Jul 307 min read

Voluntary Registration under GST: A Detailed Guide

The GST Department assigns a unique GST Number, also known as a GSTIN, or GST Identification Number, to a business during the GST Registration process. The company has to file for GST if it gets GST from sales and other outside supplies and claims Input Tax Credit for transactions made using inward supplies. Businesses must register under the GST if their aggregate turnover surpasses the GST registration level and they are covered by the Compulsory Registration provisions. On the other hand, they may choose to register for GST voluntarily even if they are not required to do so by section 22 or section 24 of the CGST Act, 2017 or the SGST/UTGST Act, 2017. In this article, we will explain voluntary registration under GST in detail.

What is Voluntary Registration under GST?

To be listed under the GST structure, traders must self-register through voluntary registration. It is applicable to individuals who do not meet the requirements for registration and are exempt from the GST registration requirement. Under GST, the following firms must register mandatorily:

Those generating more than 20 lakhs in revenue
Transferring interstate
Engaged in online sales

Small companies with less than $20 million in revenue are able to voluntarily register for GST. Company revenue ranging from 20 lakhs to 1 crore is eligible for the composition levy. However, there are further drawbacks to composition levy, such as the inability to obtain input tax credits or collect any taxes from their clients. These SMEs may also decide against registering as composition dealers and instead register as regular dealers.

Illustration

A small grocery dealer with annual sales between Rs. 12 and 15 lakh is exempt from GST registration requirements. But he also supplies to a nearby restaurant that is GST registered and has a turnover of more than Rs. 20 lakh. The restaurant may search for a registered vendor who can transfer ITC as it qualifies for input credit. In this case, the grocery store owner can willingly register to provide his buyer input credit.

Reasons to Obtain Voluntary Registration under GST

Several criteria determine whether or not a dealer needs to submit an application for GST registration. Verify the best time to apply for registration. Here are a few valid reasons to submit a voluntary GST registration application.

If you are a registered GST taxpayer, you are eligible to receive a credit for the input tax that you have paid on your purchases. If you have a GST registration, you can claim the GST input tax credit.
If your firm is GST registered, you will be issued a certificate of registration, which serves as official documentation of the company's legal position.
MNCs and larger companies favour doing business with GST-registered dealers. Working with these businesses might help a GST-registered dealer obtain a competitive edge.
You can apply for voluntary registration if you intend to sell products or services outside of your state in the future. You can prevent future mandatory GST registration by opting for it on a voluntary basis.
If you intend to offer products or services on these platforms, you can apply for voluntary GST registration now to avoid having to register for GST later on.
A dealer may carry forward any unused input tax credits related to service tax, VAT, etc. Once you've registered for GST, you can utilise this credit to pay taxes.

Benefits of Voluntary GST Registration

Individuals who voluntarily register are able to accept input credit for their own purchases as well as input services, such as consulting and legal costs. Eventually, this will boost their profit margin and business margin.
As your company is officially recognised by law, you are authorised to send out taxable invoices. In response, buyers are able to claim input credit for their purchases. Its consumer base will grow as a result, increasing its competitiveness.
Companies that are GST-registered are free to make interstate sales. It increases the potential market for SMEs as a result. These SMEs may also choose to use the e-commerce platform to offer their products online.
Enrolling in the GST will guarantee that the company is scalable and compliant, eliminating any obstacles to additional registration in the future. The compliance rating will be preserved under GST as well, and if done well, it can draw in more business.
A registered company will have much easier access to various business services including bank loans and space rentals.

