Latest GST Rates: What Small Businesses Must Know

Introduction

GST (Goods and Services Tax) regime is the government’s big attempt to clean up the tax inefficiencies we had before 2017. Though you may sell your goods and services in Mumbai or in Chennai, the tax you will pay generally remains the same. No more patchwork of random state and central taxes resulting in confusion. So, the GST regime became effective on July 1, 2017, and suddenly India was one giant tax zone. There is CGST (central), SGST (state), and IGST (when you are moving goods and services across state borders). Which bucket you are in depends on where you are buying or selling. This is pretty simple to determine, isn’t it? GST works like a value-added tax, which basically means you are only taxed on the extra value you add at each step. No more paying tax on tax on tax. That actually saves you some cash. But yes, if your business is making enough money, you have to jump through the entire GST filing loop – register, file returns, and keep your paperwork neat. You need to do this through the GST website. And, if you commit any fraud intentionally or inadvertently, the income tax authorities will start looking for you. Still, compared to the old chaotic tax system, the GST is smoother and actually makes doing business across states easier.

The GST regime has a GST Composition Scheme. Think of it as a tax shortcut for small businesses. It means less paperwork and maybe lower taxes. If you qualify, you just pay a flat tax based on your sales, so no need to stress over every little invoice. Typically, if your business makes less than ₹1.5 crore a year, you can use this scheme (₹75 lakh in some states). Instead of monthly filings, it is just once a quarter. But remember, you can not collect GST from your customers. Tax rates are low, like 1% to 6%, depending on what you do. So, what is the trade-off? You do not get input tax credit on your purchases, which kind of balances things out. It is best for small shops, manufacturers, and local restaurants. Taxes become simpler, and it helps them stay legal without loads of effort. If you choose the GST Composition scheme, you can not sell goods across state lines, and there are limits on the services you can provide.

Before GST came along, India’s tax scene was a convoluted spiral of rules. It was like a never-ending game of “which tax is it this time?” You had the central government bringing in Central Excise Duty and Service Tax, while the states brought in their own VAT, Entry Tax, Luxury Tax, Entertainment Tax, and others. None of these taxes really complemented each other. So, businesses ended up paying tax on top of tax, which just kept bumping up the costs. If you tried to keep track of all the rules and rates, it would have been very difficult because of the changing compliance requirements every other day. And, if you talk about interstate trade – moving goods from one state to another – it felt like running an obstacle course blindfolded. You, as a business owner, could not claim credits for all these different taxes, and prices for everything went up. Basically, the whole thing was a goldmine for confusion and a playground for tax dodgers. No wonder everyone was desperate for a change. GST has solved many of the previous problems.

For which small businesses does GST apply to?

For small businesses in India, there are defined criteria under the GST regime. If you are generating more than ₹40 lakh a year (or just ₹20 lakh if you fall in one of those “special category” states), you need to register yourself for GST. It does not matter if you are selling fancy shoes, homemade candles, or offering graphic design from your couch. For service-based businesses, the bar drops to ₹20 lakh, and in those same special states, it is only ₹10 lakh. But even if you are making less than that, you can still get your GSTIN. Why? Because there are benefits like input tax credits and moving goods across state borders becomes more seamless. This is not just for big businesses but also for small traders, manufacturers, freelancers, online sellers, and people hustling on e-commerce sites. If you are selling goods to another state or working with out-of-state clients, GST registration is a must. There is also something known as reverse charge and if you are an input service distributor, you need to register under GST.

The government has also got something known as the Composition Scheme under GST. It is basically a lifesaver for small businesses that do not want to get drowned in paperwork and lose their minds over tax rules. If your annual turnover is less than ₹1.5 crore (or ₹75 lakhs if you are in one of those special states), you can avail of this scheme. You always pay a fixed tax rate on your total turnover and you need not sweat over every single transaction. It is built for the little businesses such as local shops, tiny manufacturers, and those tiny cafes that barely leave their neighborhood. The catch is that you can not claim input tax credit. Also, you can not issue tax invoices. If you dreaming of shipping goods across state lines or selling through those big e-commerce platforms, then those activities are not allowed. But for most small business owners who just want to keep things simple and legal, this scheme is a good deal. At the end of the day, some businesses have to join the GST, there is choice. Others register themselves voluntarily in order to build legitimacy, tap into larger markets, or keep the tax authorities off their backs.

