GST (goods and services tax) is a tax on the supply of goods and services, collected at every stage of a sale but designed so that the business only pays tax on the value it adds. A small business has to register once its annual turnover crosses ₹40 lakh (for most goods sellers) or ₹20 lakh (for service providers), with lower limits in some states. Once registered, it charges GST on its sales, claims credit for GST on its purchases, and files returns. Since 22 September 2025, most items fall in one of two main rates: 5% or 18%.
This is a general explainer, not tax advice. GST rules depend on what you sell, where and to whom, so check your own situation with a chartered accountant or GST practitioner.
What GST is, and why there are three versions of it
GST replaced a pile of older central and state taxes (excise duty, service tax, VAT and others) in July 2017. It is a destination-based tax: it is collected where goods or services are consumed, and it is shared between the Centre and the states.
That sharing is why your invoices show different labels:
- CGST and SGST (central and state GST): charged together, in equal halves, when the seller and buyer are in the same state. An 18% supply within Maharashtra carries 9% CGST plus 9% SGST.
- UTGST (Union territory GST): replaces SGST in Union territories without a legislature, such as Chandigarh.
- IGST (integrated GST): charged by the Centre on supplies from one state to another, and on imports. An 18% supply from Maharashtra to Karnataka carries 18% IGST.
The total tax is the same either way. What changes is which government gets it, and which form the business uses to report it.
Do you need to register?
Registration is triggered by aggregate turnover: the total value of all your supplies across India under the same PAN, including taxable, exempt and export supplies, but excluding the GST itself.
Under section 22 of the CGST Act, the basic limit is ₹20 lakh a year (₹10 lakh in special category states). The law lets states raise the limit to ₹40 lakh for businesses that supply only goods. CBIC’s 2019 GST update set out how this works from 1 April 2019:
| Business type | Most states | States with lower limits |
|---|---|---|
| Supplies only goods | ₹40 lakh | ₹20 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand |
| Supplies services (or goods and services) | ₹20 lakh | ₹10 lakh in Manipur, Mizoram, Nagaland and Tripura |
States opted into these limits individually, so confirm the current position for your state before relying on the higher number.
When turnover doesn’t matter
Section 24 lists businesses that must register whatever their turnover. The ones small businesses most often run into:
- Selling goods to another state. Inter-state supplies require registration. Service providers with turnover up to ₹20 lakh making inter-state supplies were exempted from this, according to the CBIC update.
- Selling through an e-commerce platform that is required to collect tax at source (TCS).
- Paying tax under reverse charge, where the buyer rather than the seller pays the GST on certain purchases.
- Casual taxable persons, such as a business that sets up a stall at an exhibition in another state.
A faster route for small, low-risk applicants
At its 56th meeting in September 2025, the GST Council recommended an optional simplified registration scheme from 1 November 2025. It grants registration automatically within three working days to low-risk applicants, and to applicants who expect their monthly output tax on supplies to registered businesses to stay at or below ₹2.5 lakh. The Council estimated it would cover about 96% of new applicants.
The rates after the 2025 overhaul
Until September 2025, GST had four main rates: 5%, 12%, 18% and 28%. The 56th GST Council meeting on 3 September 2025 replaced this with what it called a two-rate structure, effective 22 September 2025:
- 5%, the “merit” rate, for most everyday goods and many services. Examples from the Council’s release: packaged foods such as namkeen, butter and ghee; toothpaste and soap; most medicines; tractors; and hotel rooms costing up to ₹7,500 a night.
- 18%, the “standard” rate, for most other goods and services. Many items moved down from 28% to 18%, including cement, air-conditioners, TVs, small cars and motorcycles up to 350cc.
- 40%, a special “de-merit” rate for a short list of luxury and sin goods and services, such as casinos and betting.
- Nil, for exempt items. The September 2025 changes took UHT milk, paneer and Indian breads such as roti to nil, and exempted individual life and health insurance policies.
Tobacco and pan masala moved later. From 1 February 2026, pan masala, cigarettes and similar products attract 40% GST and biris 18%, with new central levies replacing the compensation cess on them, All India Radio News reported.
