platforms accessible via the internet, allowing sellers and buyers to interact and conduct transactions remotely.

Marketplace Facilitation: They provide a marketplace or platform where third-party sellers can list their products or services for sale to potential buyers.

Transaction Facilitation: E-commerce operators facilitate transactions between buyers and sellers by providing features

As per Section 2 (45) of the CGST Act, 2017, an electronic commerce operator is someone who:

Owns, operates, or manages a digital or electronic facility or platform.

This facility or platform is used for conducting electronic commerce.

Section 9 (5) of the Central Goods and Services Tax (CGST) Act addresses a specific scenario related to e-commerce operators. Let’s explore into the details:

Applicability:

This section focuses on certain notified services that are supplied through an e-commerce operator.

The tax liability for these services falls on the e-commerce operator, even though the operator is not the actual supplier of the services.

Services Covered:

The following services fall under the purview of Section 9 (5):

• Passenger Transport Services
• Housekeeping Services
• Restaurant Services (including cloud kitchens)
• Accommodation Services

Irrespective of whether the supplier is registered under GST, the e-commerce operators are liable to pay tax as if they were the suppliers, following the reverse charge mechanism.

Tax Collection and Liability:

The e-commerce operator must collect Tax Collected at Source (TCS) on the net value of taxable supplies made by other suppliers through its platform.

The liability for tax payment rests with the e-commerce operator, who is treated as the supplier of those services.

The e-commerce operator must mandatorily obtain registration

Compliance:

The e-commerce operator files Form GSTR-8 every month, providing details of TCS collected and information regarding the supplies.

The details entered in Form GSTR-8 by the e-commerce operator reflect in Form 2A of each supplier.

Additionally, Form GSTR-3B needs to be filed.

Threshold Exemption:

The threshold exemption does not apply to the e-commerce operator; it applies to the actual supplier.

Voluntary registration can be availed by the actual supplier.

Invoice Issuance:

The e-commerce operator issues the invoice for services notified under Section 9 (5) CGST Act

For instance, if an order includes a combination of services falling under this section, the e-commerce operator handles the invoicing.

Remember that this provision ensures that e-commerce operators fulfil their tax obligations when facilitating the supply of these specific services.

Service providers may receive exemptions through e-commerce operators for providing the following services,

 Example:

• Online astrology services
• Online Education services
• Online legal consultation services
• Online health care services

Under section 52 CGST act, an Electronic Commerce Operator is liable to collect TCS only if the supply has been made through such Operator by other suppliers and the consideration is collected by the Electronic Commerce Operator. Supplies made by the electronic commerce operator on its own account are not subject to TCS requirements. Operator shall collect tax @ 1% of the net value of taxable supplies made through it by other suppliers.

Conclusion:

Based on Notification No. 65/2017-Central Tax, G.S.R. 1421(E) dated 15-11-2017, as amended by Notification No. 6/2019-Central Tax, G.S.R. 66(E) dated 29-01-2019, certain persons are exempted from obtaining registration under the CGST Act. Specifically, persons making supplies of services (excluding those specified under sub-section (5) of Section 9 of the CGST Act) through an electronic commerce operator, who is required to collect tax at source under Section 52 of the CGST Act, are exempted from registration if their aggregate turnover, computed on an all-India basis, does not exceed ₹20 lakh in a financial year. This exemption explicitly includes service providers making interstate supplies through e-commerce platforms. For “special category States” as specified in the first proviso to sub-section (1) of Section 22 of the CGST Act, read with clause (iii) of the Explanation to the said section, the threshold for exemption is ₹10 lakh. This notification provides relief to small service providers using e-commerce platforms by simplifying their compliance requirements under the CGST Act, even when making interstate supplies, as long as their turnover remains within the specified limits.

SUGGESTION AND OBSERVATION:

My observation regarding the threshold limit increase from ₹20 lakh to ₹40 lakh for turnover and from ₹10 lakh to ₹40 lakh for special category states due to the Notification No. 65/2017-Central Tax, G.S.R. 1421(E) dated 15-11-2017, as amended by Notification No. 6/2019-Central Tax, G.S.R. 66(E) dated 29-01-2019, is accurate. This adjustment benefits small service providers by simplifying their tax obligations and reducing administrative overhead, thus enabling them to concentrate on business operations and growth.

For example, let’s consider Mr. X, a small service provider with an annual turnover of ₹22 lakhs. With a return on investment (ROI) of 13.5%, his return amounts to ₹2,97,000 annually, or ₹24,750 monthly. This income falls below the income tax slab rate after standard deduction and is nearly equivalent to the minimum wages of a skilled worker as per the Minimum Wage Act of 1948.

Considering the growth of both the business and society, reducing unemployment is crucial. Many small service providers lack awareness and knowledge of how to file returns under GST. Consequently, they often seek assistance from consultants for tasks such as filing monthly and annual returns, submitting reconciliations of GST data, responding to GST notices, and addressing fines and penalties for delayed filings. This increases the economic and administrative burden on small service providers significantly.

Overall, increasing the threshold limit alleviates some of the financial and administrative burdens faced by small service providers, promoting business growth and potentially reducing unemployment.

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(Republished with amendments)