Latest GST rates

GST slab rates differ for different items. Here is a comprehensive list of the latest GST rates –

List of items taxed at 0% GST rate:

1. Milk
2. Eggs
3. Kajal
4. Curd
5. Educational services
6. Lassi
7. Health services
8. Children’s drawing and coloring books
9. Unpacked foodgrains
10. Unpacked maida
11. Gur
12. Besan
13. Unbranded natural honey
14. Fresh vegetables
15. Salt
16. Prasad
17. Ful bhari jhaadu
18. Palmyra jaggery

List of items taxed at 0.25% GST rate:

1. Synthetic or reconstructed precious or semi-precious stones
2. Non-industrial diamonds
3. Unworked precious or semi-precious stones

List of items taxed at 3% GST rate:

1. Precious and semi-precious stones (except diamond)
2. Imitation jewellery
3. Diamonds (all categories except non-industrial)
4. Gold and Silver
5. Articles of precious metal or of metal clad with precious metal
6. Waste and scrap of precious metal or of metal clad with precious metal

List of items taxed at 5% GST rate:

1. Tea
2. Edible oils
3. Coal
4. Sugar
5. Packed paneer
6. Raisin
7. Cashew nuts
8. PDS Kerosene
9. Raisin
10. Domestic LPG
11. Skimmed Milk Powder
12. Fabric
13. Agarbatti
14. Coir mats
15. Footwear (<₹500)
16. Apparels (<₹1,000)
17. Milk food for babies
18. Coffee (not the instant ones)
19. Mithai (Sweets)
20. Skimmed milk powder

List of items taxed at 12% GST rate:

1. Umbrella
2. Chutney
3. Jam
4. Packed coconut water
5. Jelly
6. Nuts and other parts of plants, pickle plus murabba
7. Vegetable preparations
8. Mobiles
9. Fruits
10. Fruit juice
11. Ghee
12. Almonds
13. Butter
14. Processed food

List of items taxed at 18% GST rate:

1. Capital goods
2. Soap
3. Hair oil
4. Toothpaste
5. Pasta
6. Industrial Intermediaries
7. Ice-cream
8. Flakes
9. Corn
10. Toiletries
11. Computers
12. Soups
13. Printers

List of items taxed at 18% GST rate:

1. Luxury or sin goods (e.g. a BMW)
2. High-end motorcycles
3. Cigarettes and aerated drinks
4. Small cars
5. Consumer durables

Small businesses can greatly benefit in planning their taxes if they are well aware of the GST slab rates.

How does GST help small businesses?

The GST regime has been a savior for small business owners and has prevented them from drowning in a spiral of taxes. Before, a business owner would have to keep track multiple taxes, and chances were he would probably forget at least one along the way. It was a nightmare keeping up with VAT, service tax, excise duty, and multiple others. Now, it is only GST that means a single tax regime for all. It also makes bookkeeping easier, especially if a small business does not have an army of accountants on speed dial. The GST online portal has been a game-changer as well. You do not need to work your way through piles of paperwork or run around from one desk to another at government offices. You log in, register, file your returns, pay, and it’s done.

The GST composition scheme serves as a sweet deal for a lot of small businesses. They pay less in taxes and only have to file returns once a quarter. They do not need to run through their paperwork every month which proves to be very handy. GST also flips the script on cascading taxes. Now, with input tax credits in the mix, small businesses do not have to pay more tax than they should. So, they do not face problems in their cash flow every month. At the end of the day, GST helps even everyone whether someone is selling goods in his own city or shipping it across India. With GST, the tax regime has become a level playing field for all.

Some disadvantages of GST for small businesses

The GST regime is not without its drawbacks, especially for small businesses. One problem is keeping up with the rules, mainly if you are not tech-savvy. You have to register, file returns all the time, and track everything you buy and sell. If you are a small business, this can be tough, and you might need to hire someone, which costs money. Also, GST can decrease your cash flow. You pay GST when you buy things, but you only get that back when you file. If customers pay late or suppliers do not follow the rules, you might be short on cash. And if you are on the composition scheme, you cannot even claim credits, and you cannot sell out of state, which stops growth. This means small businesses can struggle to compete with bigger companies that handle GST better.

GST registration process and documentation

For GST registration, you need to visit www.gst.gov.in, and if your business is making more than the limits mentioned, then you are legally required to sign up. Create a login using username and password. Then you need to fill up Form GST REG-01. It is basically the government asking you for all your business information – legal name, PAN, email, phone, and nature of business. After OTP authentication, you get a Temporary Reference Number (TRN) which is similar to a unique case number.

Now comes the paperwork. The documents they want depend on what sort of business you are running, but, at minimum, you will have to provide your PAN card, proof of address (a utility bill or rent agreement), bank details, and a government ID of the business owner. If you are a partnership or a company, better have that partnership deed or incorporation certificate ready, too. Once you have uploaded everything and hit submit, the system displays an Application Reference Number (ARN). If you fill in your details correctly, you will receive your GST certificate in a week.

Conclusion

As a small business owner, you must keep yourself updated with the latest GST rates. Not only does it help with following the rules and setting the right prices, but also planning your finances well. If the GST rates change, it can introduce price changes in your business that may cause your traditional model to come to a standstill. When the GST slab rates swing up and down, your wallet and your business feel those swings as well. Suddenly, what you pay, what you charge, and how much you collect shifts. If you really want to prevent such surprises, always visit the official government website regularly for updates. Keep in touch with a tax professional who knows changes in the tax regime the moment they are rolled out. This saves you from fines, helps you juggle your finances smarter, and keeps your prices updated so that you do not end up being a not-so-smart businessman. When you actually know your GST and taxes, customers and suppliers start seeing you as a knowledgeable businessman, ultimately increasing your perception in the market.