The rate depends on the HSN code (the classification code for goods) or the service accounting code of what you sell, not on the size of your business. Look up your own codes in the official rate notifications. Rate cuts like these also feed into the prices consumers pay, which is one reason the 2025 changes showed up in India’s inflation numbers.
The composition scheme: simpler, with trade-offs
The composition scheme lets small businesses pay GST as a flat percentage of turnover instead of at the normal rates, with lighter paperwork. It is governed by section 10 of the CGST Act. According to the CBIC update, the limits and rates are:
| Who | Turnover limit (previous year) | Rate on turnover |
|---|---|---|
| Manufacturers and traders | ₹1.5 crore (₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand) | 1% |
| Restaurants (not serving alcohol) | Same as above | 5% |
| Service providers (and others not eligible for the main scheme) | ₹50 lakh | 6% |
Composition dealers may also supply some services alongside goods: up to 10% of their turnover or ₹5 lakh, whichever is higher.
The trade-offs are significant:
- No input tax credit. You cannot claim credit for GST paid on your purchases, and your business customers cannot claim credit for purchases from you. That can make you less attractive to B2B buyers.
- You cannot collect GST from customers. You issue a “bill of supply”, not a tax invoice, and pay the tax out of your own margin.
- No inter-state sales of goods or services.
- Some businesses are excluded, including manufacturers of notified goods such as ice cream, pan masala and tobacco products, and casual or non-resident taxable persons.
- E-commerce is limited. Since 1 October 2023, composition taxpayers can sell goods through e-commerce platforms within their own state, under a special procedure that bars inter-state sales through the platform.
Composition taxpayers pay tax quarterly and file one annual return. The scheme generally suits small retailers selling to consumers in one state. It suits B2B suppliers less well, because their customers want credit.
Invoices: what a GST bill must do
A registered business that charges GST issues a tax invoice showing its GSTIN (GST identification number), the buyer’s GSTIN for B2B sales, a serial number, date, description and HSN/service code, taxable value, tax rate and the CGST/SGST or IGST amount. The buyer needs a correct invoice to claim credit, so invoice errors become your customers’ problem as well as yours.
E-invoicing
E-invoicing means reporting B2B invoices to a government Invoice Registration Portal (IRP), which returns a reference number (IRN) and a QR code. It is mandatory for businesses whose aggregate turnover exceeded ₹5 crore in any financial year from 2017-18 onwards, from 1 August 2023 (Notification 10/2023-Central Tax).
From 1 April 2025, businesses with aggregate annual turnover of ₹10 crore or more must report each e-invoice within 30 days of the invoice date, or the portal will reject it, according to a GSTN advisory.
E-way bills
An e-way bill is an electronic document needed before moving goods. Under Rule 138 of the CGST Rules, a registered person who moves goods with a consignment value above ₹50,000 must generate one before the goods move. This applies whether the movement is a sale, a return or a transfer, and the value includes tax. Goods sent to a job worker in another state need one whatever their value.
Returns: the monthly and quarterly rhythm
Most regular taxpayers file two main returns:
- GSTR-1: details of your sales (outward supplies). Your B2B customers’ credit depends on it.
- GSTR-3B: a summary return in which you declare your tax liability, claim input tax credit and pay the balance.
Small businesses with aggregate turnover up to ₹5 crore can choose the QRMP scheme (Quarterly Return, Monthly Payment). They file returns quarterly but still pay tax monthly, according to the GSTN FAQ on QRMP. In the first two months of each quarter, they pay through a challan (form PMT-06) by the 25th of the next month. They can also upload B2B invoices through the optional Invoice Furnishing Facility (IFF) so customers get credit sooner.
| Return | Monthly filers | QRMP (quarterly) filers |
|---|---|---|
| GSTR-1 (sales) | 11th of next month | 13th after the quarter; optional IFF by the 13th for months 1 and 2 |
| GSTR-3B (summary and payment) | 20th of next month | 22nd or 24th after the quarter, depending on the state |
| Monthly tax payment | With GSTR-3B | PMT-06 by the 25th for months 1 and 2 |
| Composition taxpayers | Not applicable | Quarterly payment statement (CMP-08), annual return (GSTR-4) |
Sources for the dates: Notification 83/2020-Central Tax for GSTR-1, Rule 61 for GSTR-3B and Rule 59 for IFF. Due dates are sometimes extended by notification, so check the GST portal each period. Larger businesses also file an annual return.