Downsides of Voluntary GST Registration

Companies subject to the Goods and Services Tax are obliged to submit three returns on a quarterly basis. These filings, which are designated as GSTR-1, GSTR-2, and GSTR-3, contain information on all sales, purchases, and the total amount of tax due after the input tax credit is deducted. In addition to depriving our buyer of the input credit, not filing these reports will result in late fees, interest, and penalties. Subsequently, the Compliance rating will suffer.
After registering for GST, the provider will also be liable for paying taxes and depositing them with the appropriate authorities. This will raise the price for the buyer and provide similar suppliers who are not GST registered an advantage.
After registering, you will need to charge customers for GST. Since they are unable to collect GST, unregistered sellers are able to quote lower prices and draw in more business.
The technology needed for GST is one of the main issues that many small businesses are dealing with. Online submission is required for GST registration, filing GST returns, and making GST payments (above Rs. 10,000). For many small firms that are accustomed to manual procedures, this becomes challenging.
Upon registration, you are required to abide by all GST Acts, Rules, and Notifications. You shall be subject to all provisions, including creating invoices that comply with GST law and paying GST through the reverse charge process.
A business that registers for GST is also legally obligated by the GST law's penal and assessment provisions. Because they don't have the resources to completely comply, businesses may be subject to unwarranted interest and penalties.

Should You Consider Voluntary Registration under GST?

Several factors need to be taken into account when choosing optional GST registration. These include your customers, sellers, and the extent of your resources. It might be advantageous for you to register if your suppliers and purchasers are already registered; if not, you risk disrupting the ITC chain. It might be advantageous to not register if your end users are not registered. You may use a composition scheme if you intend to grow your business. Less compliance is required to be maintained, and fewer taxes must be paid. Enrolling will make it easier for you to obtain bank loans. It goes without saying that small businesses need to weigh the costs and benefits of voluntarily registering for GST.

Conclusion

Following this article, it becomes clear that voluntary registration is not a bad notion at all, and that in exchange, it will present the SME sector with enormous chances to develop and reach new markets. Rules and regulations, however, apply equally and are in any case for the business unit's advantage. A business plan that prioritises compliance is a sound approach to entering the business sector. The best way to decide is by consulting a GST expert to understand your circumstances and guide you regarding an ideal choice.

FAQ

Q1. What is voluntary GST registration?

Voluntary registration is the process of voluntarily applying to be registered under the Goods and Services Tax. Merchants who are exempt from registration requirements may register on the GST Portal for voluntary registration, in accordance with the GST Act.

Q2. What is voluntary registration under GST section 25?

As per Section 25(3), an individual who is not required to be registered under Section 22 or 24 may choose to voluntarily register, and they will be subject to all the provisions of this Act that are applicable to taxable persons who have registered.

Q3. What is the limit of GST voluntary registration?

To register for GST and pay taxes on their taxable goods and services, businesses must spend 20 lakhs (for services). Companies that make less than Rs. 40 lakhs in revenue annually are not compelled to register for GST, although they are free to do so freely.

Q4. What is the effective date of voluntary registration under GST?

The day the individual became liable for registration will be the effective date of registration if the application was filed within thirty days of that date.

Q5. What is the difference between compulsory and voluntary registration under GST?

While voluntary registration can offer strategic benefits including collecting input tax credits, boosting market credibility, and getting ready for future expansion, mandatory registration becomes a legal requirement once your turnover surpasses the specified limits.

Q6. Is voluntary GST registration permanent?

No, once a year has passed, you are free to cancel your voluntary registration at any time. If an individual voluntarily registers their business but does not conduct business within six months of the registration date, one of the following will invalidate the registration:

A proper authority or officer
The individual in question
The person's legal heirs in the event of their death

It should be noted that an application for the cancellation of a voluntary registration submitted by an individual will only be taken into consideration if a full year has passed since the date of registration.

Q7. What is voluntary payment in GST?

With the DRC-03 voluntary tax payment form, a taxpayer can choose to pay the tax by voluntarily increasing its liability or in response to the GST department's show-cause notice (SCN).

Q8. Who needs compulsory registration under GST?

Under the Goods and Services Tax (GST), businesses with revenue over the limit of Rs. 40 lakh, Rs. 20 lakh, or Rs. 10 lakh, according to the circumstances, must register as ordinary taxable individuals.

Q9. Who are exempted from GST registration?

GST registration is not required for small business owners or service providers whose yearly revenue is less than the prescribed threshold of Rs. 40 lakh. Farmers and those engaged in the provision of exempt goods or services are also eligible for this exemption.

Q10. Can I cancel my GST registration?

A taxpayer and an appropriate officer may start the process of cancelling a GST registration under GST. A proper officer may begin the cancellation process of registration by submitting a show-cause notice in Form GST REG-17, provided he has valid reasons for doing so.