Introduction:
Turnover becomes the pivot on which it is decided whether a business needs to go through the GST registration in India. As soon as an entity crosses the threshold limit with respect to its turnover, according to the GST regime, it will fall under the purview of obligatory registration and hence stands out as an important compliance factor for every big and small enterprise.
The GST Act presents ‘aggregate turnover,’ which is not merely the simple total of sales. The total value of aggregate supplies, tax-free supplies, export, and interstate supplies of a concern is considered when determining a taxpayer’s eligibility to take registration under the Goods and Services Tax Act.
Accurate calculation of turnover shall be necessary so as to timely apply the GST registration procedure. If wrong evaluation or postponing the registration is observed, this may attract penalties, interest liabilities, and disturbed business operations, and hence, precision in turnover evaluation becomes a very important responsibility for the taxpayers.
Defining Aggregate Turnover
The aggregate turnover, in which GST turnover is computed on a PAN basis, means total turnover is computed from all business branches and comes under a single PAN in India. Even though a business might operate in different states and locations, total turnover is computed to check eligibility to register in GST.
This process entails an inclusive methodology whereby turnover received from various business verticals, such as goods only, services only, or a combination of both, issummedd. Taxable supplies, exempt supplies, exports, and interstate supplies are all factored in during this computation of aggregate turnover for registration under gst law.
It is important to note that taxable supply and aggregate turnover are different from one another. When taxation has to be paid on the supply of goods or services through the gst registration process, then only the supply is considered a taxable supply. Aggregate turnover represents the sum of both taxable supply and exempt supply.
What to Include in the Calculation
Aggregate turnover in the case of GST registration comprises all the taxable supplies of a specific business. This comprises the normal sale of goods and services in which the business has incurred a GST.
Exempted supplies also form a part of this equation, though these do not attract a GST amount. Goods and services included under nil-rated/exempted categories also qualify for a place in the overall turnover under the gst registration process.
Exports of goods and services also need to be included in the figure to arrive at the turnover amount. Exports may be zero-rated under the law, but they accumulate towards the amount to force registration under the GST law.
Another aspect has also been included in the calculation of aggregate turnover, namely, the inter-state supplies made with the same PAN. Sales made to customers in different states are included in aggregate turnover, whether the same is subject to tax levy or not. Whether the sale is exempt or not is irrelevant in the calculation of aggregate turnover.
What to Exclude from the Calculation
While computing aggregate turnover for registration under GST, the value of GST itself is excluded. CGST, SGST, and IGST, which are charged on the invoices, are not included as turnover.
The value of inward supplies is also excluded from the calculation. Purchases on which tax is paid under the Reverse Charge Mechanism (RCM) do not form part of aggregate turnover under the gst registration process.
Non-taxable supplies are excluded, too. Items like alcohol for human consumption and specific petroleum products, which fall out of the compass of GST, cannot be considered when calculating the turnover that would make one obliged to get registered for GST purposes.
State-Specific Thresholds and Categories
State-specific thresholds play a crucial role in determining GST registration eligibility, as the turnover limits vary based on the nature of supplies and the location of the business. Understanding these thresholds helps businesses assess when GST registration becomes mandatory.
- For normal states of categories, the threshold for turnover is ₹40 lakh for business entities dealing exclusively in goods.
- In normal category states, GST registration is mandatory for the service providers when the turnover crosses the mark of ₹20 lakhs.
- Special category states, like North-Eastern States, as well as hill states, have lower eligibility levels compared to other states.
- In all the special category states, the limit is Rs. 20 lakh for goods in specified cases and Rs. 10 lakh for service providers.
- For business entities dealing in multiple states, they need to factor in their overall turnover across the states under the same PAN.
- When the business deals with both goods and services, the lower threshold of ₹20 lakh applies, irrespective of the state.
- While the limit of ‘goods’ turnover in itself may not result in the requirement to be registered under the GST laws, the income from ‘services’ may.
- It is important to know the threshold involved so as to comply with the gst registration process.
Critical Scenarios for Small Businesses
There can be other specific business conditions where the calculations of these turnovers have to be kept in mind, particularly when the business is smaller. Knowing the GST rates will prove helpful under these conditions.
- Seasonal businesses must plan their annual turnover in order to efficiently assess their need for a GST registration.
- Even transient peaks in sales may cause aggregate turnover to exceed the set limit.
- Once the limit for turnover is breached, corporations are given 30 days to comply with the gst registration.
- Timely registration after this period also incurs a penalty or interest.
- Even where the turnover is less than the compulsory figure, voluntary application of GST can take place.
- Voluntary registration enables businesses to collect GST and pass on the tax credit to customers.
- It also helps in availing Input Tax Credit on business spends.
- Voluntary registered organisations can enhance their credibility with clients, suppliers, and/or institutions.
Common Pitfalls in Turnover Estimation
One error companies make is exempted sales while calculating the turnover. Although the exempted goods or services are not liable to attract GST, the value of such goods or services has to be included in the aggregate turnover. Exclusion may result in delayed GST registration.
Another common mistake is branch transfers. Transfer of supplies or stock from one branch to another, being in a different state for the same PAN, is considered a taxable supply and is required to be added to the aggregate turnover for the eligibility of registration under GST.
Agent–principal transactions are also commonly miscalculated. Supplies made by an agent on behalf of a principal, or vice versa, have to be correctly accounted for in terms of GST provisions, as the same have a direct relation to aggregate turnover and, therefore, registration requirements.
Conclusion
An accurate calculation of the turnover is the first essential step in a compliant process of gst registration. With Vakilsearch, businesses can correctly assess their turnover to determine eligibility, avoid penalties, and ensure their GST registration is completed on time.
When an element of uncertainty exists, a business can gain clarity regarding turnover and thereby shield itself against the oversight of obtaining a formal tax identification under GST.