GST & Indian Taxation

What GST replaced and how it is built

The Central Goods and Services Tax Act 2017 (CGST Act) and the Integrated GST Act 2017 (IGST Act), together with each state's SGST Act, replaced a tangle of VAT, service tax and excise with one destination-based tax. Tax is collected at each stage of supply, with credit for tax already paid up the chain, so the burden ultimately falls on the final consumer.

When you must register (s.22, s.24)

• Threshold: Registration is mandatory once aggregate turnover crosses ₹40 lakh for suppliers of goods in most states, and ₹20 lakh for services. Special-category states have lower limits (commonly ₹20 lakh for goods and ₹10 lakh for services) — so the number depends on what you sell and where.
• Compulsory regardless of turnover (s.24): Inter-state suppliers of goods, e-commerce operators, persons liable under reverse charge, and casual taxable persons must register even below the threshold.

Reading the GSTIN

A GSTIN is a 15-character PAN-based identifier: the first two digits are the state code, the next ten are the PAN, the 13th is the entity number for that PAN in the state, and the last two are a default character and a checksum. Quoting a correct, active GSTIN on every invoice is what lets your customer claim input credit.

The composition scheme (s.10)

Small taxpayers with turnover up to ₹1.5 crore (₹75 lakh in some states; ₹50 lakh for eligible service providers) can opt for the composition scheme: a low flat rate on turnover, simpler quarterly payment, but no input tax credit and no GST charged on the invoice — a composition dealer issues a bill of supply, not a tax invoice, and cannot make inter-state outward supplies.

Common mistakes

• Assuming the ₹40 lakh limit applies to services — it is ₹20 lakh for services.
• Staying unregistered while making inter-state sales, which requires registration from rupee one.
• Opting into composition and then trying to pass on credit, which the scheme forbids.

Takeaway: Check whether your turnover and the goods/services split push you past the ₹40 lakh or ₹20 lakh threshold — and remember inter-state supply forces registration regardless of turnover.

Why the invoice is the heart of GST

Under Section 31 of the CGST Act and Rule 46, a registered supplier must issue a tax invoice for taxable supplies. The invoice is not just a bill — it is the document on which your customer claims input tax credit, so missing or wrong fields directly cost them money and invite credit reversal.

Mandatory fields (Rule 46)

• Supplier's name, address and GSTIN.
• A consecutive serial number, unique for the financial year.
• Date of issue.
• Recipient's name, address and GSTIN (or "unregistered" details for B2C above the threshold).
• HSN code (goods) or SAC code (services), description, quantity and value.
• Taxable value, rate, and amount of CGST, SGST/UTGST and IGST shown separately.
• Place of supply for inter-state transactions, and a signature/digital signature.

CGST+SGST vs IGST on the invoice

The split you charge depends on whether the supply is intra-state or inter-state. For an intra-state supply you charge CGST + SGST (half each); for an inter-state supply you charge a single IGST at the combined rate. A correct GST Tax Invoice shows these as distinct lines so the credit flows correctly; a simpler GST Invoice works for routine billing.

HSN/SAC reporting

HSN (goods) and SAC (services) codes classify what you sell and drive the rate. The number of HSN digits you must quote scales with turnover — smaller taxpayers quote fewer digits, larger ones quote more (commonly 4 or 6 digits). Use the correct code; a wrong HSN can mean the wrong rate.

Common mistakes

• Charging IGST on a local sale or CGST+SGST on an inter-state one — the commonest invoicing error.
• Breaking the serial-number sequence or repeating numbers across the year.
• Omitting the recipient's GSTIN, which blocks their credit.

Takeaway: A compliant tax invoice carries every Rule 46 field, the right HSN/SAC, and the correct CGST+SGST or IGST split — because your customer's input credit depends entirely on it.

Place of supply decides everything

Whether you charge CGST+SGST or IGST turns on a single question: is the supply intra-state or inter-state? The answer comes from the place of supply rules in the IGST Act 2017 (ss.10–13), read against the location of the supplier. Get this wrong and you pay the wrong tax — which the department will not simply set off, often forcing you to pay again correctly and claim a refund of the wrong head.

The core rule

• Intra-state (s.8, IGST Act): Supplier location and place of supply are in the same state/UT → charge CGST + SGST.
• Inter-state (s.7, IGST Act): Supplier location and place of supply are in different states/UTs (or it is an import/export) → charge IGST.

Determining the place of supply

• Goods (s.10): Generally where movement of the goods terminates for delivery to the recipient; for over-the-counter goods, where they are handed over.
• Services (s.12, domestic): The default is the location of the recipient if registered, otherwise the address on record; special rules apply to immovable-property services (location of the property), restaurant, events and transport.

A frequent trap is "bill to / ship to": where goods are billed to one state but shipped to another, the place of supply is determined for each leg, and the IGST head usually applies.

Practical India guidance

Map each customer's correct state before billing and let your accounting software pick the head from the place of supply, not from the billing address alone. For property-linked services, remember the place of supply is where the property sits, irrespective of where either party is registered.

Common mistakes

• Charging CGST+SGST to a customer in another state because that is where you invoiced from.
• Ignoring the immovable-property rule and defaulting to the recipient's state.
• Mishandling bill-to/ship-to chains in e-commerce fulfilment.

Takeaway: Compare your location with the place of supply: same state means CGST+SGST, different states means IGST — and that one determination drives every tax line on the invoice.

