It takes its own kind of energy to start a business in Bangalore but somewhere between the finalisation of the idea and the first customer, GST registration is likely to come as a surprise for the first time entrepreneur. A lot of people think it only applies to when revenue is above a threshold, only to realize that certain aspects of the business, client needs, and/or state distinctions render the registration early enough. This guide covers practical steps and highlights for the founders in Bangalore and Karnataka in general.
Understanding When Registration Becomes Mandatory
GST registration is not compulsory from the very beginning of the business. Registration is mandatory for most of the service providers when their aggregate turnover goes beyond twenty lakh rupees in a financial year while for most goods suppliers the registration threshold is forty lakh rupees with certain exceptions in respect of state and categories. There are, however, a number of situations requiring registration even when no turnover is generated, such as any business making inter-state supplies, any business selling through e-commerce platforms and any business that would be required to deduct and/or collect tax at source.
From inception, many founders underestimate the revenues and assume that they are still safe below the threshold, but fail to consider that if they supply to clients outside Karnataka even at low volumes they have to get them registered irrespective of their turnover. One of the biggest mistakes that first-time founders make when servicing clients across multiple states, and a relatively common scenario in Bangalore for tech and services companies.
Step One: Determining the Right Registration Category
Before starting the registration procedure, founders should have clarity about their business structure as this will dictate what documents are needed for registration. Each of these business structures comes with different supporting documents, and if they’re not submitted the right way at the beginning, you’re likely to be rejected for the application or required to reapply – taking several weeks in the process.
Similarly, it is important to ascertain if the registration is being sought as a regular taxpayer or under the composition scheme, which provides for simplified compliance for smaller taxpayers but also imposes some limitations on inter-state supply and input tax credit claims. Many growth-stage startups in Bangalore, especially those that are looking to go for external funding or enterprise customers, choose to go with regular registration even though it has a slight increase in compliance as it provides flexibility in case they want to grow.
Step Two: Gathering the Required Documents
Document list may differ depending on the entity type, but typically will contain the PAN of the business, proof of business constitution (such as a certificate of incorporation or partnership deed), identity proof and address proof of the business promoters or directors, and proof of the principal place of business. A No Objection Certificate from the space provider, along with the rent / license agreement, is usually needed for businesses operating from co-working spaces, which is one of the most common spaces that get delayed when applying with the space provider because of an incomplete or improperly formatted application.
The basic documents include bank account information (typically cancelled cheque/bank statement) and a digital signature certificate for companies and LLPs. Documents that are prepped and ready by the founders move through registration more quickly than those that are prepared “on the fly” after the application process has started.
Step Three: Filing the Application on the GST Portal
The GST registration process is online only, starts with a preliminary application with PAN, mobile number and email ID and leads to the generation of a Temporary Reference Number. This number is then used to fill the detailed application, which will include upload of documents collected; and fill in the business details such as nature of goods/services provided, with appropriate HSN or SAC codes.
This time precision is more important than many founders think. Errors in the classification of the business activity or mismatch of the address of the application and the documents may lead to a query by the GST officer for the review of the application, resulting in delay of days or weeks. In recent times, the Karnataka GST department has stepped up its audit efforts on the verification of the principal place of business and it is advisable to make sure that the address proof or any NOC documentation is in perfect alignment with the information provided in the application.
Step Four: Responding to Verification Queries
In most cases, applications are not always granted, especially for the first time.Often, rather than being given, a query or clarification request is requested. These questions are usually address validation, classification of business activity, or document signature missing. You’ll have a much better chance of fast approval if you are quick and accurate with your response and don’t write something that is too general or leave out specifics. This is a normal stage and not indicative of some issue with the application, the Founder must treat it as such.
After Registration: What Comes Next
Founders should update the GSTIN on all their invoices, contracts and any payment platform integration or e-commerce integration that require such details immediately after the issuance of the GSTIN. From day one, having a simple compliance calendar with return filing deadlines and input credit reconciliation set up can help the business avoid the typical pitfall of making GST a post-priority task until the first return filing date.
When faced with registering for GST and dealing with the rules for ongoing compliance for the first time, professional advice can help you to avoid delays and mistakes that frequently occur on the first application. Anagha Consulting closely collaborates with the early-stage founders of Bangalore for GST Registration, GST compliance setup, and other related regulatory filings.