For information only. This guide explains the rules in simple words. It is not legal, tax or financial advice. Rules change and differ by state and by business, so check with a CA, a lawyer or the government department concerned before you decide anything.
Please note: GST rules, limits and rates change from time to time, and some depend on your state and what you sell. Use this guide to understand the basics, then confirm what applies to you with a Chartered Accountant (CA) or tax practitioner, or on the official GST portal (gst.gov.in).
What GST is, in one paragraph
GST (Goods and Services Tax) is a tax on the sale of most goods and services in India. A registered business adds GST to its prices, collects it from customers, and pays it to the government, after subtracting the GST it already paid on its own business purchases (this is called input tax credit). Within a state, GST is split into CGST and SGST; for sales to another state, it is IGST.
Do you need to register?
Many very small shops and home businesses don’t need GST registration, because registration is required only after your yearly turnover crosses a limit. Broadly, as these rules stand at the time of writing:
- Selling goods: registration is generally needed once yearly turnover crosses ₹40 lakh in most states (a lower limit, such as ₹20 lakh, applies in some states).
- Providing services: generally once yearly turnover crosses ₹20 lakh (₹10 lakh in some states).
- Turnover here means your total sales for the year across all your business in that PAN, not just profit.
Some situations need registration even below the limit
- Selling goods to customers in other states.
- Selling through some online marketplaces (rules for small sellers have been relaxed in some cases, so check).
- Certain other cases defined in the law.
If you’re near the limit, growing fast, or selling outside your state or online, speak to a CA before you cross the line, not after.
Can I register voluntarily?
Yes. Some small businesses register even below the limit, for example because their business customers want GST bills so they can claim input tax credit. Once registered, you must follow all GST rules and file returns, even in months with no sales. Weigh it with a CA.
Two ways small businesses pay GST
1. Regular scheme
- You charge GST on your bills at the rate that applies to each item.
- You can claim input tax credit on GST you paid on business purchases.
- You can sell to other states.
- You file regular returns: usually a sales return and a summary return with tax payment, monthly, or quarterly for smaller businesses under the quarterly scheme.
2. Composition scheme
A simpler option meant for small businesses:
- Available if yearly turnover is within the scheme’s limit (for goods and restaurants, broadly up to ₹1.5 crore in most states; a lower limit applies in some states; a separate, smaller limit applies for service providers).
- You pay tax at a small fixed percentage of your turnover (for example, a low rate for traders and manufacturers, and a different rate for restaurants), instead of item-wise GST.
- You cannot charge GST to customers on your bills. You issue a bill of supply instead of a tax invoice, and must mention that you are a composition taxable person.
- You cannot claim input tax credit.
- You generally cannot sell goods to other states.
- Fewer returns: generally a quarterly statement with tax payment and one annual return.
- You must display “Composition taxable person” on your signboard.
How the two usually compare
- Composition often suits small shops selling mainly to local consumers within the state, who want simple filing.
- Regular often suits businesses selling to other businesses (who want GST invoices and input credit), selling to other states, or with high GST on purchases.
The right choice depends on your purchases, margins and customers. A CA can work out which costs you less.
GST rates
Different goods and services have different GST rates. India simplified its GST rate structure in 2025, so older rate charts you find may be out of date. Always check the current rate for your products (by their HSN code) or services (by their SAC code) on the official portal or with your CA, and update your billing software or price list when rates change.
What your bill should show
If you are registered under the regular scheme (tax invoice)
- Your business name, address and GSTIN
- A serial invoice number and date
- Customer’s name and address (and GSTIN if they are registered and it’s a business sale; some details are required only above certain amounts)
- Description of items with HSN or SAC code, quantity and value
- Taxable value, GST rate and GST amount (CGST and SGST, or IGST)
- Total amount
If you are under the composition scheme (bill of supply)
- Your name, address and GSTIN
- Serial number and date
- Items, quantity and value
- The words “composition taxable person, not eligible to collect tax on supplies”
- No GST charged separately
If you are not registered
You should not charge GST or show any GST amount on your bills. A simple bill or cash memo with your name, items and amount is fine.
Returns and deadlines
- Registered businesses must file returns on time, even if there were no sales in that period (a “nil” return).
- Late filing usually means late fees and interest.
- Most small businesses get a CA, tax practitioner or a trusted accountant to file returns for a monthly or quarterly fee.
- Set reminders for your due dates, and send your sales and purchase details to your accountant a few days before.
Keep simple records
Good records make GST easy and protect you if there are questions later.
- Sales: keep a copy of every bill, in a book or billing app, in serial order.
- Purchases: keep every supplier bill, especially GST invoices if you claim input credit.
- Expenses: rent, electricity, transport, packing.
- Payments: UPI, bank and cash, matched to bills.
- Stock: a rough stock record, updated at least monthly.
- Keep records for the number of years the law requires (ask your CA), safely, on paper or backed up digitally.
Simple habits that help
- Use one bank account for the business, separate from personal money.
- Ask suppliers for proper GST invoices with your GSTIN, and check they are filing their returns, so your input credit shows up.
- Send your accountant your records every month, not once a year.
- Note UPI payments with the bill number, so matching is easy.
Common mistakes to avoid
- Charging GST without being registered. This is not allowed.
- Composition dealers charging GST on bills. Also not allowed.
- Missing returns in months with no sales, leading to late fees.
- Using old GST rates after rates have changed.
- Mixing personal and business money, making records confusing.
- Ignoring the turnover limit until long after you’ve crossed it.
- Losing purchase bills, and with them, your input credit.
- Trusting “GST agents” who promise to make problems disappear. Use a qualified CA or registered tax practitioner.
Other free registrations worth knowing about
- Udyam registration (MSME): free, online, and can help small businesses with certain schemes and benefits. Register only on the official government portal; you never need to pay an agent for it.
- Food businesses: FSSAI registration or licence, separate from GST. See starting a business from home.
- Local trade or shop licence: depends on your city. Ask at your municipal office.
Questions to ask your CA
- Do I need GST registration now, given my turnover and how I sell?
- Is the regular or composition scheme better for my business?
- What are the current GST rates for my main products or services?
- What bills do I need to issue, and what must they show?
- Which returns do I file, and what are my due dates?
- What records should I keep, and for how long?
- What will it cost me to have my returns filed each month or quarter?
GST is easier than it looks once your records are in order. Keep every bill, separate your business money, file on time, and get a good local CA on your side.
This guide is general information to help local shops. It is not professional advice.