Late returns cost late fees and interest. Since a 2023 amendment, section 39(11) also bars filing a return more than three years after its due date, unless the government relaxes this.
Input tax credit, in brief
Input tax credit (ITC) is what makes GST a tax on value added rather than on every sale. You subtract the GST you paid on business purchases from the GST you collected on sales, and pay the government the difference.
Credit isn’t automatic. Under section 16 of the CGST Act, you generally need a valid invoice and the goods or services must have reached you. Your supplier must also have reported the invoice so that it appears in your auto-generated statement (GSTR-2B), the tax must have been paid to the government, and you must have filed your own return. Some purchases, such as food and beverages or cars for personal transport, are blocked from credit altogether. If you don’t pay your supplier within 180 days, you have to reverse the credit.
We cover the conditions, blocked credits, time limits and a worked example in Input tax credit explained.
Common mistakes small businesses make
- Counting turnover state by state. The threshold uses all-India turnover under one PAN, including exempt supplies.
- Assuming small means exempt. One inter-state sale of goods, or selling through a marketplace, can require registration below the threshold.
- Applying an old rate. Many rates changed on 22 September 2025. Billing software and price lists set up before then may still show 12% or 28%.
- Buying from suppliers who don’t file. If a supplier doesn’t report your invoice, it won’t show in your GSTR-2B and you generally can’t claim the credit, even though you paid the GST.
- Choosing composition without checking customers. If most of your buyers are GST-registered businesses, they lose credit when they buy from you.
- Missing the e-way bill on short trips. The ₹50,000 rule applies to the consignment, not just to long-distance freight.
- Letting returns pile up. Late fees and interest build up, and returns more than three years overdue can’t be filed at all.
Thresholds at a glance (as of October 2026)
| Item | Threshold or rule |
|---|---|
| Registration, goods only | ₹40 lakh (₹20 lakh in some states) |
| Registration, services | ₹20 lakh (₹10 lakh in some states) |
| Composition, goods and restaurants | ₹1.5 crore (₹75 lakh in some states) |
| Composition, services | ₹50 lakh |
| QRMP scheme | Aggregate turnover up to ₹5 crore |
| E-invoicing | Turnover above ₹5 crore in any year since 2017-18 |
| 30-day e-invoice reporting limit | Turnover of ₹10 crore and above |
| E-way bill | Consignment value above ₹50,000 |
| Main GST rates | 5%, 18%, 40% (plus nil/exempt) |
The point: For a small business, GST comes down to four questions: whether your turnover or type of sale forces you to register, which rate applies to what you sell, whether composition’s simplicity is worth losing input tax credit, and whether your filing calendar is under control. The 2025 overhaul simplified the rates, not the paperwork. Rules change often, so confirm the details for your own business with a professional.
Sources
- Recommendations of the 56th meeting of the GST Council (3 September 2025), GST Council / Press Information Bureau
- Section 10: Composition levy, CGST Act 2017, CBIC
- Section 16: Eligibility and conditions for taking input tax credit, CGST Act 2017, CBIC
- Section 22: Persons liable for registration, CGST Act 2017, CBIC
- Section 24: Compulsory registration in certain cases, CGST Act 2017, CBIC
- Section 39: Furnishing of returns, CGST Act 2017, CBIC
- Rule 59 and Rule 61, CGST Rules 2017, CBIC
- Rule 138: E-way bill, CGST Rules 2017, CBIC
- GST: An Update (June 2019), CBIC
- Frequently asked questions on the QRMP scheme, GSTN
- Notification 83/2020-Central Tax (GSTR-1 due dates), GST Council
- Notification 10/2023-Central Tax (e-invoicing above ₹5 crore), GST Council
- Notification 36/2023-Central Tax (composition suppliers on e-commerce platforms), GST Council
- Revised time limit for e-invoice reporting for businesses with AATO of ₹10 crore and above, GSTN e-invoice portal
- Government notifies 1 February as date for additional excise duty on tobacco products, All India Radio News