GST for small businesses: registration, invoices and input tax credit explained

Goods and Services Tax (GST) is the single biggest compliance topic for India’s small businesses. The rules are detailed, but the core ideas are simple. This guide covers what a founder or shop owner needs in their first year. Thresholds and procedures change — always confirm the latest position on the GST portal or with a chartered accountant.

Do you need to register?

GST registration is generally required once your aggregate turnover in a financial year exceeds:

Type of supply	Most states	Special-category states*
Goods	₹40 lakh	₹20 lakh
Services	₹20 lakh	₹10 lakh

*Special-category treatment and state opt-ins vary; check your state’s current notification.

“Aggregate turnover” is your total turnover across India under the same PAN — including taxable, exempt and export sales — not just one shop or one state.

Some businesses must register regardless of turnover, including those making inter-state supplies of goods, many sellers on e-commerce platforms, casual taxable persons, and anyone required to pay tax under reverse charge. Many small businesses also register voluntarily because B2B customers prefer suppliers who can give them input tax credit.

Regular scheme or composition scheme?

Small businesses can choose the composition scheme, which offers simpler compliance and a low flat tax rate on turnover. It’s generally available to businesses with turnover up to ₹1.5 crore for goods (lower in some states) and a lower limit for services.

The catch: composition dealers cannot collect GST on invoices or claim input tax credit, and cannot make inter-state sales of goods. That’s fine for a neighbourhood shop selling to consumers, but often a problem if your customers are businesses.

What a valid tax invoice needs

A GST tax invoice must include, among other details:

• Your name, address and GSTIN
• A unique, consecutive invoice number (per financial year) and the date
• The customer’s name, address and GSTIN (for registered customers)
• HSN code (for goods) or SAC (for services)
• Description, quantity and value of goods or services
• Taxable value, the GST rate, and the tax amount split into CGST + SGST (within a state) or IGST (between states)
• Place of supply
• Signature or digital signature

Getting this right matters because your customer’s input tax credit depends on it. Larger businesses also need to generate e-invoices through the government system once they cross the applicable turnover threshold.

Input tax credit (ITC), simply

GST is designed so tax is only paid on the value you add. When you buy inputs for your business, you pay GST to your supplier. When you sell, you collect GST from your customer. You can subtract the GST you paid on inputs from the GST you owe — that’s input tax credit.

GST collected on sales − GST paid on eligible purchases = GST you deposit

To claim ITC, broadly you must:

1. Hold a valid tax invoice
2. Have actually received the goods or services
3. Have the supplier report the invoice in their return, so it shows in your GSTR-2B
4. Pay the supplier within 180 days
5. File your own returns

Point 3 surprises many new businesses: if your supplier doesn’t file, your credit can be blocked. Choose reliable suppliers and reconcile your purchase records against GSTR-2B every month.

The returns you’ll meet first

• GSTR-1 — details of your sales (outward supplies)
• GSTR-3B — summary return where you pay the tax due
• GSTR-9 — annual return (for businesses above its threshold)

Small taxpayers can opt for the QRMP scheme to file returns quarterly while paying tax monthly.

First-year checklist

1. Track turnover monthly so you know when you’re approaching the threshold.
2. Decide regular vs composition based on who your customers are.
3. Use invoicing software that handles HSN/SAC codes and GST splits.
4. Reconcile purchases with GSTR-2B monthly.
5. Put filing dates in your calendar — late fees and interest add up quickly.

This is general information and not tax advice. GST rules, rates and thresholds change frequently; consult a chartered accountant or the official GST portal for your situation.