Input tax credit is the engine of GST

Input Tax Credit (ITC) lets you set off the GST you paid on purchases against the GST you collect on sales, so tax is borne only on the value you add. The right to claim is set out in Section 16 of the CGST Act, and the restrictions in Section 17. ITC is where most GST money is won or lost, so the conditions are strict.

Conditions to claim (s.16)

• You hold a valid tax invoice or debit note.
• You have received the goods or services.
• The supplier has actually paid the tax to the government and the invoice appears in your auto-populated GSTR-2B.
• You have filed your return.
• You pay the supplier within 180 days — otherwise the credit is reversed with interest until you pay.

Blocked credits (s.17(5))

Even with a valid invoice, Section 17(5) blocks ITC on specific items, including:

• Motor vehicles for personal transport (with limited business exceptions), and related insurance/repairs.
• Food and beverages, outdoor catering, beauty treatment, health services and club memberships, unless used to make the same category of outward supply.
• Membership of a club, health and fitness centre.
• Goods or services used for personal consumption.
• Goods lost, stolen, destroyed, written off, or given as free samples and gifts.
• Works contract and construction of immovable property on own account (other than plant and machinery).

Practical guidance and common mistakes

• Reconcile your books to GSTR-2B every month — you can claim only what your suppliers have reported.
• Watch the 180-day payment rule on unpaid vendor bills.
• Do not claim ITC on blocked items like staff welfare meals or company cars — a frequent audit pickup.

Takeaway: Claim ITC only when all the Section 16 conditions are met and the credit is not blocked by Section 17(5) — and reconcile to GSTR-2B, because credit follows what your suppliers actually filed.

Two different worlds called "TDS"

"TDS" appears in two regimes, and businesses must not confuse them. Income-tax TDS under the Income Tax Act 1961 requires the payer to withhold tax on certain payments and deposit it against the recipient's PAN. GST TDS/TCS is a separate, narrower mechanism under the CGST Act. Both feed into compliance, but the rates, forms and thresholds differ.

Income-tax TDS (selected sections)

• Section 194C — contractors: Typically 1% where the payee is an individual/HUF and 2% for others, on payments to contractors and sub-contractors above the prescribed threshold.
• Section 194J — professional/technical fees: Generally 10% for professional services and royalty, with a lower 2% rate for certain technical services and call-centre operators.
• Other common heads include 194I (rent), 194H (commission/brokerage) and 192 (salary).

Always verify the current threshold and rate, since they are revised in Finance Acts, and apply a higher rate where the deductee has no valid PAN (s.206AA).

Form 16 and Form 16A

After deducting and depositing TDS, the deductor issues a certificate so the deductee can claim credit while filing their income-tax return: Form 16 is the salary TDS certificate issued annually to employees, while Form 16A covers non-salary TDS (contractors, professionals, rent) and is issued quarterly. Provide a TDS Certificate (Form 16) to staff after year-end.

TDS and TCS under GST

Within GST, TDS (s.51) applies mainly to specified government and notified entities, which deduct 2% (1% CGST + 1% SGST, or 2% IGST) on payments under contracts above ₹2.5 lakh. TCS (s.52) applies to e-commerce operators, who collect a small percentage on the net value of taxable supplies made through their platform. These are distinct from income-tax withholding.

Common mistakes

• Applying the 194J 10% rate to a simple contractor payment that should fall under 194C.
• Missing the higher no-PAN rate under section 206AA.
• Confusing GST TDS with income-tax TDS and depositing under the wrong head.

Takeaway: Pick the right income-tax TDS section and rate (194C vs 194J), issue Form 16/16A on time, and keep GST TDS/TCS separate — they are different regimes with different rates and returns.

The recurring rhythm of GST

GST compliance is a monthly and quarterly cadence of returns that reconcile what you sold, what you bought, and what tax you owe. Filing late triggers late fees and interest and — importantly — can block your customers' input credit, so the calendar matters as much as the numbers.

The core returns

• GSTR-1 — outward supplies: Details of your sales invoices, filed monthly or quarterly (QRMP scheme) by the prescribed date. This is what populates your customers' GSTR-2B.
• GSTR-3B — summary return and payment: A monthly (or quarterly under QRMP) summary of outward supplies, ITC claimed and net tax paid. Tax is paid when 3B is filed.
• GSTR-9 — annual return: A yearly consolidation for taxpayers above the prescribed turnover, with GSTR-9C reconciliation where applicable.

E-way bills

An e-way bill is required for the movement of goods whose consignment value exceeds ₹50,000 (the threshold and intra-state rules vary by state). It is generated on the e-way bill portal before transport, carries a unique number, and must accompany the goods. Moving taxable goods above the limit without a valid e-way bill can lead to detention and penalty.

Professional tax — a state levy

Professional tax is not a GST or central tax at all — it is levied by states on salaries and professions, so it does not exist uniformly across India. States like Maharashtra, Karnataka, West Bengal and Tamil Nadu levy it (capped at ₹2,500 per year per the Constitution), while states such as Delhi and Uttar Pradesh do not levy it at all. Employers must deduct and deposit it where applicable using the state challan — keep a Professional Tax Challan for the filing.

Common mistakes

• Filing GSTR-3B but forgetting GSTR-1, which starves customers of their ITC.
• Moving high-value goods without an e-way bill.
• Assuming professional tax is national — it is state-specific, both in rate and in whether it exists.

Takeaway: Build a calendar around GSTR-1 and GSTR-3B, generate e-way bills for consignments over ₹50,000, and check your state's professional-tax rules separately — they vary and are not part of GST.