When GST registration becomes compulsory — and when it is a choice

Most people know there is a turnover threshold. Fewer know that several categories require registration from the first transaction, whatever the turnover — and that is where penalties usually arise.

The turnover thresholds

For suppliers of goods: ₹40 lakh of aggregate turnover in a financial year, reduced to ₹20 lakh in the special category states.

For suppliers of services: ₹20 lakh, reduced to ₹10 lakh in the special category states.

Aggregate turnover is computed on a PAN basis across India, and includes exempt supplies, exports and inter-state supplies — not just the taxable sales in one state. A consultant billing ₹14 lakh of taxable services and ₹8 lakh of exempt supply has crossed ₹20 lakh.

Registration required regardless of turnover

These apply from the first rupee:

• Inter-state supply of goods. Selling goods across a state line requires registration immediately. Services are treated more leniently — the ₹20 lakh threshold still applies to inter-state services.
• E-commerce operators, and in most cases anyone supplying through one. A seller on a marketplace generally needs registration even below the threshold.
• Persons liable under reverse charge, including anyone receiving specified services such as goods transport or legal services from an advocate.
• Casual taxable persons — someone exhibiting at a trade fair in another state, for instance.
• Non-resident taxable persons.
• Agents supplying on behalf of another, and input service distributors.
• Persons required to deduct TDS under section 51.

Exports and why registration usually helps

Export of services is a zero-rated supply, not an exempt one. The distinction matters: a zero-rated supplier can claim refund of input tax credit, an exempt supplier cannot.

A software consultant billing overseas clients may be below the threshold and not required to register. But registering lets them claim back GST on laptops, software subscriptions, rent and professional fees, and claim a refund where credit exceeds output tax. Export under a Letter of Undertaking avoids paying tax and claiming it back.

For a services business with meaningful input costs, voluntary registration is frequently worth it.

The composition scheme

An alternative for small businesses: a flat rate on turnover, quarterly payment, an annual return, and far less compliance.

• Traders and manufacturers: 1% of turnover, up to ₹1.5 crore
• Restaurants: 5%, up to ₹1.5 crore
• Service providers and mixed suppliers: 6%, up to ₹50 lakh

The cost is real: no input tax credit, no inter-state outward supply, no e-commerce sales, and no tax collected from customers — the rate comes out of your margin. It suits a business selling to consumers with low input costs. It does not suit anyone selling to other registered businesses, because your customers cannot claim credit on your invoice and will usually prefer a supplier whose invoice they can.

What happens if you register late

Tax is payable from the date you became liable, not from the date you registered. Input credit on purchases before registration is generally lost. Penalties run to 10% of the tax due, subject to a minimum of ₹10,000, and 100% where evasion is alleged.

The practical risk is that liability compounds quietly. A business that crossed the threshold in June and registers in March owes tax on nine months of sales it never collected tax on — payable out of margin that has already been spent.

After registration

Registration starts the compliance clock. GSTR-1 by the 11th, GSTR-3B by the 20th, every month, whether or not there were any sales. A nil return still has to be filed, and the late fee accrues daily on each one that is missed.

Before you invoice a new customer, check their GSTIN — a wrong number on an invoice means your customer cannot claim the credit, and that conversation is easier to avoid than to have.

Deciding

Work through it in this order: does a compulsory trigger apply, regardless of size? If not, what is aggregate turnover across the whole PAN? If still below, would registration let you recover input tax worth more than the compliance costs? Only then consider composition, and only if your customers are consumers rather than businesses.